4 Key Elements that will impact your Uber-like

Business Model
Logistics = Efficiency + Reliability
Uber has built a $40 billion company based on these
core principles. At the heart of this valuation lies the
success Uber has showcased in making a previously
inaccessible service cheaper and more accessible. Not
surprisingly the disruptive innovation has gone on to
impact many other industry value chains. The term
Uber for X is now being used to describe the model of
increasing number of startups looking to deliver/service
practically everything on demand.
But how do you convert efficiency and reliability into
quantifiable insights that can help you take business
decisions for your On Demand startup?
Lessons drawn come from unlikeliest of places heading
Jugnoo, an On Demand Logistics startup out of India. The
experience over the past 6 months competing with Uber
and Ola (Ubers Indian clone) and creating a niche for
Jugnoo resulted in insights that I believe are at the core
of Ubers success.
Jugnoo is in the process of building a hyperlocal
marketplace in India. The objective behind this is to
provide everything on-demand (like rides and deliveries)
with the help of auto rickshaws, which are the most

common means of inter-city transportation in the

country. Its interesting to note that even Uber was
unsuccessful in achieving this elusive dream, however
Jugnoo was built around the concept of multiple use case
from ground up. Started around 6 months ago, we are
already in the business of doing 1000 transactions
including auto rides, meal and grocery deliveries each
day.
Here are some definitions to help us establish the theory

Reliability is the ability of the platform to service any

demand while ensuring ETA for the request is below a
certain acceptable threshold, x. For the purpose of this
discussion we will use ETA as a quantifiable metric to
represent reliability.
Efficiency, Q equals the number of minutes per working
hour the average logistics unit stays engaged servicing
the demand. As a platform you need to cross a certain
threshold to become profitable.
x depends on a lot of factors geographic, vertical that
you are operating in, cultural, competition, etc.
Assuming that you know Q and x at every point during
your growth we can proceed to draw key insights based
on these metrics.
A. Critical Mass

Critical mass for a certain region is the amount of total

supply and total demand where you are ensuring both
reliability and efficiency, thus requirements of both the
ETA and supply being engaged above a threshold are
met.
Insights into total supply and total demand, required to
attain liquidity, is a quantifiable way to make many
business decisions.
Here is the analysis I used to pull off these numbers
-Available Supply, M, required at any point that can
service any incoming requests;Engaged Supply or Total
Demand, N, that is busy servicing particular requests at
any point.Total Supply = M + N
M can be back calculated by increasing the available
supply to a point in different demand centers such that
ETA requirements are met. At any point you can improve
your supply matching and demand prediction
capabilities to get better ETAs for the same available
supply.
N can then be calculated from this equation
Sum of N/M+N>Q
For the purpose of simplification, the above expression
uses summation instead of integral. The graph below
shows how the available and engaged supplies on the

platform, vary per hour, in a typical day, cumulated over

a period of 6 months.

In this era of startups on steroids where startups backed

by VC war chests can burn money to create artificial
demand and supply, starting with the analysis of a
Critical Mass to sustain might seem counterintuitive. But
the concept of liquidity in the marketplace still remains
the most important metric that any marketplace should
strive to attain.
Knowing these numbers helps you plan your organic or
VC backed growth for a particular city.
You can also base the calculations of investment

required off these numbers.

Reaching these numbers shields you from any
established competitor/ startup entering the area with a
similar concept.
B. Dynamic Pricing
Ubers surge pricing has been one of the most
controversial aspects about Uber for a long time. Many
authors [Hyperlink to one of the articles] have gone on
to offer deeply passionate views but despite all the
negative publicity surge pricing has remained a constant
for Uber for the simple reason that it makes business
sense and goes with the base requirement of ensuring
efficiency and reliability (Reliability here being equated
to the ability to get a ride no matter how much the
pressure on demand and supply).
Pricing of a service comes from matching the demand
and supply curves. Higher the demand for a given
supply, higher the price.
When applied to a logistics network, analysis flows
directly from our calculation above. There is a limit to
the elasticity in total supply, while the demand
fluctuates a lot on a daily and weekly basis.
If M decreases due to significant increase in N, you need
to artificially take the prices up so that less number of
customers start demanding the service. Thus you

maximize revenues per transaction while keeping

service quality high.
The difficulty to staff or enable the platform for the
highest demand is a problem almost every industry
value chain that deals with fluctuating demand has to
deal with.
While dynamic pricing is a logical answer in the On
Demand logistics vertical, the decision on its
introduction should also weigh in the price sensitivity of
your audience and the competition.
C. Multiple Services
A logistics network by definition can be used to do a lot
more than taking the users from Point A to Point B. Uber
has been experimenting with things as diverse as
bringing users ice creams and kittens. When I started
conceptualizing and creating a logistics network based
on Auto Rickshaws, I had set my eyes on creating
anUber for Everything in India.
Although many people have advised me that spreading
yourself thin and concentrating on multiple verticals is
not a wise strategy. But heres the thought process
Our product is essentially a collection of a tech
platform, logistics fleet and consumer data. Rides and
deliveries are just different use cases following exactly
same process. The unit economics makes sense for both

use cases. There is no logic behind choosing one use

case over another. These multiple use cases smoothen
the demand.
Using Jugnoo Autos we were able to reach 5-10
additional rides every day. Getting additional demand
during the off peak hours via the meal delivery and
hyperlocal delivery service was an attempt at leveraging
the underutilized inventory during the off peak hours.
D. Choice of the logistics platform
When I started there was no one who was providing an
Uber like seamless service for people who want to hail
autos. Around 46 million auto rides happen every day in
India and its safe to claim that India moves on autos and
not taxis. What I didnt know at that time was how this
ties in with providing multiple services.
The choice of auto rickshaws as a base unit to create a
logistics network comes with opportunities and
challenges.
Whats important from the standpoint of this discussion,
is that, an average ride in an auto rickshaw in India costs
around $1.2. Compare this with around $4-5 average for
taxis in India. This is the reason why Uber has not
chosen to do multiple services as a coherent business.

On the other hand, an average meal and grocery

transaction also ranges between $6-8. So everything ondemand is just a natural fit for Jugnoo.
This unit economics is thus a challenge as well as an
opportunity. The analysis of this unit economics for any
On Demand business is important before hand as
challenges from realizations later can sometimes make
the complete business unviable. For instance Ola was
generating around 160 orders a day for some of the
restaurants when it started a month ago and according
to reports these orders have reduced to 15 a day now
just because they are using taxis to deliver these meals
difficult from both the delivery time and cost
perspective.