Turning a Service Business Into a Service Platform Startup

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There are a lot of entrepreneurs out there trying to use technology to broker services. Seriously, I get emails from at least a few of them a week asking for advice.

I get emails from entrepreneurs building ride sharing apps in Africa. I get emails from entrepreneurs using the web to monetize artists in Mexico. I get emails from entrepreneurs trying to hustle invention assistance in the Midwest.

And I am rooting for each and every one of you.

But this shit is hard. Each service business is unique and comes with its own problems and limitations. So here’s my advice to the hundreds of you who have written in and the (probably) thousands more who haven’t.

Learnings From 20 Years of Service Platforms

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

After my startup Automated Insights was acquired, I left to join what at the time was a fledgling but super-promising mobile car wash, Spiffy. That was a little over two years ago, and in that time we’ve built Spiffy into a mini-empire, performing everything from basic washes to high-end details to oil changes and even windshield replacement in over 20 cities. With more to come, as fast as we can figure it out.

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

My first solo startup, Intrepid Media, was sort of a content marketplace (kind of like Medium), where both readers and writers paid me to use technology to build a home for really good content across a variety of topics.

I know, it was a crazy time.

In fact, Intrepid launched all the way back in 1999. That was 20 years ago, so I’ve been chasing this dream for a while. I’ve learned a ton about how service platforms evolve. Here are the musts and mistakes.

Don’t Build the Platform First, Build a Better Service Instead

I cringe whenever a founder writes in and tells me they’ve already spent thousands of dollars building out their tech. This is basically building your business backwards.

I have a tech background. I coded both Intrepid Media and ExitEvent on my own. This has allowed me to learn not only what to code, but when to code. Under no circumstances will I build the technology to automate a service until my company has worked out every kink in that service and made the service better.

Here’s the first mistake. When you build tech to suit existing customer flows, no matter how many flows you lump in or how flexible you make that tech, you’re still going to run into multiple scenarios in which you either have to serve the customer manually or turn away the business. If you’ve built your tech without a working service company in place first, you won’t have the means to even catch the outlier business, much less serve it.

The second mistake is much more serious. You can manually serve a few outliers, but when outliers turn into a trend, and you’re not prepared for that trend, you’ll wind up in a situation where you’re losing money on a sizable chunk of your new business. This is how most service platforms go down, when the cost of acquiring and serving additional customers outweighs the price point.

And the final mistake: If you’re not evolving the service and just rebuilding a shinier wheel, someone is going to beat you. Either the old business you’re trying to disrupt will catch on and reverse engineer your tech or someone will actually build the better mouse trap and disrupt you along with the old business.

Don’t Hire Experts, Hire Hustlers

The standard operating procedure for these service platforms is to get a couple of industry experts together, build the platform (see above), and then go find more experts to execute the service.

Here’s the first mistake: In almost I’ve every case I’ve seen, when you build out the platform side of the company with expert resources, at some point you’re going to have to reduce a needlessly expensive headcount.

You don’t need a bunch of platform builders with tons of experience applying technology to doing things the old way. You just need a couple of people who can look at the old way of doing things and come up with more efficient, less expensive, more customer-rewarding ways of doing the old thing.

Then what you need a lot of are runners.

You need high-energy people on the platform side who can handle a lot of tasks at once, communicate exceptionally well, and solve problems on the fly. These people will experiment on doing things the new way, doing what needs to be done to make the new service more profitable for a new market. Then when they figure that out, you automate them out of their job and into a leadership role over whichever part of the system they 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 shit for the web really quickly and encourage the writers to write stuff better suited for the web.

The second mistake is contracting out service work to incumbent experts in the industry. If you do this, you’re not solving a problem, you’re just building a niche search engine.

I’ll illustrate this one with an example as well. When I built out the startup services part of ExitEvent, I quickly realized that the established, high-dollar attorneys had no need for it, even though they swore up and down that they wanted to work with startups.

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

ExitEvent also provided the rules of that engagement, assuring that every entrepreneur got a quality experience. The high-priced attorneys took one look at my rules of engagement and chuckled. Totally 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:

  1. Books and CDs are flat and rectangular, making them easy to stock, easy to pick, and easy to ship.
  2. They are (and DVDs even more so), very high margin items.

Start with the lowest-hanging, easiest-to-master, highest-margin aspects of the service. Once you perfect that, fold in another part, and conquer the additional complexities that come with that.

The mistake of course, is the opposite strategy, trying to be all things to all types of customers. That said, keep in mind another sneaky mistake is taking too long perfecting each part of the process. The winners in your service platform space, much like the winners in any space, will be those that serve the end-to-end use case.

You’re Managing Two Companies

Actually, you shouldn’t be managing either. That’s the common mistake.

When built right, your service platform startup will have a product side and a service side, and these are two completely different employee bases with two completely different sets of needs which require two completely different leadership styles.

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

The earlier you learn where the similarities and the differences are between the two sides, the earlier you can embrace the similarities and accommodate the differences, the quicker you’ll establish one common culture across two disparate teams.

The common thread is goals. From the highest executive on the product side to the newest hire on the service side, everyone should have the same goals.

Your First Time Is Easy, Your Second Time is Next To Impossible

The last thing you need to know is that once you get all of this down, you’ll need to do it all over again.

That second time is hard. A lot of service platforms fail when they try to leave their home city because they’re not only not ready for the particular requirements that city might bring, but they’re platform isn’t ready for a second city period.

Give yourself a lot of extra time and room to fail when you do that second location, or second service, or second industry. Because while it seems like you can just lift the infrastructure up and put it back down, there will be a ton of things that can and will go uniquely wrong.

Hey! If you found this post actionable or insightful, please consider signing up for my weekly newsletter at joeprocopio.com so you don’t miss any new posts. It’s short and to the point.

Written by

I’m a multi-exit, multi-failure entrepreneur. Building Precision Fermentation & Teaching Startup. Sold Automated Insights & ExitEvent. More at joeprocopio.com

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