I could see labor classification being a major stumbling block for them however, and I'm curious as to your thoughts on this. Profitability may be attainable at $20/hr given sufficient scale, but it would be completely impossible with an employee based workforce.
I know SV has a culture of moving fast and breaking things, and when you look at companies like Uber and AirBNB you can see them facing a number of legal challenges around established regulations, many of which are protectionist in nature.
However, worker classification seems to be an altogether different issue, as it's much broader than the relatively obscure hotel or livery laws that those companies are facing, and which vary from city to city. Worker classification impacts nearly every service-based business in the country, and is mandated on both the state and federal level.
I know smart people don't invest in things that have fundamental, life-threatening flaws, so I'm curious to know how they expect to get around this issue.
It makes sense that it would be easier to raise some angel money than to raise venture capital, but is it typically much easier to raise millions in angel money than it is to raise an A round? Is social proof helping in the former and non-existent in the latter?
Separately, have you seen a case where investors completely failed to pay attention to a growing company due to some attribute of the founder?
They tried a bunch of different ideas. I don't remember the exact order or how they ended up doing cleaning. I remember it was a close shave though, and that they almost ran out of money.
I love hearing the real stories of struggle and then success. Often the long road to success is rewritten as overnight success. Even in PathJoy's case. Founded in 2012 while technically correct, really masks the true story. http://www.crunchbase.com/company/homejoy
Congrats to Homejoy, but a very frustrating part about following this industry (and I guess startups in general) is the media's blatant overlooking of competitors because they just aren't part of the valley's circle. MyClean is a company I've worked with here in NYC and am a customer of that have been in the online cleaning-on-demand space before EXEC entered. They're profitable, offer a great service, and yet time and time again articles come out framing the industry as if EXEC and Homejoy are the only two players. They're hardworking guys and to see them consistently ignored is disappointing.
And what about the fact that Homejoy got caught trying to buy Yelp reviews? Even still, their Yelp reviews are quite poor in many big markets (Yelp reviews are a major driver in this business)? In addition, their $20/hr price is unsustainable and will have to go up once they demand profitability. Two week wait times to book a cleaning may appear to indicate heavy demand, but it also indicates poor planning and resource management.
Apparently all that matters anymore is how much VC money you can raise, not the underlying business. "Journalism" in this sector is so incredibly lazy.
1. Acquire MyClean for its "technology" (website and back office software).
2. Expand into other cities, either through direct investment or through the acquisition of local home cleaning services.
This type of roll-up strategy was not uncommon in the first .com boom. Now, instead of VCs financing the creation of networks of websites, they can finance the creation of networks of small businesses.
Double the work, half the fun, and potentially none of the profit!
Homejoy charges $20/hour and pays cleaners $12 to $15 an hour[1]. The business model is to undercut rivals[2].
Margin compression appears to be the trend in many of the saturated, highly-competitive personal services markets like home cleaning. Homejoy might have great growth, but investing nearly $50 million in margin compressed sectors seems like a stretch for venture capitalists who have typically invested in high growth, high margin technology companies. The valuation math just gets crazy.
What's next? VC-led roll-ups of small, local house cleaning services a la the website roll-ups of the last boom/bubble?
Running a startup in a low margin business is one of those things that seems like a bad idea till it's not. In this case the definitive counterexample happened 19 years ago: Amazon.
The main difference to me is that Amazon has a massive moat (in the Buffet sense) to prevent other competition from building an identical service. What's to stop someone from building a HomeJoy clone and undercutting them even further?
As a retailer they do, but they don't as AWS, so a moat may not be necessary. It would still be nice of course. I can think of some possible ideas, but I should save that convo to have with Adora.
If your margins are low, and you can still grow, aren't you still in a substantially better place than many revenue free companies that have received huge amounts of VC (based on the OP's criteria for VC investment). Hell, Twitter's margins are negative right now (as long as I am not mangling the use of "margin") and that hasn't stopped investors.
Pulling out the survivorship bias argument may be convenient for online discussion and debate, but it's rarely very compelling.
I could point out all of the fundamental operational and financial differences between a low margin service business like Homejoy and a low margin online retailer like Amazon, but you already know them.
The article hints at Homejoy's plans to apply their underlying technology to services beyond cleaning.
It's easy to look at what Homejoy is currently doing, extrapolate to the point where they dominate that specific market, and say, well, this would be worth $X. But I imagine the vision that HJ has sold investors on is one well beyond the relatively narrow market in which they currently operate.
> The article hints at Homejoy's plans to apply their underlying technology to services beyond cleaning.
That's easier said than done. More often than not, when young, fast-growing companies try to enter new markets quickly in this fashion, it doesn't have the intended outcome.
> It's easy to look at what Homejoy is currently doing, extrapolate to the point where they dominate that specific market, and say, well, this would be worth $X. But I imagine the vision that HJ has sold investors on is one well beyond the relatively narrow market in which they currently operate.
It's even easier to look at what markets Homejoy could apply its technology to, extrapolate to the point where they dominate most if not all of those markets, and say, well, this would be worth $x. Even though this is not at all likely.
Typically the expansion markets have worse economics or other operational problems. That's why they wer not the 'model' or tier 1 market to begin with. It does seem a stretch to put a huge valuation on a business with so much value 'on the come'. The exception (that perhaps proves the rule) seems to be Amazon.
It's pretty disingenuous to say "We're really sorry! We're fully booked right now in this area." when you don't even service the area yet. Just be honest and say you haven't made it to my city yet. I'd respect that a lot more.
I have to agree with this sentiment. I'm in nyc. I've hired several cleaners for my apartment through different services, and each cleaner I got was very different than the one before them, even through the same cleaning service.
After I found a cleaner I liked and trusted, I just contacted them directly (via text) to book a time to clean.
I don't see how you would prevent this from happening? Its cheaper for me, and the cleaner gets paid directly with no commissions taken out.
I see this as a different situation from airbnb because this is a repeat service (weekly, biweekly, monthly) and this relationship will last longer than an airbnb relationship which is usually a one time deal.
Exactly. I would not be surprised if they had some sort of dumb clause basically stating that if a cleaner tries to setup a out of homejoy transaction they are banned.
Even if they did, I'm not sure how they would enforce this. I'm sure all other cleaning services have this clause in their contracts with workers, but it probably still happens on a frequent basis as there is little chance of them finding out.
By providing more than just a person to provide the service, such as having liability insurance and a pool of providers. They also likely have disincentives for the people providing the service to make deals on the side. This is why consulting companies avoid evaporation.
Additionally, in the case of the pet service, they may make much of their money on one-time transactions, say for people travelling.
Airbnb is a somewhat similar example. You can definitely make deals directly with a homeowner/tenant, but both parties are protected and there is insurance when you go through Airbnb. Peace of mind is worth a lot.
Actually, Airbnb is quite different. Whereas a cleaning service is something you'll indefinitely need on a regular basis, most people will only stay at a particular Airbnb listing once. This makes the middleman model work for them.
What sort of insurance? My wife booked an apartment in London several months ago. Got there in November and it wasn't anywhere near what was shown on the site - same location, but size, amenities, etc were all not as advertised.
He is talking about the insurance AirBnb offers to host in case a guest messes up the place.
A well publicized incident happened where someone trashed a person's place. The insurance AirBnb offers makes you try to use your existing policy first.
I live in Chicago and tried Homejoy a couple months ago to clean my apartment. The entire booking process was quick and smooth, and the cleaner was pleasant and did a good job. I'm glad to hear they are doing well.
On one hand, it makes little sense to continue paying a middle man for a repeating service like home cleaning. On the other, there's some value in having a diversity of vetted providers and the easy ability to switch. $38m sounds like a lot, though, at this juncture. The novelty wears off pretty quickly.
I've used homejoy 8 times so far. I'm shocked at how cheap it is. Every one of my cleaners has been nice. One seemed kinda cracked out but still did a decent job. Good to see homejoy continuing to expand.
