Death of a startup: Why failed Homejoy is one of the largest services in the house cleaning

Homejoy is one of the first and largest cleaning service of apartments on the market, which is estimated at more than $400 billion. Among the project investors — the PayPal co-founder Max Levchin Fund and Google Ventures. The startup was officially launched in July 2012, and in three years, despite the enthusiasm of the founders and the number of investments, was forced to close down. According to one former employees of the service, the founders of Homejoy cheered for your project.

The service is not working only two days a year — at Christmas and thanksgiving. Once one of the leaders had to drive myself home clients and clean their apartments on thanksgiving Day in 2013. As it turned out, the developers of a startup is not noticed in the code a small error, and on this day, the app stopped taking orders. Clients will never know that they responded to the call Homejoy founder Adora Chung.

In 2015, the leadership Homejoy announced that the service ran out of funds (despite a long period of growth). New investors could not be found — and the startup was forced to close down. When the project has completed its activity, it became clear that the company pursued numerous lawsuits related to the identification of its employees. Like other popular services (such as Uber or TaskRabbit), Homejoy has designed its own workers as independent contractors regardless of how many hours a week they spend on cleaning.

According to the plaintiffs, the company thus deprived the cleaners overtime fees for processing and other benefits enjoyed by regular employees. Adora Cheung in an interview with Re/code said that lawsuits have been a decisive factor in the closure of Homejoy. However, former employees of a startup, writes the editor of the Backchannel, dont agree with it — they claim that litigation is just one of the many reasons for the failure of the project.

Actually, say the workers, with whom managed to talk Backchannel, the company had a lot of problems. From customer retention to technical failures and constant staff turnover. One of the most major troubles for the project was the acquisition of new customers — their value was “high paralisys”.

In mid-2014 start-up has launched a campaign to sell coupons on Groupon on cleaning. All cleaning would have cost the owner of $19.99 (while the standard rate of the service was $20 per hour). These coupons have purchased thousands of people, but almost none of them returned for a second cleaning. Nevertheless, says Backchannel, the company continued to aggressively promote this event.

According to a former operating Manager of the company Anton Sitzman, manual Homejoy was aware of all the problems faced by startups selling a Groupon, but could not stop the campaign — largely due to the fact that the main competitor of the service (Handy) used a similar promotion strategy. To the editor Backchannel got an indoor report on the work of Homejoy. From this it follows that only 25% of clients used the services of a start-up longer than a month, and only 10% is longer than six months. “The key problem is that we did not receive sufficient funds from our customers.

We spent a lot of money on their recruitment, but the retention was too low,” says Daniel hung, the second developer company. At the same time, Homejoy suffered large losses — for example, to enter new markets at start-up time greatly reduced the cost of cleaning, which affected the revenues of the project. Another problem that could not be addressed by the organization — the quality of service.

Many customers were not satisfied with the cleaning. “We were never able to figure out how to provide the best quality service,” says Sitzman. At the end of 2014, the company began to experiment, trying to retain customers and improve the quality of service but was, according to the editor Backchannel, too late. Six months later, the startup had to shut down.

Homejoy, writes Christina Farr, was far from the only startup in Silicon valley that focuses on own growth and not on revenue. The reason for this strategy instruction investors. “The growth represents the access to cash flows,” writes Jeff Jordan, partner of venture Fund Andreessen Horowitz, proinvestirovatj Homejoy.

Many startups in the sharing economy principles, are guided by this principle, writes editor Backchannel. One of the most striking examples is Uber, a company that has attracted more than $8 billion of financing, but is still unprofitable. It can take years before the business model of the company will justify itself globally, say industry experts. “The rapid expansion turned out to Homejoy a daunting task and questioned the existence of the entire company,” writes Backchannel.

At the peak of his popularity Homejoy worked in 30 U.S. cities, and the size of the company in 2014 amounted to more than 100 people. The service team worked former employees of such it giants as Facebook and Google. For the pursuit of rapid international expansion the management of the startup, says Zisman, forget about other things.

Local project managers were not able to solve specific operational issues — for example, to establish relationships with suppliers. Startup bought detergents for employees, while not delving into which of them were cheaper and more efficient, not tracking their use and without signing contracts with vendors. Another technical problem that the management paid little attention, fascinated by the growth error in the algorithm of the call of the employee. The technology used by the company did not take into account the time for moving from one place to another and often the cleaner needed to reach the next customer within a short period of time.

The development team spent months Troubleshooting this problem. And the company spent a lot of money on compensation for frustrated customers (discounts and gifts). “We have allowed money worldwide”, — says Anton Sitzman. “All the blunders and waste was justified by the fact that we need rapid growth”.

“It remains to see how a show Homejoy competitors,” notes the editor Backchannel. Main rival Homejoy — Handy — chose a different strategy. The company works in fewer cities, but has received more funding — $60 million vs. $40 million invested by the investor in Homejoy.

Guide Homejoy was proud of the team assembled. Many employees worked 14 hours a day. The main pride of Homejoy, the startup has managed to build a team of people who did not hesitate to take your jacket off and get my hands dirty. Any new employee Homejoy — whether a developer, a marketer or a top Manager, he passed the “test cleaning”. Before that, each of them underwent a special training on cleaning with the operations Manager Stephanie Toler.

Executives and managers worked together with all. CEO Chung Adore most of the staff was described as charismatic and strong leader — someone who can take control of the ship in difficult times and to help him avoid the crash. “Like that time when she went to clean houses customers on thanksgiving Day”.

However, one of the former employees of the company notes that after attracting a second round of investment guide “locked” in a close circle. Companys management persons have ceased to pay attention even to the advice of some top managers. “After they got the new money, the co gave her the arrogance to emerge in full force”. One example Backchannel.

Adora Cheung, who had no previous experience of working with clients, together with his brother (co-founder of Homejoy) decided to terminate the support of the project, despite the protests of top management — to reduce costs. This has led to a surge of unhappy feedback from customers and negative media publications and blogs. In the last year, the startup has hired several strong senior managers, but, says Christina Farr, it was too late.

Homejoy has experienced problems not only with customer retention, but the retention of good cleaners. At first the company offered them too low rate (much lower than the competition). Then the rate increased, but for most workers it was still low and barely allowed to reduce the ends — although many of them carried out orders from morning to night.

In addition, the company did not understand how to distinguish the good cleaners from the bad and could not focus on retention. “Working in Uber requires a driving licence, but that does not guarantee quality service. To determine the person who can make quality cleaning, even more difficult”. While Homejoy couldnt control their own contractors because they technically are not a regular employees of the company.

For all cleaners were held special trainings, but there was no guarantee that the employee will attend at least one such training. As a result, the company decided to give each cleaner a test period of a month, and if during that time his work has generated a large number of complaints, the cleaner was disconnected from the platform. In addition, there were the cases, when the cleaners got acquainted with customers and agreed on next visit, not using the platform. Some have even started their own small business cleaning.

In most of the cities in which he worked as startup, it failed to gain the necessary number of cleaners, to provide the customers if not the best service, then at least a minimal chance of delay the contractor or cancel the order. Christina Farr writes that the experience Homejoy again proves the necessity of developing new legislation that will regulate the work of such projects.

The employees of these start-UPS will be able to receive the benefits available regular employees, not being with them. On the other hand, the company will be able to monitor their learning and execution of orders, thus providing the best services and shifting some of the risks on the shoulders of those who create them. “We are trapped between customer requirements and quality of service,” says Anton Sitzman.


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