Pivoting Out Of The On-Demand Dilemma

Regular readers and retail enthusiasts don’t need much of a background explanation for the current troubles facing the emergent on-demand economy. A year ago it seemed that any entrepreneur with an app, a fleet of contract workers and a good or service to deliver to the door of the waiting and mobile-enabled public was good to go. After Uber’s zero to 60 ascension, no VC or equity fund manager wanted to miss out on the next big thing — and there were a lot of services offering to be the Uber of something.

Flash forward as winter 2016 turns to spring, and the investment community is less worried about missing out on the next big ideas so much as they are concerned about throwing good money after bad ideas in an environment with too many unicorns whose only real “food” supply is fields kept green with investment capital.

Warren Buffett once said (as revisited by a recent commentary from our CEO Karen Webster) that you only know really who’s swimming naked when the tide goes out, and the wave is decidedly receding in the delivery on-demand ocean.

Some of this can be attributed to what the more optimistic (and euphemism prone) have taken to calling “The Great Reset,” which is not so much a bubble pop as a slight deflation and correction when investors return their focus to more somber targets like profitability.

Part of this is a natural winnowing of the field. The barriers for entry into on-demand delivery are relatively low, technologically and logistically speaking. That means that suddenly there were a lot of them — and we can personally attest that we have interviewed many burgeoning businesses that were set to take on the world as the Uber of something. Business evolution requires growth, however, and the challenges of profitably are quite rigorous and, in some sense, the rubber will always eventually have to hit the road.

However, some firms like Eden ran into a unique variant on the on-demand delivery problem: they chose the wrong thing to offer to consumers on demand.

But — and this is the interesting and important part of their story — they didn’t pick an obviously wrong or incredibly niche service to offer on demand.  Eden wasn’t offering an yoga instructor on call, or a glucose free personal chef/trainer at the tap of an app or toilet paper from around the world delivered weekly.

Nope, they were just offering tech service — the kind that millions of grandchildren were offering to the grandparents all over the world, usually begrudgingly.

And so its two founders had a brilliant idea: what if those grandparents and grandchildren could spend that time together more meaningfully by hiring an on-call tech service guy to show up, work his magic and go — all for a reasonable fee.

The idea was pitched as Uber for Tech Support, and investors found it every bit as intuitive as its co-founders Joe Du Bey and Kyle Wilkinson.

“We were growing really fast. People liked the narrative and it was cool to think we were helping people to use technology, we were empowering,” noted CEO Du Bey.

The concept behind Eden was pretty simple and was conceived by its founders to be a better version of Geek Squad. Tech support specialists (called wizards) would show up on-site to do the work for an hourly rate. All in, the startup in its early days built up a fleet (coven?) of about 50 tech wizards.

They avoided things like maintaining a vehicle fleet, office space or uniforms for their workers, and instead chose to focus on a very thorough vetting process for the company’s tech service workers. The thought was that this is how they could edge Best Buy’s Geek Squad, by offering a lower-cost model version of their service at a much higher quality level.

The firm soft launched in May 2015 and opened officially to the public in June. It quickly stacked up 30 percent revenue growth in its first nine weeks in operation. Seed funding to the tune of $3.3 million quickly poured in.

And all was right with the world, except for one thing. By October, coming off that epic growth run, the founders of the firm realized they had a small problem: their business model wasn’t correctly focused.

“Maybe it was a $200 million business if it worked, but it wasn’t ever going to be a $10 billion business,” Du Bey noted.

The problem they quickly encountered is that providing B2C-facing tech service was not nearly so Uberable as it had first appeared. Consumers were often bad reporters of what their own technical trouble was, meaning tasks that were blocked for one amount of time were running way over and schedules became hard to optimize. Consumers also turned out to be surprisingly reluctant to shell out for tech service and often complained when jobs that were quoted at around $70 were costing far more because the time involved was much more than initially expected.

And so Eden made a big, bold decision. It decided to get out of the B2C tech service on-demand business.

Because while they were building that business out, they noticed something unexpected. The B2B part of their business, offering on-demand tech support to firms that didn’t quite have enough need to keep a full IT department on staff — despite a concept that had not been central to the original firm design — was turning out to be its best performer. The work was more consistent, the pay was better and the problems were better understood going in.

And so by November of last year — a little under six months after going public — Eden shuttered its B2C business and switched its focus to a new B2B model. That model has tiered pricing ($99 an hour for complex tech service, $69 for basic, $35 an hour for non-technical work like moving equipment etc.).

The transition wasn’t easy, especially because within a few weeks of taking in millions of seed money they returned to their investors and announced a rather drastic change in direction.

“It was still a scary moment,” admits Du Bey. “We said, ‘hey this thing you backed, we discovered it has OK economics, but this other you tangentially backed has way better.’”

But ultimately they got their investors on board, despite some very concerned pronouncements, as thy numbers from the early pilot with the B2B service looked promising enough to quell what Forbes described as “a full investor revolt.”

The change also had staffing costs, as the new pivot meant many of the wizards were no longer right for the job and some customer support staff was let go.

But so far (and it is still early days) the pivot seems to be paying off.  In January, Eden reached a $1 million revenue run rate; in February, sales grew  by 70 percent. There are 75 wizards roaming the Bay Area fixing tech troubles for business customers, and 10 corporate staff. The next move, according to the firm, is a Series A round and expansion.

So what is the moral of the Eden story? The power of the pivot is strong. Both of the startup’s founders agreed they missed the B2B opportunity at first because they were focused on consumers for the good reason that they are consumers. But when they saw the writing on the wall, and knew that they couldn’t scale, they jumped ship to where they could.

A lesson, it seems, many other firms will be learning this spring.