Uber

Growthhacking – How to turn a Small Services Business into a High Growth Business

I used to own a services business that managed to get past noise level, I talk to a lot of people about startups, I mentor quite a few young entrepreneurs and I often get asked by entrepreneurs how they can grow past 1-2 people and turn their business into a growth business.

Jack and Ryan sent me this pitch and questions about their business.

While we normally talk about high growth tech businesses on Startup88, just bear with me while we look at how they could turn this from a starter business into a high growth tech driven business.

 

Startup Name *J&R Mobile Auto Detailing
What problem are you solving?Hi my name is Ryan and four years ago my friend and i decided to start our own mobile detailing business. We started this our sophomore year of high school and were just doing this during the summer to make some money which we still are. Im currently at Merrimack college student and my friend (co owner) goes to trinity college. our problem is that we cant detail while we are at school but we would like to get one or two other people to detail the cars while we worry about the supplies and the money side of it while we are at school.
What is your solution?to hire people and get some money into this business so it can become bigger.
Why is this a great opportunity?because there is no other competition that i have seen nor our customers that have a we come to you detail service. So far we have not tried that hard to get business other than from business cards and word of mouth. We have both been very surprised at how much business we have got doing this and have had multiple people say this is definitely a business that could spread.
Target Marketpeople who work full time and don’t want to spend the time to take two people to a detail place and either leave their car overnight which most people need everyday. cars are becoming such a big part of our life that i feel like mobile detailing will just become more and more popular
How will you make money?we charge 120 for sedans and 140 for suv’s and trucks. we use less than 5 dollars worth of product giving us pretty much all profit as of now.
Founders NamesRyan Boretti, Jack Setian
What type of funding has the company receivedBootstrapped/self funded

Hi Ryan and Jack

I am going to make a few suggestions, but firstly congratulations, sounds like you have a successful small business, this is fantastic and I love the fact you guys have managed to do this during college.

The big question is, can it be more than a small business? You live in the land of opportunity. Cars are a big business and the auto business highly fragmented.

Could you turn it into a fast growth business that grows to $50-100m revenue pa?

From the look of your Facebook page my guess is you guys are probably doing $50-200k pa working part time which is a great way to put yourself through college.

The good news is it sounds like you are at full capacity. The bad news is it sounds like you are at full capacity.

The Wall

You have hit the same wall that every small services business hits sooner or later if they are doing a good job.

If its any consolation you are in the same position that most small businesses find themselves in, truth is most don’t manage to outgrow this stage and either expire or retire exhausted.

I mentor a young local guy who is one of the most industrious 20 yr olds I have ever met and because he is good and he works 7 days a week, he gets a lot of business.

He is also working around his University schedule and he is constantly on the edge of needing to take more staff on and invest in heavy duty equipment to mechanise his business. He now can’t take on any more business and is backed up for months. Great situation but a massively wasted opportunity.

Sounds like you are in a similar position.

Service businesses always run into the same problems, the better they get at their the work and lead generation, the more overwhelmed they get with their business.

You see with a services business, you can only grow as fast as you can

  • Generate more leads
  • Close them
  • Recruit more team members to provide the service
  • Generate cash to pay your bills and staff

These are the key determinate’s of how fast you can grow.

Unfortunately you need to be pretty balanced on all of them or the wheels fall off.

Generate More Leads

Often small businesses go through massive peaks and troughs of work where one moment they are drowning in work and the next moment they have nothing to do.

Often they get so busy they stop marketing or creating new opportunities, but once that work is done, they have to start generating leads again.

You must have a monthly program that consistently generates leads. I used to call this my lead machine, put a bit of money in the top, turn the handle and qualified leads come out the other side.

Over the years I tried more than 25 different forms of marketing and mediums. And I constantly experimented with different messages and options until I found a few methods that provided a consistent lead flow every day.

In my opinion its lot easier now when you can launch ads on Google, Facebook with numbers of messages and pick a winner in 24 hrs but you must keep doing it and you must keep refining and testing the message and the process of converting visitors to new business.

Close the Leads

Most small businesses don’t think much about sales, many wouldn’t consider paying money to take a course, but I was lucky in that my old business partner and I both came from a strong sales background and not only did we have top level sales training in our previous companies but we both continued this for us and our team when we started our own company.

If you look at any major company they will have top sales training for their sales teams. Doesn’t your team and business deserve the same?

This also relates to creating web based systems that close the deals for you. Online Booking Systems, Apps to book a service, pickup and dropoff, 2hr express turn around, anything to make it easy for the customer to buy your product.

Most businesses make it too hard to buy from them. Their offers are hard to understand. Everything feels like a custom job. Pricing is not clear or is somehow hidden or hard to calculate.

Customers really don’t like this.

You can’t scale a business when you have to customise everything.

When I started my first business, we sold complex IT equipment, Servers, Routers also sorts of high end equipment, it originally started as products business and evolved into a services business and then evolved into a sort of scalable services business.

I say sort of because I didn’t ever feel we got the growth right, it grew quickly but not hypergrowth, I was still looking for a better way to do it when I sold it.

When we first started selling Cisco Routers our sales guys would take 1/2 a day to visit a customer, see what their needs were and write up a quote and that was just to sell the deal. Pricing and quote configuration was complex.

When it came to implementation, it would take a day to create the configuration and take it out to the customer and install it.

I figured that we needed to re-engineer this or we would never be able to handle more than a few a week.

So after a year or so of this and reading one of the best books on the problem called the E-Myth, decided to build a process to streamline this and created a comprehensive but easy to fill out form.

The customer would download this or have it emailed to them, they would fill out basic details and then fax it back (keep in mind this was nearly 15 years ago, we did have one of the first e-commerce sites in Australia but we kept getting hit by credit card fraud so we had to close it down before it killed us) so an easy to read and pay form did the trick.

This allowed the engineers to configure most of the router information and a quick call to the customer and we could ship it out on a courier, the plugs were all color coded and when it arrived they plugged red cable into red port, yellow into yellow and blue into blue and it worked.

One of the good things I did was stick to a Set Price for all our configurations rather than charge by the hour, engineers told me we couldn’t do it as it was too complex, the sales guys told me that we would loose money on deals, I countered that we would price it so that we made money on most deals and occasionally we might lose on a deal but this would be more than offset by the number of extra deals we had by making it easy to buy.

One thing they didn’t know about was a concept called the Experience Curve, basically this concept describes a power law where as a company or person gets more experience making the same item, the costs of producing the item decrease over time, in some cases substantially.

I knew that if we charged the same for configuration of the item and then get better both from experience and from process our profits for that would significantly increase.

Originally this was a day long affair to configure and send back to back to the customer.

We managed to get it down to just under an hour but at the same revenue.

The Downside of a High Growth Services Business – More Business =  More Staff

The faster you grow your services business, the more people you need, the greater costs AND here is the kicker, the harder it gets to deliver and control the quality of the work you are performing.

Services business = services team

Strong growth = lots of hiring for services teams.

The secret to a lot of new high growth web businesses is how they have managed to scale their growth by creating software systems that provide the service rather than humans.

To grow all they need to add is more computing power (obviously not that simple).

A great example is Whatsapp (recently purchased by Facebook) who had 55 staff and 450 million users.

Essentially you have to transition from being a sole trader where you generate the new business, you do the work, manage the quality and take the cash, to a business that has process and systems that delivers the work when you have more business than the founders can do themselves personally.

If you can transition to a situation where you have a website/app that manages, booking and scheduling customers and allocating staff to jobs, managing payments and ensuring quality then this is a business that could potentially scale a lot faster than two guys delivering car detailing services.

If you can work out how to harness the power of other car detailers or people who want to work in your city + dozens of other cities, you could have a growth business on your hands.

There are a few variations you can consider, essentially you are trying to find or evolve to another business with a business model that is more scalable ie one where your employee count doesn’t grow at the same rate as your revenue ie you don’t need to hire more people when you take on more business.

Booking and Delivering Services using other Teams

I think this is your biggest opportunity. To make this easier to understand I am going to use the current poster child for this sort of disruption, Uber.

Uber now has a $10 billion valuation but technically doesn’t provide any black cars, their drivers own the cars, and provide the service.

UberLux

They have solved a very difficult problem, how to give customers a fantastic service by coordinating thousands of cars (they don’t own) and thousands of drivers (they don’t employ) to turn up on a moments notice with clean luxury cars, lower the cost of the fares and turn this into a really slick customer service experience.

This is not a trivial exercise.

The industry they compete in is Government licensed, provides crap service and employees mostly terrible drivers who seem to lack basic hygiene and provide cars in varying states of repair and cleanliness. You rarely hear someone say that was a great taxi ride. It almost doesn’t happen. But you will hear complaints all day about taxis and their drivers.

By using smart software (effectively logistics software), smart phones and GPS and a slick payments system, Uber has managed to organise the efficient delivery of Black Cars to customers in a way which is so superior to the existing town car and taxi service that they are completely reshaping the taxi industry.

Uber App

Uber App

They have done two things really well.

  • They have recruited drivers and cars en-masse and managed to get them to act line one company
  • They have aggregated customers across a whole country and now parts of the world and offered them the slickest service in this industry

Effectively this is a double-sided market, you can’t win unless you have both sides of the market in large numbers. If there are no drivers, your users wont use it, if there are no users you wont have any drivers.

Your Opportunity

In your case the auto industry is extremely fragmented, dominated by car dealers and smaller repair shops with a few service chains thrown in. I don’t have much experience with the industry in US, but I believe its similar to Australia, generally its a fend for yourself situation.

My wife and I cannot function without two cars, we live out of town and due to our busy schedule they get used 7 days a week, booking it in for a service or any sort of work is a major pain as nothing is convenient especially where it needs to stay overnight.

Getting to the service depot, (usually located in an area which is not close to your house or work or public transport) is a pain, different cities will have different experiences but generally workshops are more likely to be in an industrial area not in a residential area.

This is a real pain and I avoid it wherever possible and will put up with minor inconveniences and problems with the car in order to avoid having to book a car into the shop.

I don’ think I am alone.

You need to work out how to offer a car detailing service that is faster, cheaper and easier for the customer than existing alternatives

So here are some specific examples of how you could grow your business.

  • You need software to make this work. Specifically a booking and scheduling web or mobile app that allows users to book a job and to allocate the job to your team members
  • You need to learn about A/B testing (good articles here in the Growth Hacking section) and continuously run experiments to work out the best way to close new business with your online booking app
  • Keep marketing and start recruiting other teams to clean cars, effectively selling them your leads
  • Develop a process which produces a fantastically clean car every time
  • Teach your new recruits to use this process and maintain a quality process to ensure they stick to the process (ie checklists, reports, photos etc)
  • Offer a concierge service where your vehicle is picked up, driven to a depot and cleaned properly and returned in a few hours
  • Police check your team members and allow users to rate them so your clients can feel safe handing their vehicle over
  • Make them dress in nice clean overalls (you could dress them all in black or green or red, something that stands out)
  • They bring a seat cover and foot covers so you they don’t dirty the cars
  • Work out how to use this capability to deliver the work to the customer at <$100
  • You should be able to get the guys to work for you for $50, they are being handed work, they dont have the costs of marketing and if you do your job right they don’t have the downtime either.
  • You have to convince the clients its going to be a predictable, clean, awesome experience for them, cheaper than their existing options

None of this is easy, but it is achievable.

Once you have this nailed for one part of a city got your processes right and worked out how to employ great team members and get them to follow processes, you could expand it into other parts of your city and end up with 4-8 cells per city.

These cells could also do set price service work (ie 10,000 mile book service) and maintenance work after you get the business model working well.

If you could manage to dominate a city you could work out how roll it out around the country.

If you want an example of someone who has done this in an offline business, check out 1800 Got Junk and its founder Brian Scudamore,  Inc.com published a great story on their success scaling essentially a rubbish removal business to hundreds of millions of $ turnover a year.

Any of my readers got any suggestions?

Photo by MSVG

Uber New World

 

Ian Maxwell

Ian Maxwell

Ian A. Maxwell is a veteran Technology Entrepreneur and Venture Capitalist. He is currently CEO of BT Imaging, Chair of Instrument Works and Co-Founder of Accordia IP as well as a partner at Zetta Research and an Adjunct Professor at RMIT. He has a PhD in Chemistry and has either founded or worked at Memtec, Allen & Buckeridge, Redfern Photonics, Sydney University Polymer Centre, James Hardie, Viva Blu, Enikos, Wriota, RPO and Instrument Works. You can connect with him on Linkedin au.linkedin.com/in/maxwellian

I have just started using Uber in my home city of Sydney, which most of you will know is a taxi booking app used in 35 countries and over 100 cities around the world. Like most overnight start-up successes it was started about 5 years ago in San Francisco and has raised over $300m from Tier-one-ish Silicon Valley VC types.

This app is just that much better than all the others I have used. Finally there are enough cars using the Uber system in my home town for it to be a useful addition to my smartphone. Unlike many people I am vicious at killing apps on my phone that don’t meet my expectations of value. But Uber does and it’s a keeper.

The Uber differentiation is based on three things – some simple customer-focused ideas, great execution and a lot of capital.

The simple ideas are:

  1. There are four classes of cars (low cost private, taxi, black and lux) with progressively increasing costs. You choose depending on your budget and mood, and also the availability of cars.
  2. You can see where the available cars (in each category) are on a map which also allows you to set up your pick-up position (either where you are as detected by GPS or anywhere else). The app also gives you the ETA of the closest car and offers you the shortest pick up time.
  3. Once you select a type of car and book it, you then get to watch it on the map as it moves towards you, showing its ETA. I generally have better things to do though. Also you can cancel a booking with no ramifications if you change your mind.
  4. The driver doesn’t know where you are going so there is no sense that unfavourable fares are avoided. Indeed drivers seem to be rewarded on the number of jobs they do and their star rating (see below). The reward system for drives is in the customer’s interest
  5. On this point, all the Uber taxis and private cars seem to be very clean and tidy and certainly a notch above the standard. I am not sure if this because they vet their drivers or whether it’s just the star rating system in action
  6. When you arrive at a destination you just get out of the cab. The tax invoice is emailed to you. No stuffing around waiting for the printer to work. And the driver doesn’t have cash so isn’t a target for thieves. You also get charged the meter rate plus a $2 fee, and that’s it.
  7. When you look at your receipt you also get to rate the car and driver. Each driver then gets an average rating – when a car accepts your job you get to choose the booking and you also see the driver/car star rating beforehand.
  8. You can use the system in many cities all over the world and there is no setup required for any different geography. Often when travelling I find that negotiating local taxi ‘rules’ can be daunting. Melbourne for example, appears the same as Sydney, but it can be bloody hard getting a cab there sometimes for reasons I have never properly understood.
  9. There is the usual social media-like system in place that rewards users if they sign up new users
Uber App

Uber App

For any entrepreneur reading this, in order to execute a service like this you need:

  1. An insider’s  knowledge of the industry and an open-minded user-based experiential understanding of what is wrong with the status quo
  2. This drives the founding team members to define and refine a new service, using new technology
  3. An ability to execute the software and the back-end,  and also the business relationships needed to get the business moving
  4. An access to lots of capital to buy market share and momentum
  5. Luck
  6. First-mover (or thereabouts) advantage
  7. A hell of lot energy and big balls

Now here is some commentary on the default competition. The taxi industry in NSW has been accused of being an old school rent-seeking cartel (see for example, http://www.smh.com.au/nsw/call-to-end-taxi-industry-cartel-and-cabcharge-levy-20100602-wzun.html)

What should be an untaxed form of public transport is in fact an expensive service stuck well back in the 20th century. It has been argued that this is because of vested interests which have the ear of state politicians, who have in turn enacted many laws and rules to protect the cartel from competition. To wit, there is a controlled number of cabs on the road and their ‘plates’ have high asset value. Taxi users pay government-mandated exorbitant fees, most of which go to three recipients;  government as a form ‘user-pays’ tax, the cab plate owners, and the taxi payment system owners, with a small profit or loss left over for the drivers.

Enter Uber and a host of other similar apps. These are using the availability of the internet, mobile phones and back-end services to disintermediate the taxi cartel in Sydney, and other places all over the world.

Today Uber offered me a ‘low cost’ option which uses private drivers and private cars at about half the cost of taxis. I expect the ‘taxi council’ to attempt to use their influence to make such a service illegal, probably on the basis of some concocted public safety concern or some-such (it’s happening already – see http://www.smh.com.au/digital-life/smartphone-apps/uber-ridesharing-service-under-investigation-as-public-warned-off-app-20140425-zqzed.html). To this I would say that there is nothing like an online social networking system with a star rating to weed out the issues – think of Ebay for example. I also note that all Uber drivers seem to have a dedicated iPhone from Uber which could be stuck to the window and would offer an opportunity for real-time passenger ‘safety’ monitoring, if this becomes an issue.

In fact Governments and those with a vested interest taxis will pull out all stops because Uber’s ‘low cost’ service effectively makes taxis obsolete. With technology like Uber’s we simply don’t need coloured cars with lights and signs all over them. Private cars are ‘lazy assets’ already paid for by their owners but often massively under-utilised – the Uber system allows them to be monetised at lower cost than taxis but still at profit for their owners. One wonders if the Uber system, once in place, can’t also be used to disintermediate other services that rely on local capital equipment like taxis.

Any cartel or monopoly relies on three things to maintain its position:

  1. Information asymmetry – in the case of taxis in the old days the users had no idea where taxis were at any time. Drivers couldn’t easily connect with users. Taxis had to be colourfully labelled. There was no technology available to cut out the middlemen; this has changed.
  2. Control of government – excessive profits are partially reinvested into the political process to maintain a control over any threats that arise, or to increase profits by enacting further customer-gouging rules.
  3. A capital barrier to entry – for taxis, in the past capital has been required to buy ‘plates’ (in NSW) in order to acquire any scale as an operator. For backend booking and payments system significant capital has been required to setup a phone booking system.

Haven’t mobile phones and the internet changed things? Every single product and service industry in this world has, is or will go through total restructure. I don’t expect our politicians to properly understand this and they will continually attempt to stand in the way of change, despite all the evidence that this is a waste of time.

But looking forward a few decades, when it’s all done and dusted, the Ubers of this world are simply trying to establish themselves as the next monopoly. The basic idea is to replace a bunch of local middlemen with one global middleman (themselves) or ‘One Asshole in the Middle’, as Jim Clark laughingly described them (and himself).

And since these new middlemen will be global we can expect their power, greed and arrogance to be substantially greater than today’s mob. Today’s disintermediating heroes may, in our lifetime, be the most hated ‘big brothers’. This is probably human nature and it’s going to take some remarkable entrepreneurs to resist the urge to over-exploit their opportunities once they have won the market.

In the meantime, keep up the good work Uber!

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