How to Succeed in the On-Demand Economy With the right pathway to profitability, startups can still find success and stop worrying about any bubbles bursting.
By David Adams Edited by Dan Bova
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Cars wrapped in vinyl advertisements are on the rise once again. Yes, you read that right: San Diego-based startup Wrapify pays car owners $450 a month to temporarily wrap their cars in vinyl imprinted with ads. It's a concept that, for older entrepreneurs, may conjure memories of the desperate dark days of the first dot-com crash -- and an unpleasant sense of déjà vu.
Related: Mark Cuban: Why This Tech Bubble Is Worse Than the Tech Bubble of 2000
Specifically, observers are expressing worry that the on-demand economy is dying, and others are seeing a "techpocalypse" on the horizon. In 2014, startup funding exceeded dot-com bubble levels, and it seems only a matter of time before on-demand hits the same roadblock.
But, is the picture really so gloomy? According to CB Insights, the number of venture capitalists has surged from fewer than 25 in 2010 to nearly 200 in 2015, and funding is more readily available than ever.
And while Sidecar and SpoonRocket may have recently closed their doors, those falls from grace offer a lesson to tech entrepreneurs: To succeed, we need to overcome market over-saturation and poor market timing.
Related: The 11 Rules of Highly Profitable Companies
The growth industries of the on-demand economy.
One of the markets on the struggle bus is food delivery. Too many players are competing for a stagnant market, and few have figured out how to scale effectively.
But there are other verticals with huge growth potential. The cannabis industry, for one, is riding a wave of legalization: Legal sales jumped to $5.4 billion in 2015 and are predicted to reach $21.8 billion by 2020.
Virtual reality is another industry that has been with us for a while, but it's now breaking new ground. And 2016, is set to be a banner year for virtual-reality and augmented-reality ventures, with Magic Leap closing an $827 million funding round last December, and sales on VR gaming products expected to reach $5.1 billion this year, up from $660 million in 2015.
My pathway to profitability.
The growth potential in these industries is huge, and the players who dominate will be those who scale effectively to find pathways to profitability.
And, speaking of scaling, there's no rule dictating when a startup should do that. While I would be lying if I didn't say that I I benefited from good luck with my own online housing-marketplace company's success, proper planning played its part, too.
My pathway to profitability was fueled by knowing which departments needed to be built out, at what stage and by how much. Like most self-service platform ventures, I started with just one other person: a chief technology officer. Then, as the company grew, we took on more C-suite help -- more vice presidents to break long-term goals into daily actionable planning.
In order to meet future market needs, we also expanded the supply team to prepare for multiple launches at once. Our pathway to profitability was about building the right teams at the right times, and we needed to position ourselves to look more attractive every season.
Related: The 3 Elements of the Unified Theory of Profitability (Infographic)
Establishing your own pathway
Not all on-demand startups can follow the same model we took. For those forging their own roads, here are three steps to finding a pathway to profitability:
1. Avoid confirmation bias.
There's a lot of hype with initial public offerings and exits, and most of it is fueled by a handful of successful exits each year. But, don't get intoxicated. According to CB Insights' Q4 2015 report, the number of unicorn tech companies fell by 50 percent over the previous quarter, and the small number of success stories doesn't represent a marketwide pattern. Focus on targets and building the product.
2. Test multiple channels at once.
In TRACTION, Gabriel Weinberg and Justin Mares argue that startups should spend 50 percent of their time on the product -- with the other 50 percent being spent on testing and exploring growth channels such as AdWords, targeted blogs, SEO, SEM and B2B/B2C sales. Test multiple channels at once to determine which respond best in the current stage of development.
3. Don't let your goals stagnate.
Concrete targets are essential for measuring success. Some should be long-term and others, short-term, and these should be updated regularly. For instance, set a user growth target of 10 percent month over month, and then stretch it to 12 percent. Each change in target pushes the business closer to success.
Related: Balance Growth vs. Profitability With These 4 Tips
From higher competition for talent, to lower seed funding, on-demand entrepreneurs will face a number of challenges over the coming years. But with the right pathway to profitability, startups can still find success.
