The Uniquely Difficult Market No Startup Has Been Able to Crack (and Plenty Have Tried)
In the world of bar tech, the floor is littered with peanut shells--and ordering apps.
In recent years, scores of entrepreneurs have founded so-called tab management apps, which offer to erase the friction bar-goers often experience when ordering a drink. Long wait times can be excruciating, and then there's the ordeal of closing out your tab, which can often mean waiting in line again. In effect, these startups want to eliminate your need to ever belly up to the bar again.
The idea sounds compelling--particularly as giants in the space, the Squares and PayPals of the world, don't offer the service. Still, the market has been difficult to penetrate. Just consider the number of bar apps that have tried--and mostly failed--to make a dent. There's Flowtab, Tappr, BarEye (soon to relaunch as on-me), TabbedOut, Coaster, BarBud, Radtab, and Noble, just to name a few.
These companies' struggles aren't for a lack of consumer desire for a solution. Graduate student research out of UC Berkeley's Sutardja Center for Entrepreneurship and Technology in 2016 found that 81 percent of survey respondents said they would be likely or very likely to use a tab management mobile app. Yet these same researchers found such apps had penetrated only about 2 percent of bars and restaurants in the six years prior.
The reasons for the disconnect are varied--and particularly instructive for anyone looking to start up in a market that's as disparate as the bar scene itself.
Know thy customer.
Like many startup founders, entrepreneurs peddling mobile ordering apps face a chicken-and-egg situation: You can't get venues without first collecting masses of end-users and vice versa.
Jack Cunningham is co-founder of BarBud, which recently launched in Minneapolis. He says if his app has the venues, it can attract users from the bars' existing customer base. "We do think of ourselves as B-to-B and the consumer side comes secondhand," he says.
However, J.C. Diaz, president of the American Nightlife Association, a nightlife industry trade group in Washington D.C., says it's the other way around. "If you don't have the eyeballs, how can you sell something?" says Diaz.
Of course, courting customers without having much distribution can be tricky. San Francisco's Flowtab found this out the hard way when its founders, Kyle Hill and Mike Townsend, tried to attract customers by offering up free drinks, parties, and Lyft promotions. After raising $50,000 from an angel investor and winning a local startup competition, Hill and Townsend thought they had struck it big. But after a year of trying to get people to sign up, the founders ran out of money and had to shutter.
Hill said tab management apps need to be available at a huge number of bars before they're attractive to consumers. "We needed half the bars in California to be viable," says Hill.