Why Startups Like Uber & Airbnb Succeed,

While Others Fail

Essay on Strategy submitted to

Instructor: Prof.N.Ravichandran
Academic Associate: Ms. Chavvi Manra
In partial fulfilment of the requirements of the course
Competence, Capability and Competitive Strategy

On August 24, 2016 by

Group 10

INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD

In todays age of technological advancements and ease of starting up a business just

based on a ground-breaking at least to the initiators ideas, many businesses are formed in
the market very quickly and at times, as quickly as they come, they move out of the market
place at the same or faster rate. Very few start-ups survive the harsh competitive environment
of business and those who do, generally disrupt the complete space.
The main challenge for the start-ups is mainly in finding their initial customers. This
challenge becomes more difficult in the sharing economy that are lunched as platforms which
connect independent service providers with the end consumers such as the giants like Uber
and Airbnb. To begin with, both of their platforms are two sided i.e. they require suppliers to
provide their service to the consumers and also they require the consumers on their platform
who can avail these services. For example, Uber connects people who need rides with the
people who have rides to offer. Thus, these start-ups need to find users on both demand and
supply side.
This issue is the classic chicken-and-egg problem for businesses. One cannot have
one without the other, but the important questions these businesses need to ask first is which
one should they find first? The customer chickens or the service egg. Being a start-up with
limited number of resources, it is extremely difficult to focus on both and hence they need to
prioritize on either the customer or the service provider. Solving this question will surely
provide the business a competitive advantage given they use their core competencies
properly.
Professor Teixeira from Harvard Business School looked into the problem by studying
the biggest start-ups who began with the problem and made it big Airbnb & Uber in
order to find commonalities in their solution to the issue. According to him, both of these
giants and start-ups like them have one thing in common, they concentrated on getting the
service side setup first and then move their focus to the customers. Simply saying, its the egg
that needs incubating first. Moreover, he says that business should focus on selecting the right
eggs, or else the chickens will find someone else to give them proper service.
Chicken and egg problem in these business is just the start or one of the factors which
define success but not the only one. Other important factors for the success of any start-ups
include the basic idea on which the business is formed, the team and the way the idea is
executed, the business plan and business model canvas, funding to the start-ups and timing of
entry into the market. Out of these important factors, which one is of the most important at
least relatively which can attribute to the success of any business is the main question. Bill
Gross, one of the greatest entrepreneurs and founder of Idealab which is an incubator for a

number of various start-ups, compared these key factors across the successful companies in
Idealab and outside of his portfolio. Lets look at each factor and its impact on the success.

Key Success Factors

The success factors taken into consideration in comparison were:
1. The Idea: How new is it? Is there a uniqueness in the idea? Are there any competitive
advantages which can be taken out of it?
Any start-up beings with a great idea, tackling a specific or general problem faced by the
customer and providing ease to them. A basic idea is slowly transformed into specific and
detailed version as the business proceeds in time. The idea is morphed by the business as
well as the market who reacts to the idea and hence bring a change to it. The plan for
starters may feel to be good but will always change or will require modifications based on
the customer response to it. This is indeed the base and important factor of success but not
the most important. Idea is ranked 3rd in the success factors.
2. The Team and the Execution: How efficient and effective is the team? How adaptable?
The team is the one who takes the idea and convert it into the product or service on which
the business sustains. They also have to look into the market, gain proper insights and
adapt the product accordingly to what they observe the market to be. If the team is not in
sync with each other or in proper terms, the product just does not happen to be good in
the end. Still, in ranking, this came out to be the 2nd most important factor and not the top
in terms of success. Surely, the team is what builds the product and provides service and
hence is required to be good and a complimentary team.
3. The Business Plan & Model Canvas: Do you have a clear revenue stream? Cost
structure?
To start working on an idea, business model is not an exact requirement and one can
begin working on it without the model canvas in place. Still, it does not mean that going
forward it should not be created. Business plan and canvas provides a clear picture of
what the product and related factors are interlinked and what should be done going
forward. It gives a clear picture of revenue stream and also all the costs linked to it, thus
providing an overall view of the environment and business. The Business model canvas
can and should be modified as the start-ups goes ahead and changes according to the
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market requirements. There are examples of companies who created their business model
after they found a product fit with the market and had a rapid growth. But still, one can go
on without it and hence this factor is ranked 4th in importance for success.
4. The Funding: Companies that out money-raise others succeed where others fail?
People would think as funding a very important factor but it is not true. Companies can
and have shown success without funding to begin with. Funding is just an additional
source which can help to capture the market further but if the product or service is not up
to the level, no amount of funding will save the business. Thus, funding came in as the
last in important success factors.
5. The Timing: Are you too early? Just early? Too late. Right on time?
The most important factor for success in most of the companies compared was found out
to be The Timing of the launch. Timing accounted to 42% of successes relative to failures
in Bills survey of various start-ups. Sometimes, one has a great idea but the market is
just not ready for it and hence the idea is doomed to fail despite of a great team, funding
or business plan. Timing is the most critical factor which defines success for any idea to
take shape and disrupt the market. The timing has to be just right. If you go late into the
market, either the market might have been captured by other player or again the market
may not be ready for the idea as it does not require it anymore. Thus according to Bill,
Timing is the most important and critical factor which makes or breaks the business.
Lets look at various examples which will show the criticality of timing. Take Airbnb
for example, it is currently very big. It has close to 1 million listings with a presence in
192 countries across the world. Being US based, most of its transactions involve at least
one party outside US. Moreover, the product overtime has gone through various changes
according to the market needs and was able to grow with a large user-base. Everyone in
the market thinks it has a great business model to work with. But if you see in the past,
there have been various companies who have worked on Airbnb model but were not able
to make it big in the market. The main difference between Airbnb and all other who came
before it is the Timing. Airbnb came in the market when a huge recession hit around the
world, thus people requiring extra money and hence willing to rent out their rooms to
strangers. The timing factor of Airbnb involved more than the recession factor. It was
launched in Denver in 2008 during the Democratic National Convention. With many
people participating in the convention and obviously staying at hotels, most of the hotels
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were booked completely and there used to be a considerable lack of hotel space and a
place for people to stay. Airbnb saw this opportunity and used it during that time thus
gaining a traction among consumers for a place to live. This also had an additional benefit
as the competitors i.e. the hotel chains did not see Airbnb as a threat since they were not
taking away the customers from them. They were just catering to the excess demand.
With time and good service, it found a good foothold among consumers mainly with word
of mouth publicity and thus established itself. Launching in such situations of high
demand and low supply helps start-ups in acquiring the right type of consumers. The
early adopters who are generally forgiving for a small error as they get what they require
in times when the service offers are quite less. This generates a positive word of mouth
and hence begins the journey of growth of the business.
A similar strategy was followed by Uber. As its main competition was from taxi cab
companies, they researched and analysed countries with high difference between the
supply and demand and entered into those countries. Moreover, with correct timing such
as, they launching their service during when the demand used to be highest for example
during the holidays, when people went out for parties and stayed late, moreover drunk
driving to not be a good thing to do, people increasingly would take cabs to go home.
Moreover, they ran promotions during those times, or during concerts or sporting events
when obviously the demand would be high and individual might be more willing to try
and use a new form of service. This helped them in gaining a large cluster of customers in
one go and by providing a good service to them at these times, increased their presence
with word of mouth publicity. Moreover, it also provided user with ease of access and
booking etc which was not present previously and hence boosting their value in the minds
of consumers. Once the customers know how easy it was to use it, it was only a matter of
time that they start to use the service for most of their work in their daily routine.
Also take the example of an online entertainment company called as Z.com. One can
easily term this company to be ahead of its time. It provided video streaming service as
YouTube does. Even though the idea was same, the biggest cause of its failure can be
termed as it being ahead of its time. It hit the market when internet and especially high
speed broadband penetration was quite low and hence it was unable to gain a proper user
base as general speeds at that time were not even good enough to load a webpage. Just
two years after Z.com went out of market in 2003, YouTube came into the market, with
correct timing when high speed broadband was taking place in users homes and as
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everyone knows how big YouTube is currently. It was all a matter of perfect timing to
enter the market.

As important as timing is to the business, other factors should not be neglected. A

customer always wants better service and will switch the moment someone else provides
better service to them. Hence its equally important for businesses to create better
experience for the consumers. Just for example, before Airbnb existed, people used to go
to craigslist to search for a place to live. Craigslist had very shabby photos uploaded by
the owners of the house and as the founders of Airbnb tried to be in customers shoes,
they noticed that the consumers directly compare these bad photos with the good photos
that the hotels put on their websites. So, to create a better experience for both service
providers and consumers, Airbnb founders employed professional photographers in the
early stage of their establishment and took and uploaded the nice pictures on their
website. This attracted the customers and moreover created a benchmark for other
suppliers to upload better pics.

In conclusion, to say why Airbnb and Uber succeeded

whereas other start-ups failed because of mainly of the timing of entering the market.
Most other things such as technology and research is readily available to everyone
especially due to internet access and free knowledge sharing and hence does not create a
competitive advantage to companies. Its the timing and additional service which the
company offers to the users which creates a competitive advantage for the start-ups and
helps it to grow further.

References:
1] http://hbswk.hbs.edu/item/how-uber-airbnb-and-etsy-attracted-their-first-1-000-customers
2]https://www.youtube.com/watch?v=QR6YgWOan8Q What Matters Most in Startup
Success (Bill Gross, CEO at Idealab)
3]https://medium.com/@Timoth3y/how-ubers-failure-in-japan-can-help-startups-everywheredf8bdb079f0e#.cm41ga2y6

4]http://singularityhub.com/2015/04/13/why-startups-like-uber-airbnb-spacex-succeed-whileothers-fail/