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Comment by paulsutter | Hacker News Reader

On demand startups usually fail because customer acquisition cost is greater than lifetime value (CAC > LTV).

Retention is the most common driver. Even good virality can't overcome bad retention.

A rough advance estimate of retention is the "toothbrush test": do people use it as often as a toothbrush. Services used rarely are more likely to be forgotten by the next use. If they need to find you again on Google, your competitor can buy them with Adwords.

I saw a startup once for a mobile app to arrange funeral services. I had to chuckle because that may be the lowest possible score on the toothbrush test.

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>> A rough advance estimate of retention is the "toothbrush test": do people use it as often as a toothbrush

Ugh - I have heard this before - its such an unhelpfully high level that it fails its purpose as target setting advice. Almost nothing is a "twice a day" service. Whether its Uber or Pizza, the vast majority of users do not use them twice a day despite their love and loyalty. For the few businesses that are e.g. FB, Slack etc. its because they are communication oriented rather than task oriented so they are more like monitoring a feed than using a tool.

Sure, its wise to be sceptical about services that are once per life "AirB&B for gravestones" or once per year "Uber for Christmas decorations" but your once per month billing/invoice system is likely to have high retention once you get customers locked in.

The toothbrush test isn't just retention, it's also about sales velocity. A product used monthly tends to have a slower sales velocity than a product used weekly. The pace of the decision cycle is related to frequency of use. For a monthly use product, the moment the customer learns about the product will be an average of 2 weeks from when she needs it. That's two weeks for her mind to get distracted with other things. It's easy for the evaluation to get pushed by one or more intervals, and even once the decision to purchase has been made, there might be a month delay before the close and that's a month in which urgency can fade and a chance for it to get set aside.

Note how sales velocity and retention are similar, can you retain customer interest long enough to close a sale?

There are successful occasional use products. It's not meant as a threshold or black and white test, its just one factor to consider when choosing which business to start.

There's also the more obvious thing that affects retention which is simply bad service.

We've all had bad taxi rides but overall the variability in possible service quality for Uber is pretty low. But Homejoy died because so many people didn't like the quality of the service.

I honestly question the premise that people want more on-demand services, given that the major companies that are succeeding in this space were already on-demand (hotels, taxis, food delivery).

What market has shifted from not-on-demand to on-demand?

Service levels are pretty closely tied to customer acquisition cost. It turns out that people just didn't want to pay the amount it costs to get a really good self-motivated cleaner with great people skills to turn up and do a great job on a completely unfamiliar house. So they got inexperienced cleaners who didn't do a great job, and didn't like it.

This is just another way of framing what the article states. Which is that retention will be low in home services because both the homeowner and the contractor prefer direct relationships over using a platform for future work. (i.e. any high trust offering is not a good fit for the current uber model due to low retention.)

>> A rough advance estimate of retention is the "toothbrush test": do people use it as often as a toothbrush

That fails to capture the power of recurring services. If a user needs to think of your service then sure, it needs to be a toothbrush. When the customer schedules your service, enjoys the benefits and pays without thinking about it you don't need to be a toothbrush (a lot of the SaaS world).

Then there's the insane profits between those two models like TurboTax. The toothbrush analogy is a nice way to categorize certain businesses, but it's only one of many profitable consumer software models.

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