employees, hiring, employmentI’m looking at service startups like Handy, and I wonder how they stop, or at least prevent, employees from taking clients from them. I mean, they could just give the client their phone number and the next time avoid the company (Handy in this case).
To me, this question reads “why does anyone work for anyone?”
Per Handy’s website, service professionals join them because they provide:
- Work: Access to hundreds of jobs in your city.
- Great Pay: Make up to $22/hour as a cleaner or $45/hour as a handyman. Our top professionals make more than $1,000 a week.
- Flexible schedule: You choose when you want to work and how much. Build a full schedule or simply claim a few jobs on the side.
- Easy payments: No more tracking down customers for payments. Handy will direct deposit your earnings into your bank account as soon as the job is complete.
Most people don’t have the skill or will to run a business. Handy provides a service to both the service providers and consumers; end of story.
Let's call the kind of startup you have in view a service intermediary. Your question is about how lock-in works for service intermediaries.
I would argue that service intermediaries tend to break into three classes, with different answers to the question.
The first class is the prospect introducer. Here, the problem being solved is, how does my service business find a new prospective user/customer? Examples include Google, directory sites, review sites, classifieds and so on.
In this case, there's next to no lock-in, and the most successful service intermediaries are able to charge a proportion on expected customer lifetime value (LTV). So the service provider should in general try and ensure that they engage the new user directly wherever possible.
The second class is the transaction facilitator. Here, the problem being solved is, how does my service business get new orders? Examples include Fiverr, 99designs, Just Eat (Europe) and your example, Handy.
Typically, the transaction facilitator homogenises some parts of the service so that an order can be taken without directly involving the service provider. They also typically create a competitive environment, so that service customers can choose between different available providers.
In this case, lock-in is more nuanced. The transaction facilitator is typically charging a fee that comes out of the expected profit per transaction, and so there is no imperative for the service provider to cut them out over time. However, in most cases the service provider could drive that transaction cost down significantly by encouraging customers to order directly.
Some transaction facilitators take no special action to add lock-in. Others have structures, policies or legal agreements in place to keep the dealings between service user and service provider somewhat at arms length, so that the service provider's easiest option is to treat the platform as a major customer, fulfilling transactions without attempting to engage the end user.
The final class is the customer relationship facilitator. Here, the problem being solved is, how can I build long-term customer relationships? Examples include oDesk, AirBNB and (in the interest of transparency, this is my own, UK-focused startup!) Rumbly.
This kind of service intermediary provides a broader toolset for the service provider, including tools for communicating with existing service users, as well in many cases as other support tools (for example, operational reporting, accounting services etc). Lock-in is therefore by development of a community, a distinctive culture and a rich service environment for service providers.
Is there an optimum model? In product businesses, intermediaries have intensified competition in commodity markets - and indeed they have commoditized many traditionally premium markets. But outside these areas, the picture has been more nuanced.
My guess is that service markets will show similar characteristics, but most likely with less intensity in services that require individualization or a significant element of trust. Because Google dominates the broad category of introducer, whether for products, services or anything else online, service intermediary startups will typically focus on the other two models, as unless they deliver significantly greater value than discoverability to both service providers and end-users, they are unlikely to scale.
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