Show notes for podcast episode 61.
Question courtesy of Brandon in San Diego:
My main concern is you mention the main benefit of service based businesses over product based is the fact it’s much easier to compete. You mention that trying to create digital products or sell on Amazon, Ebay etc means you’re competing with the smartest people in tech or even worse, competing on price. With these new apps such as Thumbtack, Taskrabbit, or Amazon home services, it seems the “big guys” are now infiltrating the service sector. What is your opinion on how this technology will threaten the service sector. Are we still just competing with the mom and pops or is there a new sheriff in town?
Let me make an important clarification on the first part of your question – the fact it’s much easier to compete.
All services in all cities are not prime opportunities where it is easier to compete. All markets aren’t the same. You can’t just open up any random service in any random city and take the easy street to the top of Google’s rankings and have customers rushing in the door. If you enter the wrong market in the wrong city it can be cutthroat and virtually impossible to get momentum.
We have to be wise where we chose to compete. We have to analyze our markets, call our competitors and make sure there is room to carve out our piece of the pie. There are ultra efficient wonderfully ran businesses in every industry out there. But they’re not all in the same city. We have to find a market in our city that is dominated by a mom and pop business ran like its 1985. Thats what makes it easier to compete.
Its easier to compete because its on a local level. We aren’t competing with web developers from Pakistan or remote services that can service anyone from anywhere. There is a geography aspect to service businesses. We can analyze the market and study it and make a decision on what business we’re going to undertake and who we are going to compete with.
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Now lets get to the meat of the question here and address the topic of freelancers and the gig economy.
As service providers we can’t ignore this new wave of on-demand companies and gig platforms linking providers to customers in a seamless way. Before we talk about how to prepare for it lets dig a little deeper and pinpoint exactly what these companies do.
There is an important distinction here. Are they really competitors or are they middle men? Are they lead generators or are they actually providing the service itself? They are middle men. Customers are going to rely on them to find providers and providers are going to rely on them to get business.
The risk isn’t that they are going to launch a lawn care business in our market. That they are going to make the hires, build the company, manage the schedules and actually provide an ultra efficient and affordable superior service.
Are they going to disrupt the way people find these companies and interact with these companies? They’re trying to do to home services what Fiverr and Upwork did to web development and logo creation.
Thats their pitch when they go to raise another round of venture capital. We’re going to be the Upwork of physical services. We’re going to be the Uber of home services. We’re going to revolutionize the way customers find and buy these services.
Lets start with the digital gig economy because its the model companies like Taskrabbit are following.
What happened to established web development and SEO firms when Fiverr got big?
Did they shrink up and go away? Did the people who were buying from them all the sudden go away and start buying elsewhere? Did they stop getting new clients because all the new clients went to the gig economy sites instead?
To scale a business you have to charge higher prices. You have to go after high end clientele willing to pay more for speed and reliability.
Are high end clients getting web work, SEO and logo creation done on Fiverr?
Nope. High end clients are looking for service, quality and speed and they’re willing to pay for it.
So nothing happened to the established firms when Fiverr and Upwork got big. Business as usual. They made the choice early on to compete on quality and focus on generating their own sales.
What happened to the freelancers trading their time for money competing on price? The ones that didn’t know how to sell and relied on lead generation services or third parties to bring them business?
Their world turned upside down. Upwork became their employer. Fiverr became their employer. They raced to the bottom and started competing with developers from Pakistan and India. It got hard and their world turned upside down.
These freelancers are not entrepreneurs. They don’t bring in their own business. They don’t employ others and make money on other people’s time. These freelancers are simply workers working normal jobs disguised as entrepreneurs.
This all happened because they had a choice and while the reputable firms decided to get their own clients and compete on quality they made the choice to rely on a third party to get them business and compete on price.
Add all of this to the fact that its a lot easier to farm out web development and logo creation to freelancers overseas than it is to farm out someone showing up to my house with a background check and an insurance policy and getting up on my roof to clean out my gutters or coming into my home to clean my floors.
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Certain types of customers are going to rely on them to find providers and certain types of providers are going to rely on them to get business. You don’t need those customers and don’t be one of those providers.
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Something to think about that I’ve written on Yelp and Homeadvisor before. Its dangerous to rely on a third party to build and grow your business.
Google rules the world and Google has nothing to gain from rewarding and ranking services like Home Advisor, Yelp, TaskRabbit, Thumbtack and the countless other lead generating middle men out there.
Google is selling advertisements to service providers. Google is the middle man right now who links customers with service providers. Why would they cut themselves out and let these other companies sell leads and ads instead?
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Another thing to think about.
Ikea bought TaskRabbit. That should tell us something. What can we learn from that?
Ikea has a problem that is limiting their growth. A lot of people aren’t buying Ikea furniture because its a royal pain in the butt to put it together. I ordered a little side desk drawer and it was a pain to put together. I actually let it sit on the floor of my office and procrastinated for a week and even considered taking it back to Ikea once I looked at the directions.
So they bought TaskRabbit to solve that problem. They want more people to buy Ikea furniture and getting linked with people who can put it together quickly is a big value add.
But I don’t think its going to take over home services. People might find gutter cleaners or loaders or haulers on TaskRabbit but they aren’t going to find pest control specialists. They aren’t going to find lawn care companies.
The uber of lawn mowing is a big concept lately. I’ve read about a few different startups trying to create the next Uber of lawn care. Need your lawn cut? Push a button and someone will come do it.
This business model is going to struggle. Lawn care isn’t one of those things like an Uber where you decide one day you need a cut and want to order a lawn mower at the spur of the moment. It something as predictable as it gets. If it rains a lot I’ll need a cut every 7 days and if it doesn’t rain much I’ll need one every 10 or so. The grass isn’t gonna stop growing or become wildly unpredictable like my Uber ride demands on a drunken weekend night.
The good lawn care providers don’t want to go through a third party. The high paying customers don’t want to push a button to get their lawn cut. They want to hire a company that takes care of their lawn every week for 5 years.
I can guarantee you something. I’m never going to hire an earthwork professional on Taskrabbit. I’m never going to hire an electrician to do $100,000 worth of work on Taskrabbit. The commercial B2B stuff will be the last to be influenced by this new wave.
There will always be middle men. Most of the people who reach out to me by email just want to be a middle man. They want to help small businesses get more leads. They want to help small businesses by providing some software. They just want to take a bite out of the profit without doing any of the work.
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Its a risk. Don’t get me wrong. Amazon getting in the home service game is scary. So how can we protect ourselves when the change does come?
It goes back to being dependent on someone else’s platform. Are you generating your own leads or are you paying or depending on someone else to bring you leads?
Develop your own sales channels. Get your own customers. Perfect your own marketing and customer acquisition strategies. Develop personal relationships with your clients. Get face to face with them. Do the stuff that is hard work and hard to scale but is super effective. Differentiate yourself by embracing technology and efficiency. Adopting an attitude and culture within your company of eager professionalism.
Thats the best way to protect yourself as these big players try to step in and take a bite out of our earnings.