SaaS vs. Marketplace.

I chose the right business model, but still, one of my startups (PrepMyFood) failed!

PrepMyFood helped busy people order food ahead of time, so they didn't have to stand in line.

Below was our thought process.

People would know the nearby restaurants and what they want to eat as it's close to their office and they go regularly.

They need a better ordering system to avoid wait times.

a. Place the order and make the payment.
b. Get notified when the order is ready for pickup.

Keeping this in mind, we tried selling this as a SaaS solution to restaurants. We were trying to sell at $200 per month.

Restaurants loved the idea. However, they gave us a few additional requirements, such as integration with their POS, etc.

Integrating with POS was taking time as they didn't have an API.

Around the same time, a competitor also had launched, but they were following a marketplace model (vs. our SaaS model).

For all orders placed through the app, they would charge a ~15 - 20% commission from the restaurants.

We explained to restaurants why this was bad for them. We explained how their sales would get cannibalized and earn 20% less.

(Ex: Assume their ideal customer orders 5 times a month, and the average order value is $10. The 20% commission would result in $10 per customer per month. (20% of $10 * 5)).

If they had 100 ideal customers, they would technically be losing $1000 if they used our competitor's app. Whereas with us they would only have to pay $200 and get all the benefits.

We asked restaurants to start using our app, and we will figure out a way to integrate it with their POS eventually.

Note that the competitor didn't have the integration with POS either.

Restaurants wanted some time to think.

After a few days, when I revisited them, I noticed they had started using our competitor's app.

When I asked them about their decision, they said the competitor's app was FREE. But unfortunately, restaurants didn't realize the loss due to cannibalization.

A few restaurants understood what we were trying to explain, but many didn't.

We were struggling to close contracts, whereas our competitor was growing strong.

Our competitor also got many end-users on the app because they offered "$15 off" on the first order. (They could afford to give these discounts as they got commissions on each order. We couldn't as we had a fixed SaaS fee.)

Note that we were bootstrapped and didn't mad much runway to pivot.

We had identified the right problem at the right time and had built a better solution (Our app was certainly better, maybe I am biased), but we still lost.

(I think that competitor today has pivoted to a SaaS model like us, but they had raised external funds to experiment and figure out.)

Funding can skew results in the short term, but ultimately fundamentals will win.

The most important thing in a startup is staying alive and thinking from the first principles.