In­side the Laun­dry Wars

Inc. (USA) - - CONTENTS - BY BILL SAPORITO

The guys be­hind Rinse think they’ve per­fected the art of do­ing your laun­dry. Their com­peti­tors say ex­actly the same thing.

“You al­ready out­source house­clean­ing and lawn care. Why not out­source laun­dry?” asks a co-founder of a Rinse com­peti­tor.

TThe cus­tomer couldn’t have known that he had just been handed a sack of cleaned-to-or­der laun­dry by one of the na­tion’s most exquisitely ed­u­cated de­liv­ery guys. James Joun has de­grees from Dart­mouth and Har­vard Busi­ness School. He also doesn’t do this much any­more, since he’s the co-founder and COO of Rinse, a rapidly grow­ing laun­dry and dry-clean­ing startup that is try­ing to be­come the first na­tion­ally scaled com­pany in what has al­ways been a very lo­cal busi­ness. This Joun knows in­ti­mately: His Korean im­mi­grant par­ents have run a dry-clean­ing shop in South San Fran­cisco for more than 25 years.

There, he was schooled in op­er­a­tions, such as run­ning con­trap­tions like the top­per, which presses pant tops, and in the finer points of sep­a­rat­ing dirt and stains from all man­ner of fab­rics. This means, in cer­tain re­spects, Joun com­petes against the peo­ple who brought him into the busi­ness—who also hap­pen to be his par­ents. So do a half-dozen other star­tups that see in your soiled laun­dry a po­ten­tial IPO.

“I was ex­plor­ing startup ideas around bring­ing tech­nol­ogy to old-school in­dus­tries and re­mov­ing fric­tion from cus­tomer ex­pe­ri­ences,” says Rinse co-founder and CEO Ajay Prakash, who be­friended Joun at Dart­mouth. “I hadn’t found the one that got me re­ally ex­cited.” Un­til, that is, he and Joun iden­ti­fied the laun­dry and dry- clean­ing sec­tor—frag­mented, un­der­cap­i­tal­ized, per­haps $40 bil­lion big.

What ex­cites Prakash and Joun is free­ing us from drudgery— so long as you’re in a big Amer­i­can city or pos­si­bly Paris, where one of their back­ers lives—while pro­vid­ing cleaner clothes. From 8 to 10 p.m., seven nights a week, Rinse will gather your dirty laun­dry and dry clean­ing, and then, 24 to 72 hours later, de­liver it in that same win­dow. Hav­ing raised more than $23 mil­lion, Rinse has gone be­yond its San Fran­cisco home base to Los An­ge­les, Wash­ing­ton, D.C., Chicago, and Bos­ton; soon it will be in New York City. “Rinse can be a multi­bil­lion­dol­lar busi­ness op­er­at­ing just in the U.S.,” says Paige Craig, the head of Arena Ven­tures, which funded Rinse’s A round. He calls Prakash and Joun “ex­e­cu­tion heroes” who have thought through ev­ery­thing from fine-tun­ing driv­ing routes to clean­ing pro­cesses. (Per­chloroethy­lene, or perc, a less-than-green dry-clean­ing chem­i­cal, never had a chance with these guys.)

Once cus­tomers es­tab­lish a Rinse ac­count, they re­quest a pickup via text, phone app, or web­site, and choose scented or un­scented de­ter­gents, dryer tem­per­a­tures, and the han­dling they want—wash and fold, or wash and hang dry. Rinse then farms out the ac­tual clean­ing, some­times to a lo­cal shop, but more of­ten to a com­mer­cial op­er­a­tion that meets its strin­gent specs. The cleaned clothes are then re­turned to Rinse and sorted for de­liv­ery.

Its prices are com­pet­i­tive with lo­cal shops: Wash and fold is $1.75 a pound (with a 15-pound min­i­mum); a dress shirt costs $2.50 to laun­der; dry clean­ing a suit costs $16. Stan­dard de­liv­ery is $3.99. (Prices do not vary by city yet.) And you don’t have to be home when Rinse de­liv­ers: Valets can drop the bag by your door, or garage, or in your apart­ment hall­way, and then take a pic­ture of the dropped bag to con­firm de­liv­ery. Some­body else does your dirty work, to your spec­i­fi­ca­tions, for a good price. Who wouldn’t want that? “Laun­dry is hated,” says Dan D’Aquisto, co-founder of one of Rinse’s com­peti­tors, the Char­lotte, North Carolina–based 2ULaun­dry. “You’re al­ready out­sourc­ing house­clean­ing and lawn care. Why not out­source laun­dry?”

When Rinse gets to New York, Tom Harari will be wait­ing. In Brook­lyn’s rejuvenated Bush­wick neigh­bor­hood, Harari and his co-founders have been build­ing out their own ser­vice, called Cleanly, which has been blessed by Y Com­bi­na­tor and armed with $11 mil­lion of fund­ing.

Harari, who’s 33, is happy to tell you how Rinse is wrong: Joun and Prakash, he says, are ex­pand­ing far too rapidly. Cleanly stayed home and tight­ened its op­er­a­tions un­til it could de­liver within 24 hours—with one-hour pickup win­dows—morn­ing and night. Harari be­gan by es­sen­tially tak­ing on the more than 3,500 lo­cal store­fronts and dry clean­ers that laun­der Gotham’s shirts and skirts, mostly on a walk-in ba­sis. Then he moved on to chal­lenge

Rinse on its home turf out west last Oc­to­ber. “If I could take you to our San Fran­cisco ware­house, you’d see a bunch of their bags”—from for­mer Rinse cus­tomers—“lined up on our racks,” Harari boasts. “We of­fer a su­pe­rior prod­uct.” The spin cy­cle has clearly started.

Harari’s busi­ness found him when he wasn’t look­ing. Five years ago, he was an over­worked dig­i­tal mar­keter with the ad gi­ant Om­ni­com Me­dia Group who lacked the time to get his wash done. “What do I know about this? I’ve never done this. I don’t have a clean­ing back­ground. I haven’t started a com­pany be­fore,” he says, out­lin­ing rea­son­able rea­sons for avoid­ing en­trepreneur­ship. But an idea had cap­tured him. “I would walk by lo­cal laun­dries, and I would just see the ma­chines spin­ning. I was like, ‘You know what? Some­one’s gonna do this. Maybe it should be me.’ ”

Alex Smerecz­niak, on the other hand, more or less ma­jored in laun­dry at Wake For­est Univer­sity, where he bought the stu­dent-owned and op­er­ated Wake Wash in his sophomore year. Later, he quit a cor­po­rate job to start a laun­dry and dry-clean­ing ser­vice for grownups—he and his boy­hood friend D’Aquisto co-founded 2ULaun­dry, which per­fected its ser­vice in Char­lotte be­fore ex­pand­ing to At­lanta. The two 26-year-olds say they com­pete with what the tech crowd might call the “in­stalled base”—wash­ers and dry­ers in most ev­ery mid­dle-class abode—and that they’re sell­ing an in­creas­ingly pre­cious com­mod­ity. “Time is del­i­cate” is one of 2ULaun­dry’s slo­gans.

Laun­dry doesn’t ask for much: It just wants to be cleaned. It piles up in a ham­per or base­ment un­til, once a week or so, it de­mands at­ten­tion. That’s not the only rea­son Rinse, Cleanly, 2ULaun­dry, and others sense some­thing big. “There’s no mar­ket leader,” says Harari. “The top 4 per­cent of rev­enue is driven by three com­pa­nies”—among them Martin Fran­chises, which brought Mar­tiniz­ing to the world—“but the rest is mom-and­pops. There’s no na­tional brand.”

It seems in­evitable that a ser­vice that al­most every­one might want would at­tract en­trepreneurs. But in­evitable has not trans­lated to suc­cess­ful. Scal­ing some­thing as per­sonal as laun­dry—and de­liv­er­ing it on sched­ule—has proved dif­fi­cult. There’s al­ready a laun­dry list (sorry) of fail­ures: The big­gest washout was Washio, which raised nearly $17 mil­lion from the likes of Ash­ton Kutcher and Nas be­fore cir­cling the drain. (Rinse ab­sorbed Washio’s cus­tomer list.)

To Prakash, Washio’s demise demon­strated that the laun­dry game couldn’t be played as a purely on- de­mand ser­vice, and that it needed a more finely-honed ap­proach. “Ev­ery­body was say­ing, ‘Be Uber for X,’ ” says Prakash. “We knew right away, when we started talk­ing to our cus­tomers, it wasn’t about just tak­ing the Uber play­book and ap­ply­ing it to this busi­ness.”

Prakash, who’s 37, and Joun, 36, both en­vi­sioned start­ing busi­nesses, although not nec­es­sar­ily with each other. After scor­ing MBAs, each went on to pre­dictable pur­suits in New York. Joun worked for Es­sex Wood­lands Health­care Part­ners, a pri­vate eq­uity firm. Prakash took a more wind­ing route that in­cluded stints at Bain & Com­pany, the NBA, Berk­shire Part­ners, Bono­bos, and a sub­scrip­tion de­odor­ant startup.

Both had moved back to San Fran­cisco in­tent on launch­ing some­thing. All they lacked was an idea. Then, one morn­ing in 2013, Joun stopped at his par­ents’ shop. “These ma­chines that I’m used to hear­ing whir in the back­ground as I walk in,” he says, “just weren’t run­ning.” His par­ents had ex­cess ca­pac­ity. By ex­ten­sion, so did all the dry clean­ers in the coun­try that, like his par­ents’, are run­ning 7 a.m. to 7 p.m., six days a week.

Joun and Prakash quickly fig­ured that their

com­bined ex­pe­ri­ence ad­dressed both ends of the busi­ness: Joun knew clean­ing op­er­a­tions, thanks to all those sum­mers and week­ends at his par­ents’ store; Prakash could lean on his back­ground to man­age cus­tomer ser­vice.

And in San Fran­cisco, they could eas­ily find some­one to build the tech­nol­ogy plat­form to link the two. Their premise: The laun­dry process is a se­ries of mi­nor an­noy­ances that they could make in­vis­i­ble. “There were all these lit­tle fric­tion points,” says Prakash. “For ex­am­ple, you don’t know who’s a good dry cleaner.”

They started with three ZIP codes in San Fran­cisco in 2013, using friends and their ex­tended net­works as beta testers. Joun served as the valet, col­lect­ing laun­dry bags and de­liv­er­ing them to his par­ents’ shop, where he su­per­vised the clean­ing. “I was the only driver,” he says. “I per­son­ally met our first 300 or so cus­tomers.” They ini­tially limited ser­vice to Wed­nes­days and Sun­days be­tween 8 and 10 p.m. Now it’s seven days a week. “Forc­ing that con­straint al­lows you to build den­sity much quicker,” Prakash ex­plains. Den­sity—the num­ber of cus­tomers in a de­fined de­liv­ery route—is vi­tal to Rinse. The more cus­tomers in a given neigh­bor­hood, the more that can be han­dled by one valet. You ba­si­cally want a valet driv­ing in a tight cir­cle.

Rinse has about 105 valets in San Fran­cisco, who as­sem­ble at the com­pany’s dis­tri­bu­tion cen­ter on Bran­nan Street at 7 p.m. Each bag is logged in to their smart­phones; the ex­act or­der of de­liv­ery is de­ter­mined by a map­ping al­go­rithm that Rinse de­vel­oped. In a de­par­ture from the gig econ­omy, the valets are em­ploy­ees who are paid $18 to $21 an hour plus mileage. Joun and Prakash be­lieve that hav­ing W-2 work­ers is crit­i­cal to the ser­vice (as do the founders of Cleanly and 2ULaun­dry). It al­lows the com­pany to in­vest more in train­ing, and to ex­pect more of the valets, says Joun.

Once they had ironed out the kinks, in late 2013 the founders be­gan adding ZIP codes and valets, and rais­ing money from friends, fam­ily, and an­gel in­vestors. “The bar­ri­ers to en­try into this space—to get up and run­ning and start serv­ing a hand­ful of cus­tomers—are pretty low,” says Prakash. “It’s the bar­ri­ers to scale that are in­cred­i­bly high.”

That part—the op­er­a­tional com­plex­ity—has kneecapped ear­lier laun­dry star­tups. There is plenty of ex­tra ca­pac­ity in the dry-clean­ing in­dus­try, but it’s scat­tered, qual­ity varies greatly, and it isn’t al­ways avail­able at the right time. Joun fo­cused on find­ing re­tail and com­mer­cial ven­dors who could meet Rinse’s ca­pac­ity re­quire­ments and qual­ity stan­dards.

One is Dou­glas Wa­ters, owner of Laun­dry Ex­press, who ar­rives around mid­night ev­ery night to pick up 3,000 to 4,000 pounds of laun­dry. He hauls those clothes to his com­mer­cial fa­cil­ity in Rich­mond, Cal­i­for­nia, which is stacked with high-speed, high- ca­pac­ity Elec­trolux wash­ers and dry­ers. There, a crew sets aside high-risk gar­ments and then loads the ma­chines. (All pro­cesses are recorded by cam­eras.)

Wa­ters was a gen­eral con­trac­tor be­fore putting his ham­mer down and en­ter­ing the laun­dry busi­ness. (“The at­trac­tion,” he says drolly, “was that it is not gen­eral con­tract­ing.”) But he quickly found that the re­tail laun­dry he built was un­der­uti­lized—that prob­lem again. He made a pitch to Rinse for busi­ness and won it. When Rinse ex­panded to Los An­ge­les, so did he, in the way that key sup­pli­ers of­ten ac­com­pany au­tomak­ers when they build new plants.

Rinse, Cleanly, and 2ULaun­dry, hav­ing bro­ken out of their home turfs, are study­ing the map for their next op­por­tu­ni­ties. Rinse is eye­ing Hous­ton and Dal­las. 2ULaun­dry aims to spread through the South­east, per­haps to Mi­ami. At presstime, Cleanly, now in San Fran­cisco and D.C., was near­ing a $15 mil­lion to $20 mil­lion fund­ing round to un­der­write a sig­nif­i­cant ex­pan­sion.

There’s a bit of a tro­jan horse strat­egy de­vel­op­ing too. If you are a Rinse or Cleanly or 2ULaun­dry cus­tomer, you have given these com­pa­nies per­mis­sion to en­ter your home. What else can they of­fer? Rinse and Cleanly are col­lect­ing tons of data about what their cus­tomers buy and wear—both pho­to­graph all dry-cleaned items. Craig, Rinse’s VC and ad­viser, sug­gests the com­pany could “have the largest col­lec­tion of data in con­sumer wardrobes”—so “we could help brands and re­tail­ers sell into your closet.”

That’s ei­ther very creepy or very help­ful to you and the com­pa­nies that want shelf space in your closet. This closet play is pred­i­cated on Rinse’s hav­ing a na­tional foot­print. Craig says Joun and Prakash have the op­er­a­tional chops to pull that off, which is why he’s bet­ting on them. “When we started, we had am­bi­tions to be the first and largest na­tional brand,” says Prakash. “If we can cre­ate the best cus­tomer ex­pe­ri­ence, and also re­move the fric­tion for the ven­dors, we have the op­por­tu­nity to re­ally be that dom­i­nant brand.”

So are mom-and-pop dry clean­ers—and, for that mat­ter, Joun’s mom and pop—doomed? Not nec­es­sar­ily, he says: The best will be part­ners to the new na­tional brands. As­sum­ing, of course, Rinse and its ri­vals have the right for­mula to win busi­ness from the rest of us—the great un­washed.

“We knew right away,” says Prakash, “that it wasn’t about just tak­ing the Uber play­book and ap­ply­ing it to this busi­ness.”

TUMBLIN’ DRY Rinse cus­tomers’ cloth­ing, at rest and in mid spin, at Laun­dry Ex­press in Rich­mond, Cal­i­for­nia. Rinse owns no clean­ing fa­cil­i­ties and in­stead part­ners with mom-and-pop and com­mer­cial laun­der­ers.

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