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Homejoy’s Not So Joyous Demise

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Homejoy's inability to solve the customer retention problem prevented it from reaching a path to profitability.

There has been a stark rise of startups taking advantage of the on-demand economy in the last decade. Many successful stories abound, including Airbnb and Uber. There is even some success amongst on-demand grocery services provided by Amazon Prime Now and FreshDirect. However, crowdsourced cleaning services have struggled to be successful though they represent a $400B opportunity.

Take, for instance, the story of Homejoy. Homejoy was an online platform that connected customers with cleaning and handymen services, provided by independent contractors. The company generated a lot of buzz after its initial founding in 2010, but it closed just 5 years later after having raised $64M from investors like Andreessen Horowitz, First Round Capital, and Google Ventures. Several things led to Homejoy’s demise: growth was too quick, quality control was lacking, lawsuits were expensive, and a customer retention strategy was missing.

Growth in on-demand services is usually a key component in developing a competitive edge and a sustainable business model. On-demand services usually have a “chicken and egg” problem where more customers are necessary to attract more service workers and vice versa. However, the growth at Homejoy happened at the expense of a sustainable path to quality and profitability. Homejoy focused too heavily on discounts and too little on attracting quality service workers. The large discounts in Homejoy’s services would attract customers who were willing to give a cleaning service that’s usually worth ~$85 a try for $19. But customer expectations for home cleaning are vastly different from a taxi service or renting someone else’s home. No matter where you fall on the personality spectrum, you have some minimal preferences on how you want items cleaned and arranged. Most people also have high expectations for the spotlessness of their home after hiring someone to clean it. The difference in preferences and high expectations amongst consumers means that home cleaning is not easily standardized and requires some level of training to learn and deliver a quality service. Yet, Homejoy’s large discount in pricing would attract lower skilled service workers. In addition, Homejoy hired cleaners as independent contractors, which prevented Homejoy from being able to effectively train cleaners.

Homejoy’s model did not easily lend itself to retaining customers. The high discount in pricing led to adverse selection, where customers who opted for Homejoy services were usually not the ones who were willing to pay more for recurring services. Furthermore, customers were unlikely to return after a poor quality experience with a service worker. For those customers that had a good experience, leakage was a large risk as customers and cleaners could easily strike a mutually beneficial deal off the platform.

Other startups in the home cleaning and handymen services are also facing similar issues today, including Handy. Handy has seen some success in following the Taskrabbit path of partnering with a large retailer. Homejoy could have benefited from a similar model. Partnering with a large retailer like Walmart or Ikea would have brought the cost of acquisition down and helped solve the issue on quality as the retailer can help take on issues in training without compromising the “independent contractor” relationship. However, Handy still faces the same dilemmas in leakage and requires a large customer service team to help retain customers after they face a quality issue. Time will only tell if they can retain their core business or will need to shift entirely to a partnership model.

 

Sources:

https://www.inc.com/magazine/201611/jeff-bercovici/from-pivot-to-profit.html

https://www.crunchbase.com/organization/homejoy#section-funding-rounds

https://www.memphisdailynews.com/news/2018/mar/20/not-handy-walmart-offers-tv-installers-furniture-builders/

https://www.forbes.com/sites/ellenhuet/2015/07/23/what-really-killed-homejoy-it-couldnt-hold-onto-its-customers/#a730d2c18741

https://hackernoon.com/powering-the-on-demand-economy-6c11b6735d10

 

3 thoughts on “Homejoy’s Not So Joyous Demise

  1. Thanks for this interesting post. It’s a shame that on-demand cleaning platforms are struggling to exist. Do you think there is a business model that works for this type of program? I wonder if a company hired cleaners as full time associates, rather than using contractors, this could be sustainable with enough scale. This would remove the desire for disintermediation and improve standardization and training amongst cleaners.

  2. I think the discount model to attract customers is a large part of why companies then struggle when they increase price. Customers may be willing to pay $19, but I wonder how much the market shrinks when the price is $85. Yet on the flip side, we see companies like Uber that heavily discount when entering a new market but then do not see customers switch to their prior method of getting the job done (i.e. taxis). I wonder if there is a scientific way for companies to test whether customers are using them because of the lower price or is the product getting the job done better than the previously available option.

  3. Thanks for sharing. This industry definitely has promise, but there are, as you mention, some serious barriers. In these 2-sided markets places, there is a large difference in expectations between something like having your home cleaned vs being transported via Uber or Lyft. The latter is much more commoditized. While I don’t have a good solution for this, I do have some thoughts on disintermediation. I think they can differentiate themselves on superior customer service. To that end they can also add some sort of insurance or money back guarantee. This is unlikely to happen if the parties disintermediate and there is a problem in the future. For the customer, they can establish some sort of loyalty program or “punch-card” system which could help make customers stickier. For the cleaners, they could offer marketing services to increase their business. This marketing service is likely cost-prohibitive for each cleaner to do in an effective manner. Thus, having Homejoy offer this service would increase the likelihood that the cleaners would stay on the platform.

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