Some thoughts on the end of Homejoy

Source: Betakit

Last week, on-demand home cleaning service company HomeJoy announced it was closing its doors. This is one of the first big name on-demand economy companies to go under. Despite it’s significant growth, valuation, and VC funding, Homejoy couldn’t solve issues around quality control, customer service, rising customer acquisition costs and lack of repeat customers. While it blamed the uncertainty around the classification of workers as the main reason it was closing its doors (its clear it had an effect) Homejoy had many other issues that it was dealing with. There have been some great post-mortems on the death of Homejoy and the future for other on-demand companies – you can check a few of them out here, here, and here. Some  additional thoughts:

 

Chasing growth has its challenges – startups thrive off of growth, which enables them to build brand recognition, expand nationally and internationally, and hopefully drive future rounds of funding to scale the company. Homejoy was no exception as it made aggressive expansion plans to U.S. Markets, Canada and International. During these efforts, it faced significant challenges which made it shut down some of these operations soon after they started. Since Homejoy was burning lots of cash and not seeing returns in the form of customers and revenue, it was going to face significant challenges (or did face significant challenges) in efforts to raise more VC funding. There was the prospect of having to take a down round (not good.) Perhaps HomeJoy expanded too fast too soon, and since it was stretched so thin it didn’t have the runway to keep going. It may have been better off expanding slower, using the cash to refine the product which could have helped it grow its customer base. While the growth may have come at a slower rate, choosing that option could have kept them around today.

 

Deep Discounting doesn’t drive customer loyalty – One of the strategies in their growth playbook was to leverage deep discounting sites such as Groupon when they expanded into new cities. I remember last summer when my roommate bought a $19/coupon on Groupon and use it for a home cleaning service. Once the coupon expired, we never used Homejoy again. Unfortunately, while these coupons were popular, many other people were like myself and my roommate, and instead of using the coupon as an opportunity to forge a relationship with repeat cleanings, we used it as a one-time cheap solution. In the world of marketing, Profit = Revenue generated ($19) – Customer Acquisition Cost and Expenses (much higher than $19.) While it’s okay to lose money on these types of marketing campaigns (in some cases, necessary) they can work if you can increase your Lifetime Value of your customer by getting them to be a repeat customer until they spend enough money to have the LTV equation become positive. Unfortunately, there were not many repeat customers, thus making their deep discounts nothing more than a significant marketing expense.

 

Poor Customer Service drives people away – As I mentioned earlier, for Homejoy to work they would need to generate repeat business from customers. Customers tend to be loyal when they feel their needs are being met and that they are being served well. Homejoy struggled with its customer service operations – as you can see from the Yelp ratings there were many instances of cancellations, rebooking without consent, and in some cases what seems like deceptive practices to lock people into generating repeat business. None of these things bode well for generating health customer relationships, and ultimately drove people away from Homejoy instead of to it.

 

Contracting is a double-edged sword – By not having its cleaners as employees, Homejoy was able to save significant payroll costs. At the same time, because these contractors were not employees, Homejoy could not set contractors’ schedules or provide training, all of which hindered its ability to deliver a service that met the needs of its customers. One of the biggest challenges with this was service consistency. What I consider to be adequate for making a bed or cleaning a bathroom is entirely different than the next contractor. Without any legal ability to mandate standards or guidelines, Homejoy was unable to deliver a consistent product that was up to the standards of its customer.

 

This particular issue will continue to impact other on-demand companies, especially ones that have a large workforce or have a diverse set of contractors. Uber and Lyft struggled with this, so did AirBNB. Companies like Shyp and Postmates have already bitten the bullet and decided to make these contractors employees to help manage some of these issues. The current court cases could have huge implications for how these on-demand companies classify their workers, so be on the watch for how companies begin to respond.

 

What’s next?

This isn’t the first on-demand company to fold and it won’t be the last. I was surprised that they were not acquired by Handy, which seems to have a much better operation in place that has enabled it to avoid some of the pitfalls of Homejoy. The death of Homejoy should make other on-demand companies think about how they are running their business but it’s important to remember that there are always casualties and failures that happen when new business models come about.. Innovation and new business always has its casualties, and while it’s unfortunate to see Homejoy close its doors (and to see people lose their jobs) I look forward to seeing the changes (and hopefully, improvements) companies make as a result of this. We’re still early days in the on-demand economy, but I think that while this is an unfortunate event, there still are plenty more exciting things to come.

 

 

Hillary and the On-demand economy

It’s been a busy few months in the press for the sharing economy. Uber lost a case against a former driver, it’s financials were leaked to Business Insider, and companies such as Shyp and Instacart decided to move some of their employees from 1099’s to part and full-time. To add to the fray, politicians, such as Presidential Hopeful Hillary Clinton have gotten in on it and thrown their thoughts into the ring.

In a speech she gave earlier this week at The New School in Manhattan, Hillary focused on what she was going to do to help strengthen the middle class, much of which circles around identifying and creating good-paying and sustainable jobs.

You can read the speech, Techcrunch wrap-up, Fred Wilson’s (Union Square Venture) thoughts, and some counterarguments from Jeffrey Carter, but Clinton made mention of a handful of examples of how everyday people are now making money renting out rooms (AirBNB) designing websites (oDesk) and selling hand crafts (Etsy.) While she applauded the innovation and creativity of these companies, she also  hypothetically questioned whether or not they were within the criteria of a good paying and sustainable job.

Later on in the speech, she criticized and accused companies of “wage theft,” not providing benefits, fair pay, realistic work schedules, etc, and while she didn’t single out companies specifically, its hard not to read between the lines to know who she is referring to (Cough: Uber)

It’s clear that the debate on this topic is still in its infancy. I  am curious to see how lawmakers and Presidential Candidates will tackle these issues in the coming months. Instead of trying to pontificate my political beliefs, I thought I would focus on analyzing some key core questions that have come out of Hillary’s speech and the subsequent happenings in the gig/on-demand economy debate.

Source: Peers.org

Who decides what are good jobs? – Jeffrey Carter raised this question in his critique of Hillary’s speech. We live in a very different world than when our outdated labor laws were created. Furthermore, the nature of business today is more complex and nuanced . While these jobs might not fit the means of “traditional” standards, it does not mean they are bad. Beauty, afterall, is in the eye of the beholder, and perhaps some people are fine with jobs that we as society view as undesirable or unworkable. But, at a baseline or minimum, employers, laws and governments, or some combination of those entities, owe it to their employees or contractors to provide basic (up for debate on what that entails) resources and protections to enable their employees to succeed.

Are these good jobs, or are they “best available?” – I can concede the argument that Uber, Lyft etc are creating jobs. But are people taking these jobs because they believe they are good jobs to be had or are they taking them because there aren’t any other options? I realize I just said that beauty is in the eye of the beholder. Furthermore, I recognize that some people don’t have a choice and can’t be picky about their work when they need to provide for themselves or their family, but if these are truly the best jobs available then it begs the question of what do we need to collectively do in order to create better jobs and opportunities for the under, unemployed, and job seekers.

How sustainable are these opportunities? – Being an Uber driver or Postmates courier for a summer, or, while you apply for a new job is one thing, but trying to do this full-time and for a sustainable period of time is another. Are these jobs that have been created as a result of the gig and on-demand economy sustainable employment opportunities? Considering that the long game for Uber and/or Lyft involves driverless cars, what happens when those finally become available? Many on-demand companies will trumpet that they are job creators, and while this is technically true if people who are working these jobs can’t afford to support themselves or their families it calls into question of whether or not they are viable sources of employment that will help people and the country grow for the long term.

What are the “personas” of the drivers? – David Plouffe, one of Obama’s ex-aides and now a policy advisor for Uber talked about how many Uber drivers are middle class people trying to earn some extra income. Earlier in the year, Uber boasted that drivers were making $90,000 per year. Recently, Platform Sherpas posted its estimates for what Uber/Lyft drivers earning in key markets ($10 in smaller markets, $29 in NY.) I rode a Lyft today with a driver who’s done 5800 rides, drives 5 days a week and says he lives “comfortably” outside of San Francisco. Outside of these antedotical stories its hard to pin down exactly where drivers fall on the continuum of how much they work and how much they make. If I were to make an educated guess, I’d argue most are not making $90,000 and most are not driving five days a week living comfortably. It would be interesting to see real data or information on the “Drivers of Uber and Lyft” and hear from them directly about how they view their jobs.

How do we balance innovation, competition, and the evolution of society? – I think its hard to apply old standards and laws to many of these new companies because they are so different. However, its also clear that just because you are new and different doesn’t mean you can play by your own rules. Furthermore, many of these services have become part of our lives so quickly (Uber, Airbnb) that it would be hard to rule them illegal or invalid without society having a mini-revolt (not to mention, politicians use it quite frequently.) Similar to Fred Wilson’s sentiments, I think Hillary is right – these new companies are unleashing exciting innovations and opportunities – new business models, types of employment, partnerships, uses of data, etc that take us into unchartered territory. Instead of outlawing it or running away from it, we ought to talk about it and figure out how we can evolve with the innovation and opportunity that has come our way.

These questions (and others) don’t have definitive answers, and this is just the beginning of the discussion around the broader implications of the gig and on-demand economy. It’s been said that at least in developed countries technology plays an increasingly important role in our daily lives and it will be interesting to see how the companies and innovations that have come from the on-demand/gig economy impact and change our world as we know it.