My countless small business and enterprise conversations over the last two years based out of Menlo Park have brought up one constant theme: that businesses in the west are aching for better service providers. I have met small bio-tech companies looking for find reliable clinical research partners to accelerate new drugs launch, enterprises looking for media and web development agencies to keep up ever-changing consumer preferences, retailers looking for suppliers to design and contract manufacture their latest hit product, and small businesses looking for expert consultants in areas such as supply chain.
I see the perfect “why now” that birth new business models: First, at the thirty thousand feet level there is an ever-stronger de-coupling between the West and China. According to one estimate by Bain and Company over the past decade China accounted for 45% of all the growth in the world economy; this could drop to 30% in the coming decade. Second, the ongoing ‘great resignation’ and ‘quiet quitting’ in the US – over 50 million workers quit their jobs in 2022, breaking the record created in the year prior – have created scarcity of labor in all industries from marketing to accounting to retail. Third, the rise of tele-services and remote work of the pandemic have expanded the pie of services that could be offered completely digitally and remotely. Thus, opportunity is ripe to build asset-light, hyper-scale e-service businesses. Having served at the boards of companies innovating the e-service business model, such as Zetwerk for manufacturing services, over the past few years I have a few crucial learnings for successfully executing against this large opportunity:
Firstly, the pure marketplace platform models that match customers in the US to suppliers in India are not sufficient. Full-stack models where a platform becomes the provider of service itself is very time consuming to scale. The answer lies somewhere in the middle – a mid-stack approach – where the platform still connects the buyer and supplier but does a lot more to make services flow freely. On the demand side, foreign customers need the intermediating platform to guarantee end to end reliable delivery and offer real time visibility. On the supply side, the platform needs to build an accurate catalog of suppliers’ service capabilities and undertake project management to ensure execution is high quality week over week. Thus, the matchmaking in the e-service models is much more complex than that of Flipkart or Amazon. Second, the causes of service delays often lie outside the control of the service provider. For example, small businesses often lack crucial working capital or they are sometimes unable to access the best raw materials and labor. Thus, the e-service platform has to create a full supportive ecosystem of credit, raw materials and know-how that helps the suppliers scale and the platform itself scales. Finally, service businesses are impossible to scale without good technology. For example, I saw a mid-size Coimbatore-based manufacturer spend more than 6 hours going from unpacking a PDF drawing of a custom part to building an accurate estimate of his costs! In another instance, I saw that a Delhi based design agency, a Bangalore based IT service agency and an Ahmedabad based marketer needed to come together to deliver a top-class web development for a foreign fashion brand – but these service providers lacked the tools to collaborate. Over time, as the e-service platform scales there is crucial data on supplier performance, buyer sensitivity to price and causes of delivery times which helps make the e-service platform smarter. Finally, the boom of generative AI is ushering a whole new
era of efficiency that will help save countless man-hours and offer the potential to boost margins for e-service companies.
Infosys and TCS have market cap over $230 billion, going after a single vertical of IT services which Statista estimates to be about $440 billion in the US today. Imagine the size of e-service businesses that could get built serving the US advertising services ($300 billion), contract research ($155 billion), consulting ($300b) and so on. For all the budding founders, perhaps instead of looking far into the future, the opportunity lies in seeing the present clearly and drawing on the success of companies like Infosys and Zetwerk to build the mega-successful e-service businesses of tomorrow.
Vaibhav Agrawal is a partner at venture capital firm Lightspeed Venture Partners based out of Menlo Park, California.
