New Series: Startup of the Week — A Look at innovative startup ideas, models, and markets.
I’ve seen thousands of startup pitches. Very few things still surprise me. Yet, once in a while, I come across an entrepreneur that does something unexpected within their business that catches my attention. While their new venture might not be a completely new innovative startup, some innovative developments are worth pointing out and sharing with others.
For the next several months, I’ll spend some time sharing my favorite startups. In particular, I’ll try to share the things that I found innovative in their ideas, models, and markets. The goal is to highlight things that can be adopted or adapted to help other entrepreneurs improve or modify their own startups. Most successful entrepreneurs end up borrowing a lot of their ideas from other entrepreneurs. Borrowing and adapting the most innovative and interesting components from other entrepreneurs is likely to help you be more successful.
An Insight: Feast
Let’s begin the series with a food delivery startup. A popular genre for startups these days. While the startup space is dramatically changing, the concept of food delivery is rather old. So old, my parents have been getting milk delivered to their house each week since they were little, and my parents are about to collect social security. So old, my great great grandparents started a food delivery business over 130 years ago. It is still running today.
So, what is new and interesting for entrepreneurs? Why is there such a craze in an idea that seems as old as time? Well, technology has an obvious impact on the industry. Entrepreneurs seem to find ways to take new technologies and apply them to different industries. For example, an UBER for food delivery. Oh wait, that exists now. Or, let’s make an app to buy groceries because it will save people time. Yes, I have an Instacart account and spend little time in a grocery store. I get the value they add.
Each of these technologies adds a creative amount of value to a startup, but probably not as much as they are credited for. Again, food delivery and buying groceries online is nothing new. (FYI — I ordered groceries online in Russia over 15 years ago. And I think they had a better business model than what some of these companies are doing today. A topic for another discussion).
They derive most of the value of their business through efficient logistics. Primarily, they capitalize on the gig-economy structure that allows them to distribute the food in an efficient and cheap method. Their company value lies in the control and access to the network of individuals. However, this network is not captive and can move freely from one company to the next. For example, just think about the last time you got into an Uber or a Lyft. When that vehicle pulled up, you probably notice, like I did, that there was a sticker for Uber and Lyft on the same vehicle. As a result, their products are virtually the same. You get the same experience and probably pay close to the same price. None of the drivers are loyal to one particular brand. Why would they be? The purpose of the gig-economy is the flexibility of doing what you want.
That brings us to Feast. A company with an interesting model that I think has a few really innovative value propositions for the food delivery industry. While I’m not arguing that Feast is the better than other food delivery companies, I do think they have some ideas that stand out from other delivery startups.
First, let’s start by talking about the value they create for a consumer. A quick review from the video: Feast offers late night food delivery. While this value proposition is not extremely innovative, the interesting innovation occurs in how they charge for their service. What Feast discovered and is exploiting is that the value of delivery changes by the hour each night. As it gets later, individuals become less willing to leave their homes for food. I surveyed a bunch of my students about this proposition and they all agreed that they would be willing to pay more as the night went on.
What surprises me most about this model innovation is that the price doesn’t change because of traditional supply and demand economics. They don’t charge more because of decreasing supply and increasing demand in the food delivery. It’s probably the direct opposite, I’m guessing supply remains fairly constant and demand continues to decrease. Traditional economics suggests that price would be pushed down. However, the value of their offering actually increases because individuals are less willing to leave their homes for food late at night.
I don’t see very many companies that have models that their value proposition increase in value by the hour. Some of my students have suggested that it reminds them of Uber surge pricing. However, surge pricing is a supply and demand issue, not a change in value. Now rain is an example of a possible change in value for potential Uber customers. However, if the supply side remains high, Uber doesn’t include surge pricing. Again, it becomes a traditional supply and demand economic model.
I am interested in discovering where else this style of a model can be incorporated. Specifically, where we can find a quickly increasing value proposition that is independent of supply and demand economics. With advances in technology, there is likely now an opportunity to capture these changing value proposition and make more money as a startup
Second, they are able to craft an additional value proposition for a restaurant. I like this value proposition because it helps one of the toughest industries for startups. As pointed out in the video, restaurants can’t afford to stay open very late because of limited customers. However, there are still a lot of hungry individuals that want food but find it harder to go out late at night. Maybe they have been drinking, have kids or other things that keep them in their home. I’m sure all of us have been in this situation a time or two. We end up digging through the fridge or cupboards looking for something to eat. The value comes to a restaurant because the delivery allows them to service these customers at their homes. It may make sense for restaurants to keep their kitchens open longer if there are customers to feed in their homes, allowing them to get profitability each month a little quicker.
Finally, they developed a third interesting value proposition for a hotel chain. I think this is the most interesting and valuable proposition for this startup. It is likely where they will see most of their growth and success. As a quick review, Feast offers Hotels a white-labeled room service menu that is supplied by other restaurants and delivered to the hotel’s customers. This gives all the hotels in the area an opportunity to provide room service as an additional revenue stream. Currently, guests probably rely on other food delivery services to meet this need when a hotel does not offer it. For example, my colleague is a frequent user of food delivery apps when staying in hotels for work. Now, hotels can create exclusive offers and capture an additional revenue stream.
Furthermore, Feast points out that it allows hotels with kitchens to close the kitchens down at a reasonable time but continue to offer services to their guests. Maybe they will get rid of their room-service kitchens altogether. Perhaps they will keep their kitchens open and offer their food to other hotels and individuals that want food late at night. Regardless, I think this creates a good opportunity for the hotel industry and a way for them to compete with other growing delivery services.
Is anyone else hungry now?
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Please follow me for weekly insights into innovative startup ideas, models, and markets. Also, stay tuned for the upcoming podcast launch. You can also follow me on twitter @samclarke7. Every successful entrepreneur was once an amateur: start something today.