Homejoy
From Invertopedia, the encyclopedia of how things fail
Homejoy was a San Francisco startup that booked house cleaners through an app and treated them as independent contractors[2][4]. It raised about $40 million[1][3] and spread to about 35 cities in five countries[1], much of it on first cleanings sold for $19.99 on deal sites like Groupon[2]. An analysis of its financials seen by Backchannel found only about a quarter of customers still used it after the first month[2]. It shut on July 31, 2015, with its CEO calling worker classification lawsuits the "deciding factor"[1][4].
Contents
The bet
Home cleaning could be booked like a ride: an app and a scheduling algorithm would match homeowners with contract cleaners, and Homejoy would take a cut[2]. Cheap first cleanings would bring customers in, and enough of them would come back at full price to pay for the discounts.
Speed was the plan. In December 2013 Homejoy said it was in 30 markets, had more than 100 staff and was growing revenue by double digits each month[3]. CEO Adora Cheung said her main concern was growing fast while keeping quality high[3].
What happened
| 2010 | Siblings Adora and Aaron Cheung start the company with a small investment from the Y Combinator accelerator.[2] |
|---|---|
| 2012 | The service launches, first as Pathjoy, selling cleaning at $20 an hour.[1][3] |
| Dec 5, 2013 | Homejoy announces $38 million from a Series A led by Google Ventures and a Series B led by Redpoint Ventures, about $40 million in all.[3] |
| Early 2014 | Homejoy cuts its standard prices sharply to win customers in dozens of new cities.[2] |
| Mid-2014 | Thousands of people buy first cleanings for $19.99 on deal sites like Groupon. Internal data shows most of them never book again.[2] |
| Mar 2015 | Homejoy and other startups face a class action in San Francisco federal court over classing workers as contractors.[1] |
| Jul 17, 2015 | Homejoy says it will shut down, after failing to raise a new round.[1][4] |
| Jul 31, 2015 | The service closes. About 20 staff are reported to be joining Google.[1] |
The kill shot
Homejoy paid to win customers it could not keep. Each cleaning lost money, and the discounts brought in bargain hunters who left once the discount ran out.
Cheung told Re/code that the worker lawsuits were the "deciding factor" in the failed fundraise[4], and at the end Homejoy faced four suits over its workers' status[2]. But more than half a dozen former employees told Backchannel the lawsuits were not the main reason[2]. They pointed to mounting losses, poor retention, a costly international push and the steady loss of good cleaners to direct deals with clients[2].
"We were spending a lot of money to acquire them, but not really retaining them," said Daniel Hung, the second full-time engineer[2]. An analyst who followed the sector put it more simply: "Each individual home cleaning was simply not profitable."[2]
Red flags ignored
- Growth bought with discounts. A Harvard case write-up, citing Forbes, put 75% of bookings as coming from discounts rather than referrals or organic traffic.[5]
- Customers who left. About a quarter of customers stayed past the first month and fewer than 10% past six months.[2]
- Cleaners who left. After Homejoy's cut a cleaner typically made about $15 an hour, and good cleaners took regular clients off the platform.[2]
- No backup when a cleaner cancelled. Homejoy could find a replacement for a last-minute cancellation only about 15 to 20 percent of the time, according to a former employee.[2]
- A cost model resting on one legal question. The contractor model kept costs down but also kept Homejoy from requiring training or setting standards for cleaners, and it was being challenged in court.[1][2]
The cost
About $40 million raised[1][3], gone in about three years[1]. Homejoy grew from about 20 employees in spring 2013 to more than 100 two years later[2]. Its better-funded rival Handy, with more than $60 million, expanded to fewer cities and burned cash more slowly[2].
The inversion
Judge growth by the second order, not the first. If customers only show up at a price that loses money, you have bought a number, not a business.
What survived
The people. About 20 Homejoy employees were reported to be joining Google to work on matching customers with local service providers[1], and Backchannel reported that Google took much of its talent, including its former COO[2]. The worker classification fight that Homejoy cited was spreading across the on-demand industry as it closed[4].
References
- ^ “Home cleaning startup Homejoy bites the dust – literally”. Fortune (Kia Kokalitcheva), July 17, 2015. The July 31 shutdown, the founders, 2012 founding, the $40 million and investors, 35 cities in five countries, $20 an hour, the March 2015 class action, the failed round and about 20 staff joining Google.
- ^ “Why Homejoy Failed”. Backchannel (Christina Farr), via Wired, October 26, 2015. The $19.99 Groupon cleanings, the retention analysis, the 2014 price cuts, the four suits, former employees' account, staff growth, Y Combinator in 2010, cleaner pay, cancellations, Handy's funding, and Google hiring the talent.
- ^ “Homejoy Raises $38M As It Looks To Expand Beyond Home Cleaning”. TechCrunch (Anthony Ha), December 5, 2013. The $38 million Series A and B, the $40 million total, launch as Pathjoy, $20 an hour, 30 markets, 100-plus staff and Cheung's growth comments.
- ^ “Cleaning Startup Homejoy Shuts Down, Blames Worker Classification Lawsuits”. Entrepreneur (Laura Entis), July 17, 2015. Cheung calling worker classification the "deciding factor" (to Re/code), the shutdown dates and the wider classification fight.
- ^ “Homejoy: A Silicon Valley darling's path to the grave”. Harvard Business School Digital Initiative (student case), modified March 5, 2018. The reported 75% of bookings from discounts, citing Forbes.