8 ms·

Why Homejoy Failed and the Future of the On-Demand Economy

59 points by Zweihander 11y ago

JofArnold 11y ago
Sorry to hear this happen to Homejoy. We almost did a startup like this when we were in YC and looking for new opportunities after we closed our previous startup. However we did some real-world experiments and ran the calculations and could see no way it could work. Here in London we have a lot of recent migrants meaning it's a race to the bottom in terms of hourly rate. You can't make a margin on that... The math just doesn't work. At the time I felt a bit stupid when, months later, Homejoy and several other startups entered the scene. However, I'm very glad we stuck to our guns. The only companies making real money in this market are large established agencies with cleaners on the payroll. And where's the fun/disruption in that? ;)
jarcane 11y ago
Same as patents. You don't get to just ignore reams of existing regulation because you tack 'but with a computer' on a business model. Uber is only succeeding on the basis of having escaped notice for long enough that they could build coffers to bully their way into markets. The public is more aware now than it was then. SV/StartupLand needs to get over this idea that they can magically just make the world do what it wants and pretend things like legislation and human rights don't exist when they get in the way of their business model. You've got to work hard in the system like everybody else.
- richardw 11y ago
  That's my default view, but then I get surprised by both Uber and airbnb. StartupLand is one place where these limits are tested and you and I aren't the final arbiters of when or where they'll be overcome. (Btw, did not downvote)
- pbreit 11y ago
  This is a dumb sentiment and the article is actually one of the few that ignores the bogus culprit of employee classification in Homejoy's demise. It really makes very little sense to forbid a person from driving a passenger for money. The AirBnB situation is actually grayer since zoning does make sense (who wants a revolving door of random tourists in their apartment building or even residential neighborhood?). Uber and AirBnB are succeeding because they are delighting customers in a rather visceral way.
  - onion2k 11y ago
    It really makes very little sense to forbid a person from driving a passenger for money No one is suggesting people shouldn't be allowed to drive for money, nor that Uber shouldn't be allowed to run their service, but simply that if Uber drivers are doing the work of employees they should get the benefits of being employees. The only real difference that would make is that Uber would be a little more expensive to use. It'd still be cheaper that a taxi. I think that's quite reasonable if it means Uber drivers have a happier, more stable life.
    - dylanjermiah 11y ago
      A survey of the drivers found that 70%+ didn't want to be employees. But no, you should decide for them right?
      - danieltillett 11y ago
        Any reason for why 70% said they didn't want to be employees?
        dylanjermiah 11y ago
        I apologise, it was 87%. http://www.therecorder.com/id=1202731784422/Lawyer-Uber-Drivers-Dont-Want-to-Be-Employees?slreturn=20150701073557 http://www.therecorder.com/id=1202731784422/Lawyer-Uber-Driv...
    - icebraining 11y ago
      Yeah. And maybe we should make taxi drivers employees too, since currently they are (for the most part) actually contractors with no benefits.
    - pbreit 11y ago
      Oh, the employee thing. First, I think the contractor classification is totally appropriate for Uber drivers. But if you really want to classify them as employees, I wouldn't be surprised if Uber makes even more money paying min wage and keeping the surge.
- dylanjermiah 11y ago
  Legislation has nothing to do with 'human rights'. Especially in the transportation space. Regulation only existed, to the extent that it did, because the taxi cartel bought politicians and than they outlawed competition. The rhetoric of consumer safety, 'fairness', congestion etc. is just that, rhetoric.
  - regeland 11y ago
    Absolutely. The taxi cab industry is example number one for regulatory capture. The foolish talk about "employee rights" for Uber drivers makes no sense. The market will determine the rate for labor of any types, Uber drivers included. All legislation around "employee rights" will do is take them away. Why is it necessary for the government to make illegal a voluntary exchange between Uber and drivers at any wage and any labor agreement? Either can walk away at any time. If Uber wasn't providing these drivers a service, they wouldn't sign up.
- brc 11y ago
  Human rights? Like the right to a free and fair trial? The right to free speech? I think the hyperbole might have dulled the comment a bit.
gogopuppygogo 11y ago
Homejoy also had terrible customer service. I bought a cleaning deal advertised on facebook, the day of the appointment I tried to cancel and they charged me an additional $10 to cancel. That's right, I paid more than the cost of the appointment to cancel. I tried to get my money back from them through support but they wouldn't budge. I just refuted the charges on my credit card and got it back that way. It was a nightmare dealing with them. Good bye, and good riddance.
- capex 11y ago
  Homejoy could'v done a better job, but how were you being fair to them?
  - URSpider94 11y ago
    I think the GP would have been fine forfeiting what he had paid for a cancellation. Homejoy was asking him to pay MORE for a canceled appointment than if the appointment had actually happened, ie he would lose what he had paid plus $10. How is that fair?
  - task_queue 11y ago
    Homejoy provides a service. The OP cancelled that service. What service was rendered that required an additional payment to be fair to Homejoy?
    - capex 11y ago
      Homejoy was certainly not fair to try and charge $10 MORE to cancel the order. But 'forfeiting' your credit card charge just because you could not or did not cancel in time, that doesn't skirt the boundaries of fairness on any service.
      - task_queue 11y ago
        Credit card payment reversals keep merchants honest, they are disincentives to enact or continue unfair behavior against the consumer.
pbreit 11y ago
Finally someone states the obvious that Homejoy's problems had little to do with employee classification and far more to do with the basic business model (trying to convert a match-making situation into a transactional business) and sloppy execution.
- danieltillett 11y ago
  I want to know how all the smart money missed these obvious problems? I don't blame Adora and co for trying, but where were the adults.
  - chakkop 11y ago
    Basically don't overestimate how much the 'adults' understand. There is a huge amount of hand-waving, FOMO, leaps of faith, etc... by VCs when they make (and manage) investments. When things work, they are explained ex-post facto in visionary terms. When they don't... people forget soon anyway.
Animats 11y ago
Homejoy's competition is Yelp and Google local search. Both of them do roughly the same job for less money. Homejoy just isn't needed. As Pando Daily keeps pointing out, the only Uber-like business that works is Uber. Uber has an incredible valuation, but their revenue and profit numbers are lousy. Their revenue is about $450m/yr, but they are not profitable. They are, however, building a fancy new headquarters, always a bad sign.
- dylanjermiah 11y ago
  2014 was 450. On target for 6x this year and 3x next year. Also, most of the early markets are profitable. Investing in growth > profitability at this point.
- onion2k 11y ago
  Startup valuations are a function of how much they needed to be valued at to raise their last round. It's entirely projected future value; it bares no relation whatsoever to their current position in terms of revenue and profit.
- hayksaakian 11y ago
  Instacart is arguably similar to uber I think they're doing alright, and don't have a "big" substitute. (Amazon fresh is typically not same day) (yes some grocery stores do delivery, but most don't)
  - disillusioned 11y ago
    Amazon Fresh is _explicitly_ same-day.
    - hayksaakian 11y ago
      my mistake i can't edit the parent comment, but you're right.
- kumarski 11y ago
  I don't believe you're accurate. "Uber's revenues in San Francisco, meanwhile, are running at $500 million per year. That's more than three times the size of the taxi market. And Uber's revenues in San Francisco are still growing at about 200% per year." Read more: http://www.businessinsider.com/uber-revenue-san-francisco-2015-1#ixzz3hYHfk14u http://www.businessinsider.com/uber-revenue-san-francisco-20...
awjr 11y ago
I'm guessing, just like in the UK, domestic services are very much cash in hand driven and homeowners are desperate to "find somebody good" they can trust and not let go of them. By removing Homejoy after the evaluation period, the homeowner and service provider get into a stronger relationship, that is cheaper for the homeowner and more financially rewarding for the service provider.
ThomPete 11y ago
I am happy to see a sense of reality being forced into some of these companies. Building a business on people rather than tech is a much much tougher thing to do both execution wise and financially. And so the real innovation if someone wants to "change the world" without trying to cheat the system is to find a way to make a profitable business with a huge part of the business being used to pay salaries. For many entrepreneurs who are used to thinking about business as something which is based on software, servers and an internet connection, this is completely uncharted territory. You don't reap the benefits of scaling your business as if it's just a matter of adding more servers. The primary challenges with these kind of business if they are to be built on a solid foundation is. 1) Patience – It takes a long time to scale an employee based business up to anything worthwhile and sustainable 2) Selective – You have to be smart about which sectors actually have enough money and need for your service to make a proper ROI 3) Employee satisfaction. You can't just treat your people as if they are freelancers without giving them freelance opportunities. Instead you have to really care about your people and make them want to work for your company and do a great job. It's that manual labour thats going to be your brand, not your backend server or the customers mobile app.
- deleted 11y ago
  [deleted]
andy_ppp 11y ago
I'm using Handy here in London and it's amazing, cheap (so I tip the cleaner very well) and they will do a 2h clean (usually here in London most don't bother, want 3h) really early in the morning. I imagine homejoy would be the same. I have no idea how the company will make money however.
rtb 11y ago
25% of the wages? Sounds like they were just greedy as much as anything else. Of course the customers are going to be looking to cut out the middleman as soon as possible with that kind of commission.
- chiph 11y ago
  If they'd reduced their cut to say 5% for repeat bookings between the same client and worker, they could have justified the high initial percentage as a matchmaking fee. But otherwise, yeah, people were just going to take their professional relationship offline and cut them out of the loop.
  - rtb 11y ago
    Exactly. Or maybe no commission at all on repeat bookings? Then there's no pressure for the relationship to jump the walled garden and you keep the customer on the site to come to you first for future searches.
deleted 11y ago
[deleted]
devgutt 11y ago
I always thought that Homejoy were planning to automate as much as possible, if not everything, related to cleaning services using robotics and stuff, and that humans were only a temporary measure while developing technology. Sadly no, they were optimizing for human cleaning. They could have kept them as contractors while support them providing free education and resources to reallocation in the work force. This would be much better to society instead of organizing the modern slavery.
- ams6110 11y ago
  Realistically, robot house-cleaners that can compete with a human both in terms of ability and cost are decades away. Not something you can build a business on today.
  - devgutt 11y ago
    I'm talking about different robots for different tasks. We already use a lot of them. In terms of costs, this is the catch, these robots could be delivered on-demand in the houses. This could be the startup. Even if the "perfect" technology were decades away, this is a good mission, with a good transient plan.
    - S4M 11y ago
      Yes, Homejoy could have developed and provided to its cleaners tools to make the cleaning faster (for example: something that would be to a toilet brush what a hoover is to a mop - I have no idea how to develop such a thing), making the overall cleaning cheaper - it would take less time, and cleaners charge per hour.
      - devgutt 11y ago
        it would also change the way furniture and house equipment are made to facilitate cleaning.
- brc 11y ago
  Just because you might not like cleaning, it's a stretch to imagine that casual cleaners don't like their job. Saying someone on by low wage job is 'modern slavery' is pretty obtuse when real life actual slavery is happening right now in parts of the world.
bsbechtel 11y ago
This article does a pretty good job highlighting many of the challenges in this market. Although I'd like to point out one additional aspect - in the $400-$800 billion home services market, I would say less than half of that is actually consumer facing. I don't have an exact number, but I would estimate that 50-75% of that market is actually B2B. It is commercial property managers, apartment complexes, general contractors, etc hiring smaller contractors (cleaners, painters, carpet installers, window washers, etc) for recurring business, sometimes contracts up to several hundred thousand dollars/year. At that size of contract, you had better be able to provide trained, high quality workers who can consistently deliver. What these larger businesses are paying the smaller contractors for is managing and training of the labor that actually does the work. Once the contract is set up, all that is required of the larger contractor is a phone call - not much more work than tapping a few buttons on an app on your phone, but much less cost to the smaller contractor who doesn't need to develop software to win business. This aspect of the industry makes it very difficult for software to have a big impact, and it probably partially why there are no profitable success stories in this space (Angie's List, Yelp, all the on-demand startups, all have yet to achieve consistent profitability).
ryan90 11y ago
This article is terrible. It cites no real sources to back up it's claims of reacharounds and churn problems. It's one person's speculation.

59 points by Zweihander 11y ago

Sorry to hear this happen to Homejoy. We almost did a startup like this when we were in YC and looking for new opportunities after we closed our previous startup. However we did some real-world experiments and ran the calculations and could see no way it could work. Here in London we have a lot of recent migrants meaning it's a race to the bottom in terms of hourly rate. You can't make a margin on that... The math just doesn't work. At the time I felt a bit stupid when, months later, Homejoy and several other startups entered the scene. However, I'm very glad we stuck to our guns. The only companies making real money in this market are large established agencies with cleaners on the payroll. And where's the fun/disruption in that? ;)

jarcane 11y ago

Same as patents. You don't get to just ignore reams of existing regulation because you tack 'but with a computer' on a business model. Uber is only succeeding on the basis of having escaped notice for long enough that they could build coffers to bully their way into markets. The public is more aware now than it was then. SV/StartupLand needs to get over this idea that they can magically just make the world do what it wants and pretend things like legislation and human rights don't exist when they get in the way of their business model. You've got to work hard in the system like everybody else.

richardw 11y ago
That's my default view, but then I get surprised by both Uber and airbnb. StartupLand is one place where these limits are tested and you and I aren't the final arbiters of when or where they'll be overcome. (Btw, did not downvote)
pbreit 11y ago
This is a dumb sentiment and the article is actually one of the few that ignores the bogus culprit of employee classification in Homejoy's demise. It really makes very little sense to forbid a person from driving a passenger for money. The AirBnB situation is actually grayer since zoning does make sense (who wants a revolving door of random tourists in their apartment building or even residential neighborhood?). Uber and AirBnB are succeeding because they are delighting customers in a rather visceral way.
- onion2k 11y ago
  It really makes very little sense to forbid a person from driving a passenger for money No one is suggesting people shouldn't be allowed to drive for money, nor that Uber shouldn't be allowed to run their service, but simply that if Uber drivers are doing the work of employees they should get the benefits of being employees. The only real difference that would make is that Uber would be a little more expensive to use. It'd still be cheaper that a taxi. I think that's quite reasonable if it means Uber drivers have a happier, more stable life.
  - dylanjermiah 11y ago
    A survey of the drivers found that 70%+ didn't want to be employees. But no, you should decide for them right?
    - danieltillett 11y ago
      Any reason for why 70% said they didn't want to be employees?
      - dylanjermiah 11y ago
        I apologise, it was 87%. http://www.therecorder.com/id=1202731784422/Lawyer-Uber-Drivers-Dont-Want-to-Be-Employees?slreturn=20150701073557 http://www.therecorder.com/id=1202731784422/Lawyer-Uber-Driv...
  - icebraining 11y ago
    Yeah. And maybe we should make taxi drivers employees too, since currently they are (for the most part) actually contractors with no benefits.
  - pbreit 11y ago
    Oh, the employee thing. First, I think the contractor classification is totally appropriate for Uber drivers. But if you really want to classify them as employees, I wouldn't be surprised if Uber makes even more money paying min wage and keeping the surge.
dylanjermiah 11y ago
Legislation has nothing to do with 'human rights'. Especially in the transportation space. Regulation only existed, to the extent that it did, because the taxi cartel bought politicians and than they outlawed competition. The rhetoric of consumer safety, 'fairness', congestion etc. is just that, rhetoric.
- regeland 11y ago
  Absolutely. The taxi cab industry is example number one for regulatory capture. The foolish talk about "employee rights" for Uber drivers makes no sense. The market will determine the rate for labor of any types, Uber drivers included. All legislation around "employee rights" will do is take them away. Why is it necessary for the government to make illegal a voluntary exchange between Uber and drivers at any wage and any labor agreement? Either can walk away at any time. If Uber wasn't providing these drivers a service, they wouldn't sign up.
brc 11y ago
Human rights? Like the right to a free and fair trial? The right to free speech? I think the hyperbole might have dulled the comment a bit.

gogopuppygogo 11y ago

Homejoy also had terrible customer service. I bought a cleaning deal advertised on facebook, the day of the appointment I tried to cancel and they charged me an additional $10 to cancel. That's right, I paid more than the cost of the appointment to cancel. I tried to get my money back from them through support but they wouldn't budge. I just refuted the charges on my credit card and got it back that way. It was a nightmare dealing with them. Good bye, and good riddance.

capex 11y ago
Homejoy could'v done a better job, but how were you being fair to them?
- URSpider94 11y ago
  I think the GP would have been fine forfeiting what he had paid for a cancellation. Homejoy was asking him to pay MORE for a canceled appointment than if the appointment had actually happened, ie he would lose what he had paid plus $10. How is that fair?
- task_queue 11y ago
  Homejoy provides a service. The OP cancelled that service. What service was rendered that required an additional payment to be fair to Homejoy?
  - capex 11y ago
    Homejoy was certainly not fair to try and charge $10 MORE to cancel the order. But 'forfeiting' your credit card charge just because you could not or did not cancel in time, that doesn't skirt the boundaries of fairness on any service.
    - task_queue 11y ago
      Credit card payment reversals keep merchants honest, they are disincentives to enact or continue unfair behavior against the consumer.

pbreit 11y ago

Finally someone states the obvious that Homejoy's problems had little to do with employee classification and far more to do with the basic business model (trying to convert a match-making situation into a transactional business) and sloppy execution.

danieltillett 11y ago
I want to know how all the smart money missed these obvious problems? I don't blame Adora and co for trying, but where were the adults.
- chakkop 11y ago
  Basically don't overestimate how much the 'adults' understand. There is a huge amount of hand-waving, FOMO, leaps of faith, etc... by VCs when they make (and manage) investments. When things work, they are explained ex-post facto in visionary terms. When they don't... people forget soon anyway.

Animats 11y ago

Homejoy's competition is Yelp and Google local search. Both of them do roughly the same job for less money. Homejoy just isn't needed. As Pando Daily keeps pointing out, the only Uber-like business that works is Uber. Uber has an incredible valuation, but their revenue and profit numbers are lousy. Their revenue is about $450m/yr, but they are not profitable. They are, however, building a fancy new headquarters, always a bad sign.

dylanjermiah 11y ago
2014 was 450. On target for 6x this year and 3x next year. Also, most of the early markets are profitable. Investing in growth > profitability at this point.
onion2k 11y ago
Startup valuations are a function of how much they needed to be valued at to raise their last round. It's entirely projected future value; it bares no relation whatsoever to their current position in terms of revenue and profit.
hayksaakian 11y ago
Instacart is arguably similar to uber I think they're doing alright, and don't have a "big" substitute. (Amazon fresh is typically not same day) (yes some grocery stores do delivery, but most don't)
- disillusioned 11y ago
  Amazon Fresh is _explicitly_ same-day.
  - hayksaakian 11y ago
    my mistake i can't edit the parent comment, but you're right.
kumarski 11y ago
I don't believe you're accurate. "Uber's revenues in San Francisco, meanwhile, are running at $500 million per year. That's more than three times the size of the taxi market. And Uber's revenues in San Francisco are still growing at about 200% per year." Read more: http://www.businessinsider.com/uber-revenue-san-francisco-2015-1#ixzz3hYHfk14u http://www.businessinsider.com/uber-revenue-san-francisco-20...

awjr 11y ago

I'm guessing, just like in the UK, domestic services are very much cash in hand driven and homeowners are desperate to "find somebody good" they can trust and not let go of them. By removing Homejoy after the evaluation period, the homeowner and service provider get into a stronger relationship, that is cheaper for the homeowner and more financially rewarding for the service provider.

ThomPete 11y ago

I am happy to see a sense of reality being forced into some of these companies. Building a business on people rather than tech is a much much tougher thing to do both execution wise and financially. And so the real innovation if someone wants to "change the world" without trying to cheat the system is to find a way to make a profitable business with a huge part of the business being used to pay salaries. For many entrepreneurs who are used to thinking about business as something which is based on software, servers and an internet connection, this is completely uncharted territory. You don't reap the benefits of scaling your business as if it's just a matter of adding more servers. The primary challenges with these kind of business if they are to be built on a solid foundation is. 1) Patience – It takes a long time to scale an employee based business up to anything worthwhile and sustainable 2) Selective – You have to be smart about which sectors actually have enough money and need for your service to make a proper ROI 3) Employee satisfaction. You can't just treat your people as if they are freelancers without giving them freelance opportunities. Instead you have to really care about your people and make them want to work for your company and do a great job. It's that manual labour thats going to be your brand, not your backend server or the customers mobile app.

deleted 11y ago
[deleted]

andy_ppp 11y ago

I'm using Handy here in London and it's amazing, cheap (so I tip the cleaner very well) and they will do a 2h clean (usually here in London most don't bother, want 3h) really early in the morning. I imagine homejoy would be the same. I have no idea how the company will make money however.

rtb 11y ago

25% of the wages? Sounds like they were just greedy as much as anything else. Of course the customers are going to be looking to cut out the middleman as soon as possible with that kind of commission.

chiph 11y ago
If they'd reduced their cut to say 5% for repeat bookings between the same client and worker, they could have justified the high initial percentage as a matchmaking fee. But otherwise, yeah, people were just going to take their professional relationship offline and cut them out of the loop.
- rtb 11y ago
  Exactly. Or maybe no commission at all on repeat bookings? Then there's no pressure for the relationship to jump the walled garden and you keep the customer on the site to come to you first for future searches.

deleted 11y ago

[deleted]

devgutt 11y ago

I always thought that Homejoy were planning to automate as much as possible, if not everything, related to cleaning services using robotics and stuff, and that humans were only a temporary measure while developing technology. Sadly no, they were optimizing for human cleaning. They could have kept them as contractors while support them providing free education and resources to reallocation in the work force. This would be much better to society instead of organizing the modern slavery.

ams6110 11y ago
Realistically, robot house-cleaners that can compete with a human both in terms of ability and cost are decades away. Not something you can build a business on today.
- devgutt 11y ago
  I'm talking about different robots for different tasks. We already use a lot of them. In terms of costs, this is the catch, these robots could be delivered on-demand in the houses. This could be the startup. Even if the "perfect" technology were decades away, this is a good mission, with a good transient plan.
  - S4M 11y ago
    Yes, Homejoy could have developed and provided to its cleaners tools to make the cleaning faster (for example: something that would be to a toilet brush what a hoover is to a mop - I have no idea how to develop such a thing), making the overall cleaning cheaper - it would take less time, and cleaners charge per hour.
    - devgutt 11y ago
      it would also change the way furniture and house equipment are made to facilitate cleaning.
brc 11y ago
Just because you might not like cleaning, it's a stretch to imagine that casual cleaners don't like their job. Saying someone on by low wage job is 'modern slavery' is pretty obtuse when real life actual slavery is happening right now in parts of the world.

bsbechtel 11y ago

This article does a pretty good job highlighting many of the challenges in this market. Although I'd like to point out one additional aspect - in the $400-$800 billion home services market, I would say less than half of that is actually consumer facing. I don't have an exact number, but I would estimate that 50-75% of that market is actually B2B. It is commercial property managers, apartment complexes, general contractors, etc hiring smaller contractors (cleaners, painters, carpet installers, window washers, etc) for recurring business, sometimes contracts up to several hundred thousand dollars/year. At that size of contract, you had better be able to provide trained, high quality workers who can consistently deliver. What these larger businesses are paying the smaller contractors for is managing and training of the labor that actually does the work. Once the contract is set up, all that is required of the larger contractor is a phone call - not much more work than tapping a few buttons on an app on your phone, but much less cost to the smaller contractor who doesn't need to develop software to win business. This aspect of the industry makes it very difficult for software to have a big impact, and it probably partially why there are no profitable success stories in this space (Angie's List, Yelp, all the on-demand startups, all have yet to achieve consistent profitability).

ryan90 11y ago

This article is terrible. It cites no real sources to back up it's claims of reacharounds and churn problems. It's one person's speculation.