Building a Service Marketplace: Lessons Learned From Wag’s Decline
Last week, CNN Business ran a lengthy breakdown of the problems at Wag, the on-demand dog-walking startup fueled by $300 million in funding.
The story reads like the kind of shocking exposé we see all too often when startups move too fast and break too much stuff. But to me, as someone who is building a service marketplace and advises other companies building service marketplaces, it just reads like a playbook of mistakes.
TL;DR: Launched in 2015 and an instant success, Wag scored a $300 million investment at the beginning of 2018 from SoftBank, the VC behind Uber and WeWork. Over the next 18 months Wag suffered multiple rounds of layoffs, a revolving management team, a severe drop-off in business and, worst of all, claims of pets being lost, abused, or dying.
There are tons of lessons to take away from Wag’s story, most of them about how not to build a service marketplace. Here are the major lessons I found and what you can learn from them.
Lesson #1: Take the Money, Temper the Growth
Of course you take the money if it’s available. You’d be crazy not to.
You can’t just will a service marketplace into existence. There’s a ton of work required to standardize, manage, and quality control that service into something a stranger can deliver consistently to another stranger from a mobile app. That work, and the infrastructure required to execute it, is capital intensive. Plus, even when the service is perfected, repeatable, and sustainable, it take tons more money to scale the marketplace.
No, the money wasn’t the problem. Likely, the bigger issue was the accelerated growth curve, which began even before the $300 million infusion.
When entrepreneurs and deep-pocketed VCs defend growth at all costs, they usually do so as if they’re wrestling with an ethical or moral conundrum. What rarely comes up is the fact that growth at all costs doesn’t always work. And in most cases, even when it does work, a saner, slower strategy might have been the better option.
The growth curve for a service marketplace is different than what we want to see in most startups. It should never go straight up and to the right. It should either be a step curve or a sawtooth with higher highs and lows. The plateaus are necessary, because it takes time to refine parts of the service — vetting, onboarding, delivery, etc. — as the business expands.
This is especially true for a marketplace that brings a service into the gig economy for the first time.
Lesson #2: Experience and Passion are Mandatory
To their credit, the founders of Wag had previously run a dog-walking business, and built Wag to solve problems they were experiencing first-hand. This is crucial.
Anyone can build a marketplace around a service that works the exact same way every single time — which is true for no service ever. There are going to be outliers, externalities, excuses, abuses, and acts of God.
If you’re going to run a service marketplace, you need to not only be intimately familiar with the service itself, but also have experience with every single thing that can and will go wrong, as well as knowledge of what the least disruptive fixes are.
You’ll also need passion for the service. There will be times when running the marketplace will be extremely difficult, and if you don’t love the process, you’ll grow to hate the game. You’ll also need to be constantly working on improving the quality and the efficiency of the service, and the answers will come from unexpected places.
Lesson #3: Too Many Locations Too Quickly
The vast number of service marketplaces face a huge hurdle getting out of their home city, and very few actually jump to a second city. Wag had entered 100 US cities even before the SoftBank investment.
Looking at a recent example: When Amazon launched Prime Now, they opened the top 50 US metro areas and stopped. Why? At 50 cities, they were able to cover around 80% of their intended customer base, and the costs to reach the last 20% were prohibitive compared to the revenue potential.
Every location is different. Every location comes with its unique set of challenges, problems, regulations, even weather. Yeah, you can find dog walkers and dog owners in every small town in America, but that does not mean you can replicate the operations needed to make the marketplace work in Tulsa (sorry, Tulsa, you just happened to be #51 on the list I looked up).
Lesson #4: Split Leadership
The article spends a chunk of space on Wag’s disengaged management and a new CEO who allegedly failed to understand the business strategy and problems. This led to a two-sided marketplace being led by two-sided management.
The new CEO came from LifeLock, so she was obviously a fixer, but also obviously from a big corporation. The symptoms described in the article — lots of talk around the issues with no action, cutting marketing and halting expansion, lack of discernible and communicated metrics — point back to the cause.
No one was listening to the customer.
The result, as outlined in the article, was that Wag never knew if the company was working or failing until the lowest common denominator started to fall — sales, which plummeted in the Spring of 2019.
I see this a lot. By the time the customer’s voice is heard, it’s way too late to act. There is no amount of experience, data, or leadership that can replace the will of the customer in a service marketplace. If the customer isn’t in charge, they’ll leave.
Lesson #5: Contract Workers vs. Full Time Employees
There’s been a lot of talk with Uber and Lyft about whether their vendors should be contract or full-time, mostly revolving around fair compensation. But compensation wasn’t the issue with Wag. The issue was quality control.
Anyone can walk a dog, right? Grab the leash and take a 20-minute stroll. Well, yes and no. It’s hard not to see right away that the inherent unpredictability in how dogs react to strangers implies a huge emphasis on vetting, training, and risk mitigation.
In Wag’s case, I don’t see how you get away from a rigorous and thorough program for each of those issues and I don’t see how you do this with contractors.
Whether and when you convert vendors from contract to full-time status is unique to the business you’re operating. Just keep in mind there’s more to it than whether or not you have to provide salary and benefits.
Lesson #6: Plan for the Worst Case Scenario
I don’t want to pile on Wag’s issues with losing pets or having pets abused or die in their care. This happened to Wag’s top competitor Rover as well. The obvious fix here is “you can’t let that happen,” but that statement sort of gives us freedom to not have to think about what we need to do when it does happen.
And the only way to deal with a situation as grave as this is to be constantly thinking about it. Plan and mitigate your worst case scenarios, and add any obstacle you can think of to make them even harder to deal with. Document prevention plans and action plans and communicate both, often.
If the worst does happen, stop everything and learn, not only how to fix it but what the warning signs were to make sure you catch them earlier. Spend whatever money it takes to mitigate the risk, then worry about the impact to margins later.
Lesson #7: Customer Service First
All of the aforementioned issues spring from one broader issue, and it’s the single biggest mistake you can make running a service marketplace.
Once the money and the new CEO came in, Wag almost immediately reduced the effectiveness of its customer service. First they moved at least a portion of their CS team to the Philippines. Then, they completely moved CS operations from their home base in Los Angeles to Phoenix, a cost saving measure. This resulted in massive turnover and experience drain.
For a service marketplace to survive, customer service must be exceptional. It needs to be centralized, but with a focus on each location. It needs to be integrated fully into the product and the company. And it needs to be the first place to learn from when planning for expansion.
Not all of these mistakes and fixes apply to every service or every marketplace, but for most, they can be the difference between success and failure. Wag’s story is still being written. Let’s see if they take up some of these approaches and recover.
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