6: Solving the Chicken and Egg Problem with On-Demand Mobile Apps

When building an on-demand app, who do you try to get on your platform first: customers or service providers? In this episode, Tim and Rob suggest 7 techniques you can use to sustainably grow your on-demand app.

In this episode, you will learn:

• How to get large by starting small
• The value in acting as the service provider yourself
• Why getting your 1,000 true fans is crucial to success
• That money really does solve all your problems

This episode is brought to you by The Jed Mahonis Group, who builds mobile software solutions for the on-demand economy. Learn more at http://jmg.mn.

Recorded December 14, 2017
Edited by Jordan Daoust

Episode Transcript:

Tim Bornholdt 0:00
Welcome to Constant Variables, a podcast where we take a non-technical look at mobile app development. I'm Tim Bornholdt.

Rob Bentley 0:06
And I'm Rob Bentley; time to do our dirty laundry.

Tim Bornholdt 0:23
Today, we're going to give you a few strategies for dealing with the chicken and egg problem. Now we're not talking about crossing the road or anything silly like that. This is a problem that's common in mobile app space of how do you get users to use your apps. And specifically with ondemand apps, the chicken and egg problem is you need to get users and you need to get service providers. And for example, let's say we're talking about an app that delivers groceries, you need to have drivers to deliver the groceries but in order to get drivers you need money to pay them, and you can get money from customers who can purchase those groceries but in order to deliver those groceries you need drivers to get them their groceries. So there's the chicken and egg problem. How do you get users? How do you get drivers? And how do you do it in a sustainable way?

Rob Bentley 1:07
Yeah. And which order do you want to get them in? Do you want to have all the people ready to work but have no work to do? Or do you want to have a bunch of users hitting your platform, but then can't get the service or product because there's not enough people to fulfill those orders?

Tim Bornholdt 1:20
Exactly. So in this episode, we're going to give you seven possible strategies that you can apply to your app in order to make sure that you're getting an equal amount of users and drivers at the same time.

Rob Bentley 1:31
So the first one we're going to talk about is if you're going to be doing a lot of the work upfront as the service provider.

Tim Bornholdt 1:36
Yeah. So the first strategy is, you are the service provider. So you're the driver; you're the one that actually goes out and takes care of your customer. This actually has a couple of benefits, the biggest one being that you can actually experience what it's like to be the driver so that you can give - everyone's really focused on user experience and you want to give a good user experience to your users. You also want to give a good user experience to your drivers and make sure that whatever processes you're having for that distribution of your service that you are experiencing that firsthand as the service provider yourself.

Rob Bentley 2:10
Also, it's a good way to cut costs in the beginning. Rather than hiring one employee to sit around, if you are very slow to start, which some businesses might be, then it's just on your time to go out and fulfill the orders as they come in until you eventually grow and then get to the point where it makes sense to hire someone full time to do it.

Tim Bornholdt 2:27
Exactly. So the second solution that you could do to solve this chicken and egg problem is to start small, and by small, I mean really small. So we're not talking about just start in Minneapolis; we're talking about start in like your neighborhood or start in like Marcy-Holmes or, like really get to a very small neighborhood that you're going to provide the service and then expand out from there.

Rob Bentley 2:50
It's good to remember that the bigger you try to start, the more money you're gonna be spending. Starting small will help you validate your concept.

Tim Bornholdt 2:57
Exactly. And really once you capture one neighborhood, it's easy to move out that way to the surrounding neighborhoods. And then eventually, you've kind of captured the whole region. And then you can take that model and take the lessons you've learned on the smaller scale and apply it to a larger scale in going to a new city, a new region and going after it that way.

Rob Bentley 3:16
Yeah, it gives you a chance to fix all the problems that come up in the small neighborhood before a lot of people are experiencing them, leaving reviews and things like that.

Tim Bornholdt 3:24
Yeah. And this model has proven out time and time again. I mean, that's what Facebook used to scale. They started out really small at just Harvard. And then they expanded to the Ivy League schools, which has a secondary effect of building a lot of demand from neighboring regions. If you start in a really small area, and then everyone around you is clamoring for you to get the service, that's exactly the kind of hype that you want to have built up so that you can get drivers to support that type of build up. But yeah, Facebook went Harvard to Ivy League to all colleges to everyone, and obviously I think they're doing okay last time I checked from a budget perspective.

Rob Bentley 4:03
Considering my grandma's now liking my photos.

Tim Bornholdt 4:07
Then I'd say they are doing okay right now. The third possible solution for this chicken and egg problem is making the app itself valuable without that ondemand component. So for that one, let's say you're talking about a hairdresser, Rob. So if you are trying to build an app for hairdressers, you might think that the best way to do it is to approach the business side first and get them really excited about part of the app that has nothing to do with ondemand, just getting that scheduling component down solid. That's probably the best way to start if you're trying to - guess it's not the best way. But that's one potential way that you can go and grab people to get the service side built up really strong in order to expand out to the users.

Rob Bentley 4:48
When it comes down to it, ondemand tools are all actual tools. And they don't have to be ondemand to be useful. Ondemand can be just the way you market it to get more users on board.

Tim Bornholdt 4:59
Yeah, exactly. The fourth possible solution for solving the chicken and egg problem is to really identify the nerds, those people that are just super passionate about your app and your product and really market yourself to those people.

Rob Bentley 5:13
Right. This will help you have a narrow marketing focus, finding the people that really care about your app. And then once they're using it, they'll tell everyone about it, if they love it that much. And then you'll sort of have a viral effect happen on its own if you just reach some key people and influencers.

Tim Bornholdt 5:27
Yeah, and this is something that's not necessarily, like we said, nerds. It's like you said, you want to get really early adopters, the kind of people that are really big in the social media scene, those social influencers, as people call them. You're going after people that have a lot of clout and that are really fired up about your tool. One thing I constantly hear about is there's a man named Kevin Kelly, who came up with a philosophy of your 1000 true fans. And that basically means if you can find 1000 people that are so passionate about what you do and about your product that they'll follow you to the ends of the earth. And whatever you put out there, whatever you put out in the world, they're going to download and buy and purchase and support. If you get to that number, you can pretty much do whatever you want. So that's one thing that you can kind of go after: find your 1000 true fans in your niche and really get people riled up and fired up about what you're building. And that's going to help solve this chicken and egg problem.

Rob Bentley 6:27
Right. It's the cliche 80/20 rule that we've all heard about. But if you really focus hard on that 20% that'll be buying 80% of your product, that's what you need to do to get started.

Tim Bornholdt 6:37
Absolutely. The fifth possible way to solve the chicken and egg problem is to partner with somebody who already has that demand or the supply side covered.

Rob Bentley 6:46
A common example of this would be Instacart, how they kind of piggybacked on everything Target has to deliver, anything someone would need from them.

Tim Bornholdt 6:54
Right and they didn't only partner with Target, but they partnered with Cub and all the other grocery stores and it's pretty much just forming relationships, so you don't have to worry about where you're going to get the supply or the actual product from.

Rob Bentley 7:05
And then you can just let the demand roll in and make sure you have enough people to deliver it. But all your product is in all the stores you partnered with already.

Tim Bornholdt 7:14
Rright. Another way that this kind of helps is, let's say you're building a beer growler delivery app, and you are trying to get the word out. One of the best ways is to partner with those breweries and offer discounts and say we'll split some of our profits with you if you help us with advertising. And that tends to work pretty well for drumming up a lot of business for your app.

Rob Bentley 7:35
Generating strategic partnerships can be a great way to get users and supply covered in the same way.

Tim Bornholdt 7:42
Exactly. The sixth possible way to solve the chicken and egg problem is to just throw a lot of money at it. It's tried but true, but it works.

Rob Bentley 7:52
It's the answer to almost every problem but, yes, we've got to mention it here.

Tim Bornholdt 7:55
Just get a lot of money. I mean, it does seem kind of ridiculous. But that is probably the quote unquote easiest way. If you're sitting on a bunch of money, I don't know why you need me to tell you this, but you could just spend it on advertising. And you've seen that all over. For example, with Uber drivers, you see "Drive with Uber" all over the place, around the Twin Cities at least. And that's because they have a lot of money at their hands that they can use to get a lot of people to drive for them.

Rob Bentley 8:23
And not only that, but it also helps market to the people that buy the rides too. Everyone knows about Uber.

Tim Bornholdt 8:29
Right. The seventh and final possible way that we're going to talk about with solving the chicken and egg problem is also spend some money, but in this way, it's to properly incentivize both your service providers and your customers to want to get people onto this platform. So do you have a couple of ideas of how you could use that, Rob?

Rob Bentley 8:50
Well, I hate to keep going back to Uber, but I drove for Uber for a while, so that's what I tend to go to a lot. And they did have incentives for being on during peak times, which if you've ever rode home from Uber on a weekend evening is way more expensive, but also, the driver gets a lot of that money because they want to have more drivers on while those peak times are happening.

Tim Bornholdt 9:16
Balancing out the demand with the supply. And a good way to do that is to pay them more, and then just collect more money from your customers. Another way is to discount upfront. Again, going back to Uber, but it is a good example of how they - it's a good case study to see how to do this for your own app is that you can say, "Hey, join Uber today and get your first ride for free." And what better way to try out the service than to just give someone a free ride somewhere.

Rob Bentley 9:43
Also with Uber, going back to the driver's side too, I know I don't know if they still do this, but when I did it, part of my motivation was they actually gave you $500 or something like that when you hit a certain number of rides completed. So if you did like 50 rides or 100 rides, something like that, they gave you money.

Tim Bornholdt 10:02
That's pretty good. That's a great idea. On the same front for getting more users on board, one way to get the viral effect is to tap into those social networks and to say, "Hey, if you use my referral code, you get a free ride, and I get a free ride." And that's a fantastic way in order to use, like you said, social networks in order to spread the word about your service.

Rob Bentley 10:22
And you'll see this in a lot of apps.

Tim Bornholdt 10:24
Yeah, a lot of apps do this. So that really is it. That's all seven. What are your final thoughts on this, Rob?

Rob Bentley 10:30
We don't have any.

Tim Bornholdt 10:33
No, I think there's more than one way to solve this problem. And what really matters is finding the right way that's going to be specific to your app. And one thing to take away from this is to not be afraid to experiment and try all of these approaches, find whatever way it's going to take to balance out your customer side with your supplier side and kind of grow your business that way.

Rob Bentley 10:57
Even two or three at the same time wouldn't be a bad idea. You don't have to try one and then wait and then try another.

Tim Bornholdt 11:02
Yeah, exactly. You can offer an incentive for people to sign up. And you can also do a lot of the driving yourself. Like we say constantly, Paul Graham's "Do Things That Don't Scale." You be the driver; you do the work and also provide incentives to get more people on board.

Rob Bentley 11:18
Eventually, if you keep trying, you'll figure out what's right for your app and your service.

Tim Bornholdt 11:22
Exactly. Well show notes for this episode can be found at ConstantVariables.co. You can get in touch with us by emailing Hello@constantvariables.co. I'm @TimBornholdt on Twitter and Rob is @ScottMahonis. Today's episode was edited by the majestic Jordan Daoust. This episode was brought to you by The Jed Mahonis Group, who builds mobile software solutions for the ondemand economy. Learn more at JMG.mn.