Service business

Educational startup: transforming your service business into a service platform

Editor’s note: Joe Procopio’s “Teaching Startup” series comes out on Tuesdays. This is the third in a series on building your business. He is the founder of teachingstartup.com and the COO of the startup IoT/Beer Precision Fermentation. Joe has a long entrepreneurial history in the Triangle which includes Spiffy, Automated Insights and ExitEvent. More info on joeprocopio.com.

DURHAM- There are many entrepreneurs trying to use technology to negotiate services. Seriously, I get emails from at least a few of them a week asking for advice.

I get emails from entrepreneurs building carpooling apps in Africa. I get emails from entrepreneurs using the web to monetize artists in Mexico. I get emails from entrepreneurs trying to get invention help in the Midwest.

And I support all of you.

Joe Procopio

But this shit is hard. Every service business is unique and has its own challenges and limitations. So here is my advice to the hundreds of you who have written and the (probably) thousands more who have not.

Lessons from 20 years of service platforms

Don’t get me wrong, I’m just as fascinated and excited about the service platform as the rest of you.

After acquiring Automated Insights, I left to join what was then a fledgling but very promising mobile car wash, Spiffy. That was just over three years ago, and in that time Spiffy has grown into a mini-empire, performing everything from basic washes to high-end detailing, oil changes and even the windshield replacement in over 20 cities, with more to come.

While at Automated Insights, I was also building ExitEvent, a startup network and news source. Right before I sold this, I successfully piloted a service marketplace – allowing developers and lawyers and recruiters and so forth double-blind access to startups – so that service providers could offer their services to startups at reduced rates without haranguing contractors. Fire.

My first solo startup, Intrepid Media, was a kind of content marketplace (much like Medium), where readers and writers paid me to use technology to create a home for great content on a variety of topics.

I know, it was a crazy time.

In fact, Intrepid was launched in 1999. That was 20 years ago, and I’m building another service platform (Teaching Startup) right now. So I’ve been chasing that dream for a while. I learned a lot about the evolution of service platforms. Here are the must-haves and the mistakes.

Don’t build the platform first, build a better service instead

I cringe every time a founder writes to me and tells me they’ve already spent thousands of dollars developing their technology. It’s basically building your business upside down.

I have a technical background. I coded Intrepid Media and ExitEvent myself, and I don’t code Teaching Startup. It allowed me to learn not just what to code, but when to code. Under no circumstances will I build the technology to automate a service until my company fixes all the problems with that service and improves it.

For example. I started offering the Teaching Startup service in January 2020. I started coding in June.

Here is the first error. When creating a technology suitable for existing customer flows, no matter how many flows you aggregate or how flexible you render this technology, you are always going to encounter several scenarios where you either have to serve the customer manually or refuse the Company. If you built your technology without a service company in place first, you won’t even have the means to catch the outlier company, let alone serve it.

The second error is much more serious. You can serve a few outliers manually, but when the outliers turn into a trend and you are unprepared for that trend, you will end up in a situation where you lose money on a significant part of your new business . This is how most service platforms go down, when the cost of acquiring and servicing additional customers outweighs the price.

And the final mistake: if you don’t scale the service and just rebuild a brighter wheel, someone is going to beat you. Either the old company you’re trying to disrupt will step in and reverse engineer your technology, or someone will build the best mousetrap and disrupt you with the old company.

Don’t hire experts, hire scammers

The standard operating procedure for these service platforms is to get a few industry experts together, build the platform (see above), and then find other experts to run the service.

Here’s the first mistake: In almost every case I’ve seen, when you’re building the platform side of the business with expert resources, at some point you’re going to have to cut an unnecessarily expensive headcount.

You don’t need a bunch of rig builders with tons of experience applying technology to do things the old-fashioned way. You just need a few people who can look at the old way of doing things and find more efficient, cheaper, and more customer rewarding ways to do the old thing.

Then what you need most are runners.

You need energetic people on the platform side who can handle many tasks at once, communicate exceptionally well, and solve problems on the fly. These people will experience the new way of doing things, doing what needs to be done to make the new service more profitable for a new market. Then, when they understand that, you automate them to quit their jobs and give them a leadership role over the part of the system they’ve streamlined.

For example, with Intrepid Media, I didn’t need editors from Random House or The New York Times. I needed editors who could edit a lot of stuff for the web very quickly and encourage writers to write stuff that was better suited for the web.

The second mistake is to outsource the service work to established experts in the industry. If you do that, you’re not solving a problem, you’re just creating a niche search engine.

I will also illustrate this one with an example. When I created the startup services portion of ExitEvent, I quickly realized that established lawyers didn’t need it, even though they swore they wanted to work with startups.

The service platform allowed entrepreneurs to discover up-and-coming lawyers who could do things like incorporation for a lot less money. The hustler attorneys understood not only what the client needed, but also how they wanted to be engaged, and the platform accommodated that engagement at a discount.

ExitEvent also provided the rules for this commitment, ensuring that every entrepreneur has a quality experience. The very expensive lawyers took a look at my rules of engagement and laughed. Really not worth their time.

Start very, very niche

Before Amazon sold everything under the sun, they sold books and CDs. There are two very important reasons for this:

Books and CDs are flat and rectangular, making them easy to store, pick and ship.

These are (and DVDs even more so) very high-margin items.

Start with the lowest, easiest to master, and most profitable aspects of the service. Once you’ve perfected that, bend another part and overcome the added complexities that come with it.

The mistake, of course, is the reverse strategy, trying to be everything for all types of customers. That said, keep in mind that another sneaky mistake is taking too long to perfect every part of the process. The winners of your service platform space, just like the winners of any space, will be those who serve the end-to-end use case.

You manage two companies

In fact, you shouldn’t manage either. This is the common mistake.

When built right, your service platform startup will have a product side and a service side, and they’re two completely different employee bases with two completely different sets of needs that require two completely different leadership styles. .

In the beginning, you will lead both sides. But ultimately, you’ll want to be the bridge, following customer demand and marrying that demand from both sides. You will be the vision, then put a leader in charge of execution on each side.

The sooner you learn where the similarities and differences between the two sides lie, the sooner you can embrace the similarities and accommodate the differences, the sooner you’ll establish a common culture between two disparate teams.

The common thread is the objectives. From the most senior leader on the product side to the newest on the service side, everyone should have the same goals.

Your first time is easy, your second time is nearly impossible

The last thing you need to know is that once you figure it all out, you’ll have to start all over again.

This second time is difficult. Many service platforms fail when they try to leave their home city because not only are they not ready for the special demands the city might bring, but their platform is not ready for a second city period.

Give yourself plenty of extra time and space to fail when doing that second location, or second service, or second industry. Because even though it looks like you can just lift the infrastructure and put it back in place, there will be a ton of things that can and will go wrong.

Here are parts one and two of the ‘Build’ series

Teaching Startup: how to turn a service into a product and avoid a fatal error

Education Startup: Here’s Why Your Free Tier Customers Are Killing Your Business