This is the third and final part of the blog series that details my experience with lean startup methodology. I think this is a great framework (there comes out the MBA in me) for entrepreneurs who wants to quickly test their ideas.
My co-founder, Amy Vaduthalakuzhy and I were scouting for business ideas last year. Based on our experience with Jobbertunity, we decided not to put any effort into building a product. Read about the lessons I learned from my previous failed startup.
Last year when we were brainstorming ideas, we read about how startups such as Postmates, Taskrabbit, etc. were disrupting the instant delivery market. We were excited by this opportunity and wanted to see if we can bring something to the market that would be disruptive and still be different from the existing services. We came up with an idea! We thought – why not use taxi drivers to deliver whatever people wanted delivered. Our differentiation was going to be number of taxi drivers that were available for delivery. While other startups built their own army of delivery guys (hiring, training etc.), we had tons of taxi drivers at our disposal.
Since our demand was already proven by companies such as Postmates, we focused on supply side (drivers for delivery) for this idea. Below were our 3 assumptions for a service that used taxi drivers as delivery guys –
- Taxi drivers have a lot of idle time when they are circling around to find a passenger.
- Taxi drivers would like to make extra money in their idle time. We based our price at $5 per delivery at par with other delivery services.
- Trust will be a critical component to our delivery service, as taxi drivers will be apprehensive about accepting packages from strangers.
So instead of building a delivery app prototype and spending time to get a few drivers onboard to start the service, we decided to implement it without a product.
This is how we tested our hypotheses in a day. Amy and I wrapped packages of different sizes and weights, varying from a simple envelope to a big box (this was to test hypothesis # 3 regarding trust) and decided to hand them out physically to taxi drivers. We wanted at least 8 out of 10 taxi drivers to deliver our packages at a flat price of $5.
Amy approached taxis in the Castro area, while I flagged down cabs in the SOMA area. This is what we learned in 4 hours.
- Taxi drivers drive 9-hour shifts and have tons of idle time. They spent a lot of time looking for passengers. However, we learned that they usually circle around the same area, rather than venturing out to other areas. Our plan was to use this idle time to deliver packages to other areas of the city, but clearly taxi drivers weren’t interested.
- We had a few taxi drivers who were interested in delivering the package, but only for the fare that their meter would read, rather than a flat $5 per package. We even told them that there is no urgency in delivering the packages, and it was perfectly fine to deliver the package by end of the day. However, the taxi drivers did not know their schedule ahead of time and did not want to take on additional responsibility if they weren’t going to be around the place where the package was to be delivered.
- Not even a single taxi driver asked about the contents of the package irrespective of its size and weight. The price and the distance were the deal breakers.
Eventually we got only 2 out of 10 taxi drivers to deliver, only because they were heading to the place where the package was supposed to be delivered. We quickly learned that we would get taxi drivers to deliver packages only if the price was higher i.e. at par to the price when they would actually have a passenger. And we wouldn’t get enough demand if we charged that high, especially with the existing services charging $5 per delivery. So we decided to drop the idea, as it was not a viable idea economically.
As you can see, rather than trying to get ourselves buried in developing an app as a MVP, we decided to get out of the building and test our idea. I am sure we saved ourselves tons of hours of work and disappointment by following this quick test.
A friend of mine, Abhas Art Agrawal, did a similar setup for his startup, Your Mechanic, which is a marketplace to bring together car mechanics and people who need mechanics to get their cars repaired. Before he got into Y Combinator, he contracted some mechanics on his own and then placed his service details and a phone number on Craigslist for people to call. When calls started trickling in from people who needed a mechanic, he decided to build a website. Rather than creating a website or a landing page or an app, he was able to quickly validate his idea.
Quick tip: I have recommended this to a bunch of my friends who had a marketplace idea (where two people come together to buy/sell products/services e.g. eBay, Fiverr, etc.). Instead of trying to build a website, you can use Google docs (spreadsheet) to test your idea. Put names of people who need the service and names of those who can provide the service and match them against each other manually. See if you get any traction. Or another option is to arrange one side of the equation by yourself (mechanics in case of yourmechanic.com) and find a way to reach out to your target customer providing this service (craigslist in case of yourmechanic.com). In my opinion, it is easier to arrange for supply (mechanics) and then try to attract the demand (people requiring mechanics).