Why hyperlocal startups?
Your local life is one of the last areas to be fully changed by the internet.
At Neighborhood Studios we focus exclusively on what is called “hyperlocal” startups. This post is meant to explain what we mean by that classification and why we think there’s so much opportunity with these types of startups.
Quick note…we use the terms “hyperlocal” and “local” interchangeably.
How we define “hyperlocal”
We define hyperlocal as any highly scalable startup business model where the supply and demand are in the same city — sometimes in the same neighborhood.
Popular examples are Uber, Nextdoor, and Yelp, but we cast a very broad net, so our definition also includes, for example, B2B software platforms that require heavy infrastructure centrally, but the supply and demand are local — like Square.
We say “highly scalable” because the vast majority of existing hyperlocal businesses do not have scalable business models. Examples of unscalable local businesses are everywhere — a neighborhood restaurant, your local real estate agent, a gym, etc.
What people get wrong about hyperlocal
Take out your sphone and look at the home screen.
Here is Dave’s home screen (please ignore the number of unread emails)…
If your homescreen is like most people’s, almost none of the apps are local. And the local apps that you might have on your main page are mature businesses that launched 10 years ago (or more) — like Yelp (2004), Zillow (2005), Starbucks (mobile app launched in 2009), Lyft (2012), and DoorDash (2013).
Take a minute to think about this. The newest local app on this startup person’s home screen is 10 years old. We have just lived through an era that provided unprecedented funding to startups, but the most modern local app on this home screen is a decade old.
Because the local apps that most people use are 10+ years old, it’s common for people to have a few assumptions about local startups:
- All the innovation in local apps happened within a few years of the iPhone app store launching (2008).
- Once a hyperlocal incumbent (like Uber) gets some traction, it’s nearly impossible for additional startups in that vertical to get venture scale.
- Even if you can get something going, local unit economics rarely make sense.
None of these assumptions are true.
(if you are doing it right)
The truth about hyperlocal
There are many counterintuitive things about hyperlocal startups.
Because each new geography acts independently, it’s easy for hyperlocal startups to compete with incumbents. There are very few cross-geographic network effects, and scale doesn’t matter because every new city (and neighborhood) is a brand new ball game.
Founders also have to fight the urge to scale too quickly. Technology makes it easy and there’s always investor pressure to grow to more geographies to gain more customers. But — once you do this — your calories get spread out across too many things, so less time is spent on product/market fit. This is very difficult to fight, but — if you do — you are in a much better place to scale nationally.
If you think Uber (2009) sucked all of the oxygen out of hyperlocal transportation, you don’t have to look any further than startups launched years later — Via (2012), Zum (2015), and Bird (2017) — to realize that…
The only constraint in hyperlocal innovation is the novelty of the product and business model.
Hyperlocal has been underserved by the internet so far because (a) founders mis-execute this type of business because of many counterintuitive characteristics of local and (b) the best founders gravitate towards more scalable online business models because of false assumptions about the difficulty of disrupting nationwide local incumbents.
To be more specific, 99% of founders of hyperlocal startups launch products that aren’t significantly better than existing local offerings. Then they define their initial geography much too broad and expand out of it way too quickly — before any sense of product/market fit. And, lastly, founders don’t consider unit economics.
The product/market fit bar for hyperlocal is much higher than other types of startups and the vast majority of founders discount this difference.
Neighborhood Studios will only launch a hyperlocal experiment if the opportunity meets all 3 of these criteria:
- We identify a novel (10x better) product in a hyperlocal vertical.
- The business is highly scalable.
- The unit economics work.
This is the challenge of hyperlocal that most excites us!
A final thought
People spend most of their lives within a few miles of their homes, but the internet up until now has done a very poor job of innovating for our local lives.
Our contrarian belief is that the next decade will change this dramatically and Neighborhood Studios will produce some of the winners.
About Neighborhood Studios
Neighborhood Studios is a venture studio that partners with tenacious founders to build hyperlocal startups from the ground up.
If you are building a business in any hyperlocal space or if any of this really grabs you, we want to hear from you. Drop us a note at goodstuffnearby@neighborhoodstudios.com.
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Only neighborhoods can save us!
