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Why platform models in the blue collar service industry are doomed to fail – at least if you want to deliver high quality.

Have a look at the latest article of our CEO Axel Kalisch.

 

Once an attractive market in the service industry has been identified, one tends to think: “There are already enough players in the market that can do the job, we can just be the middleman, develop a booking platform or software solution and take a commission”. The advantages of this business model are obvious: a commission-based booking platform is lean, requires less capital intensive overhead operations and is massively scalable. However, while this model sounds good in theory, we at Ben Fleet Services have faced many obstacles and learned that it works less perfectly in practice. The key take-away: straightforward solutions do not always work, especially not in the service industry. But why is that?

 

Disadvantages of an external blue collar workforce

 

Initially, our strategy at Ben was exactly as described above. We aimed at taking advantage of the existing players in the market for the execution of our services, let them operate in our name and simply ensure high quality services. However, reality did not live up to our expectations. Here is what we learned: 

 

1) No willingness to participate by third party service providers

 

Despite what was initially validated in a number of expert interviews, surveys and partner acquisitions, after our launch, the willingness of service providers to participate in the platform business model was not given. Most service providers in Germany – especially craftsmen and handymen – are working to capacity and don’t really have the need for additional sales (particularly if that additional business comes at the cost of losing a share of their margin through brokerage). We are not the only ones that faced this challenge: Famous German heating engineer venture Thermondo also started off as a platform, switching to its own staff shortly thereafter mostly due to a lack of handymen.

 

2) Higher organisational and operational costs than expected 

 

Even though we were able to acquire a few good service partners, limited reliability and flexibility resulted in huge organisational and operational efforts on our side. Partners either didn’t show up for the job or didn’t respond in time to meet customer expectations. On top of that, workers’ high turnover required frequent instructions and training of new staff. 

 

 

3) Poor quality

 

Last and worst of all: we were not able to deliver the desired level of quality. The low margins, especially in blue collar service industries, motivate people to always deliver less than agreed upon, further reinforced by us being not able to control the quality on spot. 

 

In the end, this all led to unsatisfied customers and a rather poor performing business model, despite market demand. Something had to be changed. 

 

Our high-quality ensuring solution

 

Shortly after our launch, we decided to hire our own staff and no longer rely on an external workforce, which marked a turning point for the business. As you can imagine, it took many  discussions with our investors, but in the end, the proof of market and our implementation plan convinced everyone to take the additional risk. 

 

Indeed, we are now dependent on our own workforce, which bears additional risk, limits scalability and results in additional efforts and overheads like hiring and management. Nevertheless, overall organisational efforts – especially with regards to deployment –  have been reduced compared to when we worked with third parties. We believe that this strategic switch was the only way to deliver the high quality and flexible services demanded by the market.

 

Due to our competent and caring operations managers and team leads, we are now facing a well-trained and highly motivated workforce that doesn’t need a lot of quality control to deliver high quality services, is reliable and enables us to react quickly to short-term customer requests. Furthermore, we apparently keep our employees so happy we have a turnover rate way below the industry standard (which reduces hiring and trading efforts).

 

Conclusion

 

For me personally, the three key learnings are: 

 

1) Obvious business models don’t always work. Problems arise when executing, no matter how much you try to theoretically validate them upfront.

2) There is almost always an option for a strategic switch in your business model. Don‘t be afraid to take it, and take it sooner rather than later before it‘s too late. 

3) Platform business models don’t really work for blue collar service industry solutions. 

 

Feel free to either share or challenge my opinion according to your personal experiences.

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Ben Fleet Services GmbH
Schröderstrasse 1
10115 Berlin

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