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Managing Failure in a Two-Sided Platform

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As the millennial generation continues to fuel the on-demand economy, more entrepreneurs will venture into the on-demand space in hopes of capturing a slice of this market. Here are some tips I've learned through Tressed.

Failure

As the millennial generation continues to fuel the on-demand economy, more entrepreneurs will venture into the on-demand space (whether it is on-demand food, haircare, dry-cleaning-you name it!) in hopes of capturing a slice of this market. While I believe there will be continued growth and disruption in the space, there are a few tips I have learned from Tressed about managing failure in a two-sided platform. The points below are weighted towards managing failure with respect to the supply side, as I believe they are the ones that are most affected by a start-up’s failure.

  • Do not make false promises: As a Field 3 start-up, our team was eager to conquer the multicultural hair care market. We had the right mix of stylists who could cater to a variety of styles. While our initial idea had significant traction, upon greater analysis we realized that Handscreating a service that catered solely to multi-cultural hair added significant complexity to our business that we were not prepared to handle. Given the volume of requests we had originally received, our team and our stylists were convinced that
    we were driving towards explosive growth and the stylists would have to eventually join us as full-time employees. Needless to say, when we told our non-blowout stylists that we had decided to pivot and focus exclusively on blow-outs and up-dos, they were not only disappointed at the pivot, but were also disappointed at the fact that we had positioned ourselves as an established business with an established business model. Let your employees know the stage of your business-more likely than not they will try to help you grow your company.
  • Treat your employees like you would like to be treated: Sarah and I have spent a lot of time with our stylists-over dinner, drinks, casual conversations, texts, etc. We got to know them, their family situationHappy face, their daughters’ names, etc. While many companies in the on-demand space simply look at their ‘supply’ base as contractors, truly getting to know your employees will buy you the leeway that you need as you are going through the complexities of managing a two-sided platform. They will respect you as people, respect what you are trying to build, and truly act in the best interest of the business as you scale, pivot, or fail.
  • Identify ways to be helpful: Failure + pivots are part of start-up life. As entrepreneurs, we understand that there will constantly be changes to the team, business, or business model. We are taught not only to anticipatehelpful hands failure, but even to expect it. For employees and contractors, however, constant change is not necessarily something that they have been taught to expect, especially when dealing with ‘reputable’ HBS companies. Identify ways to help employees/contractors that you have had to let go for decisions that were outside of their control. In our case, we will always refer our ethnic hair care stylists to customers who ask about services that are not offered on our current platform and we have offered to write recommendations or be listed as references for every one of our excellent stylists that is no longer on our platform due to our pivot.

5 thoughts on “Managing Failure in a Two-Sided Platform

  1. Nice post! Curious if you have specific advice at how to go about your first major point. This is something we also are running to as well – it seems to be a chicken and the egg problem. In our case, we want distribution and partnerships to help us scale, but until we have a better sense of the likelihood of them wanting to place an order or enter into an agreement, we don’t really have the capability to produce in mass quantities yet. BUT, if you don’t go in confidently selling your product, you won’t get the order. Any advice on specific phrases, wording, practices you and Sarah have used to strike such a balance? Thanks!!

    1. Thanks Caitlin! You are right that this is a chicken and egg problem. We were able to leverage the HBS network to establish partnerships with bigger brands (for example an HBS alum that worked at Sephora was able to make an introduction that secured in-kind sponsorship for us) which helped us establish credibility even as a small start-up. Once we had the credibility of a bigger brand, it was easier for us to say we are a small start-up but “gaining significant traction, have even secured sponsorship from X and expecting customer orders in the next two weeks of Y.” This way, even if the customer orders don’t go through, you worded it as an expectation, not a promise.

  2. Thanks for sharing your insights, Julisa! I’m fascinated by the different journeys that fellow classmates are taking in entrepreneurship. I also appreciate how your lessons focus on the relationship you and Sarah have cultivated with one major (but frequently overlooked) stakeholder — your employees.

    What are lessons that you’ve learned from selling to and gaining the trust of customers in your two-sided platform? In the description of your first lesson, it seems that pivoted your business model in response to customer feedback, however there was no way to do it without hurting the relationship you had built with some early employees. How did you make that choice? Is there a generalizable lesson for others building two-sided platforms here? Do you think that the preferences of the paying side of the platform will always win the strategy fight when there’s a conflict of interests? Or does it have more to do with which side of the platform is the more scarce resource?

  3. Upasana – thank you for the thought-provoking questions! I think a generalizable lesson (for us at least) would be to start with the least complex model or product, experiment and learn lessons, and scale from there. In undertaking the multi-cultural hair market, we were trying to optimize, for well, pretty much every style (Braids-we did it! Weaves-we can do it! Extensions-yes we can do that too! Blowouts? Of course!…you get the picture) It quickly became apparent to us that every stylist specializes on very different things, which forced us to recruit stylists as quickly as possible. Had we started with the most common hairstyle that can be done by a wide variety of stylists, we could have chosen the stylists much more carefully by thinking about their capacity, availability, location, etc. On the customer end, I definitely think that once you have decided who the customer is, the customer is king since they have the ability to make or break your business.

  4. Really loved your second point about treating employees like people, Julisa. It blew my mind that I knew my manager’s wife’s name, all of his kids’ names, and he couldn’t remember basic details about my personal life. Investing and getting to know your employees is really important and goes a long way. Although I’m sure it required a significant amount of time for you and Sarah, I’m sure it really made a difference in your employees willingness to take on Tressed clients. As a Tressed customer, I’ve loved the experience and feel like the stylists are very personable. I’ve gotten to know my stylist very well via text and chatting during our sessions, so you and Sarah are doing a great job 🙂 Keep it up!

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