Think Like Uber: How to Validate Demand and Supply Before You Build

2015-08-19-1440001335-6140349-DannyBoice.jpgAuthor Danny Boice is the Founder and CEO of Trustify, a new service that lets consumers order a private investigator on-demand to check on anything or anyone. Prior to Trustify, Danny founded Speek, which patented a new way of doing conference calls without annoying dial-ins and PINs. He was also appointed as Entrepreneur in Residence to the United States under President Barack Obama and has taught at Georgetown University.

At a $50 billion valuation, Uber is now valued higher than 80 percent of the S&P 500. With that kind of success, it's no surprise that a legion of startup minds are racing to cash in on the same approach. Who among us doesn't want to be the founder of the next Uber? We are seeing the "Uberization" of the American economy.

My company, Trustify, gives consumers access to vetted, experienced private investigators with the touch of a button, in the same way that Uber puts ride-seekers in touch with drivers. I've seen what works and what doesn't in this model, especially if you're trying to disrupt an established market. Before you speak to investors, build a product or hire a team, you must first validate demand and the labor force.

Supply and Demand: A Delicate Balancing Act

Uber did not invent the concept of aggregating disparate supply and demand to create a business. People have been creating marketplaces to buy and sell products and services since the Stone Age. But Uber stands out because they're loud, disruptive and lean -- leveraging cheap and accessible technology at scale. With the growing options of marketplace businesses, it may seem like anyone with a good idea and a laptop can become the next Travis Kalanick.

However, for every Uber, there are also thousands of failures. These false starts demonstrate how difficult it can be to find the sweet spot between a cool idea and a viable business. Far too many entrepreneurs play the "what if" game. They start a business, get a couple funders and build a product, only to find that there is not sufficient demand for the service or product they are trying to sell or that the labor force won't participate. This is an easily avoidable mistake.

On-demand marketplaces are delicate balancing acts. A would-be business must have significant consumer demand for what they're selling and freelance suppliers ready to meet the demand in an instant.

Validate Sufficient Consumer Demand and Labor Force 

When I set out to create a business, the very first thing I did was test about 100 ideas for sufficient consumer demand. To confirm demand, I used a free tool called Quick MVP, which allows users to create landing pages for their hypothetical product and then advertise that product as if it already exists. Then I looked at the click rates on the ads and the conversion rate on the landing pages. The data told me very quickly that my idea for a service that allowed people to hire a reliable private investigator at affordable prices was the most popular by a landslide. Coupled with my own personal experience with a PI during a nasty divorce, this was a no-brainer.

Market demand is the one thing you can't fix with improved technology, a better team or more investors. If you stick to businesses where you have validated market demand in advance, then everything else falls into place -- or the problems you run into are more likely to have a solution. Verifying demand proved invaluable to Trustify. Thanks to testing demand in advance, we had revenue our first day in business and have grown quickly month over month since we launched.

Once you have consumer demand, you must also verify that you have a labor force or suppliers who are willing to play ball. Otherwise, you'll have a pool of customers who want what you're selling but no suppliers to do the work. This is one of the many unique considerations of a business model where you don't truly control supply.

Just as Uber had to acquire drivers who would not get frustrated and defect, we had to ensure that private investigators were interested in a new, predictable revenue stream and a better way of servicing customers. Fortunately, this came fairly easy for us, because PIs were eager to gain from our new pool of customers.

Grow Demand Steadily 

Once you have verified that there is demand on both the consumer end and the supplier end, you need to focus on growing that demand. This is where acquiring and managing customers comes into play. Acquiring new customers will always be your top priority. You must retain old customers and turn their network into new customers. An inbound marketing and sales platform, as well as social media, can help you find customers and convert their friends into an expanding customer base.

And because marketplace businesses are balancing acts, you'll have to manage suppliers you don't actually employ with a CRM that has case management capabilities.

Marketplace businesses aren't going away. Consumers have seen the light and they want more competition, better transparency and lower prices. Anyone with a laptop and Internet access can get started -- and that's the beauty of the modern economy. But cheap technology and an interesting idea can only go so far. As entrepreneurs through the ages have known all too well, you can't sell something unless you have willing buyers and willing suppliers. If you want to become the next Uber, you can. Do your homework, and that next $50 billion valuation can be yours.