For those of you not familiar with Homejoy, they were one of the darlings of the online “On Demand” economy along with Handy, Task Rabbit and Uber. Homejoy’s business model was to disrupt the existing way that people arrange for their homes to be cleaned using services like Molly Maid. Homejoy’s primary secret sauce was a set of computer algorithms that connected homeowners with contract-for-hire cleaners. They eventually raised as much as $40million before shutting their doors earlier this year.
How did one of the hottest “On Demand” services providers go from hero to zero in such a short time? The reason given for the company folding was that there were four employment classification suits against the company. These lawsuits challenged the status of Homejoy’s cleaners who were supposed to be contractors. Since a judge had just handed class action status in similar suits brought against Uber by its drivers, this made investors nervous and impossible for Homejoy to raise more money.
The contract-for-hire system — key to the cost structure and profits of the on-demand model as currently conceived — was falling apart. Homejoy’s main business premise was that they did not employ any of the people that provided the home cleaning services. Instead they were treated as 1099 Contractors. More importantly, what are some lessons to be learned from Homejoy’s brief tenure?
I’ve summed this up in three major headings as follows:
- Inability to deliver a consistent high-quality experience
- Scheduling Errors
- Worker Retention & Control
Unlike Uber, where all a contractor requires is a valid driver’s license and supposedly a clean car, home cleaning requires much more extensive training. When you hire someone to provide cleaning services, there is no way to know which cleaners are good.
The limitation was the contractor relationship that Homejoy employed. Under this type of relationship, they were limited in how much control they could exert over the cleaner. While they hosted training sessions, there was no way to mandate attendance. Neither could they enforce a dress code or a list of tasks that the cleaners needed to complete.
Furthermore, Homejoy offered steep discounts to get new customers. What should have been a service worth $85-$100 was being sold for $20. Since Homejoy was taking 25% of this as their cut, it didn’t leave much for the contract cleaner. This attracted young, inexperienced and low-quality pro labor (at times even homeless people), leading to inconsistent and lower-quality work. This mix doesn’t quite cut it for the average homeowner who wants a spotless home, thus leading to low customer retention.
Homejoy billed themselves as a technology company and their primary secret sauce was the software platform that allowed them to match homeowners with contract cleaners. However, coordinating schedules was a critical weakness.
A key failure in their software was that it was unable to account for travel time between cleaning appointments. The system would schedule jobs without taking into account the time it might take to travel to the next appointment. Cleaners would be given back to back appointments and often showed up late for the second job, leaving them to deal with irate customers.
As most employers in the services industry have learned, you have to identify your good workers and hang on to them. Homejoy’s basic structure worked against them in achieving this.
First was the 25% cut Homejoy took from the cleaning fees. In order to retain good workers they would have to give up some of that margin or increase fees. Giving up margin made their business model unfeasible and unattractive to investors. Increasing fees meant charging above market rates for below market quality of work.
Second was the customer acquisition model based on discounting via sites like Groupon. While using discounts helped attract customers initially, only 15% or less ever engaged in repeat business. Homejoy was never able to provide their cleaners with enough work to make a living wage.
Third was that while Homejoy was disrupting the home cleaning industry with their new model, their cleaners were disrupting Homejoy’s business model by stealing their customers. Cleaners that were good at doing their jobs found they were able to engage with their customers directly, at a lower cost, effectively cutting out Homejoy altogether.
While Homejoy’s business plan may have looked good on paper, they fell down on a fundamental business rule – deliver a consistent quality service/product. By focusing strictly on a disruptive technology business model was a bold step, not focusing on delivering quality service is actually what killed them in the end.