Lessons From Cherry

Earlier this month, Cherry announced it would shut down its service. I used Cherry a few times, thought it worked great. It seemed like a good idea, and I know they were actually booking quite a few car washes. This makes sense on a number of levels. In urban areas, the real estate and infrastructure required for a carwash isn’t practical, and in this economy, people are looking for work wherever they can find it, so why not bring the carwash to the car, instead of the other way around.

There are a few lessons from Cherry that are important to the ecosystem now, given the sheer number of startups leveraging mobile to create new marketplaces, such as Postmates, Exec, Lyft, Sidecar, Task Rabbit, Zaarly, Instacart, Swig.me, and so many others:

  • Utility: I ordered a Cherry carwash a handful of times. In those instances, it was worth it to me. The service provided utility and convenience, and I along with many others were willing to pay for that utility.
  • Margins: Venture-scale businesses need to have tremendous leverage in their business models. Consider the crown jewel: Google Adwords. Each entry into Google Search is like a micro eBay auction, which stuffs Google’s pockets with about $100m of revenue — per day. That is leverage. By contrast, organizing excess labor supply, training that labor, supplying it with materials, and baking in transportation time, the margins that can be extracted from these mobile-to-offline marketplaces start to get compressed. Consider the online payments industry, where the fees processors make are so slim, they need tremendous volume to get to real profits. But, online payments can scale across the web with less friction than services like Cherry, which would have to expand their footprint in the real world. much like Uber has done (and doesn’t get enough credit for).
  • Scaling: What if Cherry worked so well in the Bay Area, they were ready to expand geographically? My sense is that in Silicon Valley, people oftentimes think “offline scaling” is somewhat similar to “online scaling.” Of course, it’s much harder (and expensive, and time-consuming) to scale offline. As I mentioned Uber, each of these companies would need to build a playbook in their test market (the Bay Area), and then have a plan to expand their platforms while maintaining quality. This takes serious time and effort. It took decades for Starbucks to get its footprint, right? Companies that are at this inflection point, such as Lyft, for instance, would need serious venture capital or their own profits to reinvest in this type of expansion.

It’s easy to mock Cherry as a small idea, but I give them credit. They went out, delivered a service, and while there were some hiccups, their shutdown creates a learning opportunity for the ecosystem which is especially timely given the companies I’ve mentioned above, and the venture capital (and time) needed to make these things spread offline with real margins.

Haywire is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2014 Semil Shah.

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