Trouble hitting new- style startup
On- demand cleaning, repair firm struggles
Homejoy, a San Francisco house- cleaning and repairs company that epitomizes the new breed of on- demand tech startups, appears to be struggling and is now for sale.
Bigger rival Handy of New York is in talks to acquire it, according to sources familiar with the negotiations, who cautioned that a deal could still fall through. In April, a rival German company called Helpling declined to buy Homejoy after scrutinizing its finances, according to Venture Beat.
Homejoy declined to comment. Handy said it is continually seeking appropriate acquisitions, having already snapped up smaller rivals Exec and Britain’s Mopp last year.
“Handy is now more than twice the size than any other player and is the clear leader in the category,” it said.
Homejoy’s travails could cast a shadow on the burgeoning
segment of tech firms offering customers instant gratification by letting users summon services from their smartphones. It’s a poster child for the industry, in the same way that Pets. com was for the dot- com boom. That pet supply e- tailer ingloriously imploded two years after its launch, amid the dot- com crash, as venture funding dried up. The difference this time is that many other on- demand companies seem to be in robust health — and venture money is still flowing.
The Handy- Homejoy talks were first reported by TechCrunch. Homejoy and Handy both launched in 2012. Homejoy started by offering housecleaning services and added homerepairs last fall. Handy offered both housecleaning and maintenance services from the getgo, but has said the cleaning is the lion’s share of its business.
Handy, which operates in 30 U. S. markets, two in Canada and five in Britain, said that its revenue and bookings have grown tenfold over the past year and that it now processes over 100,000 transactions a month. By October, it was generating gross revenue of $ 1 million a week, meaning its annual revenue would be $ 52 million, according to Umang Dua, chief operating officer. Handy has raised $ 60 million in venture capital.
That sunny report stands in sharp contrast to Homejoy, whose finances are dismal, according to a source familiar with the company and its industry who declined to be named as the information is sensitive.
Homejoy, which has about 70 full- time employees in San Francisco and has raised $ 40 million in venture backing, recorded gross revenue of about $ 25 million in 2014, the source said— not much for a company that last year trumpeted its expansion to 33 major markets worldwide.
More seriously, it operates in the red, losing about $ 12 on every cleaning before even counting the cost of customer acquisition, according to the source. The money is lost in operational costs of delivering the service compared with the average fee per customer.
However, another source close to Homejoy disputed that report, saying the company actually does make money on its bookings.
When Homejoy added repair services last year, Vice President of Growth Aaron Cheung acknowledged that promotions to win business could mean losing money on each job.
“In some cases we’re paying the service professionals more than we’re charging the customers,” he told The Chronicle.
Trouble outside U. S.
Late last year, Homejoy said it was “pausing operations” in Canada and France, the first public signal of trouble. Helpling, the German suitor that reportedly walked away, is aggressively pursuing those markets.
Homejoy has often failed to win repeat business, the first source said. As The Chronicle reported, many workers and customers use companies like Homejoy and TaskRabbit almost as a tip sheet, booking an initial job through the service and then making direct arrangements that exclude it — and its share of the revenue. Homejoy raised its cleaning rates last summer. It charged $ 25 an hour for regular clients and $ 35 an hour for one- time or sporadic users, up from a flat $ 20 an hour. That move lost it some customers, the source said.
Like other on- demand companies in the category often dubbed “Uber for X,” Homejoy provides services through independent contractors. It acts as a middleman, arranging gigs and taking a cut of each one. The workers’ status has triggered controversies, with some suing to be reclassified as employees. Homejoy, Handy, Uber, Lyft, Instacart and others are battling such suits in legal court, as well as in the court of public opinion.
With big infusions of namebrand venture capital ( Redpoint Ventures and Google Ventures were lead investors), photogenic young sister- and- brother founders and a compelling origination story — the eureka moment came after Adora Cheung grew disgusted with her brother Aaron’s slovenly bachelor pad — Homejoy seemed to embody the new breed of tech companies that sought to disrupt established industries.
In the case of the home cleaning and repairs market, it’s a gargantuan but highly fragmented sector. Most observers thought the area seemed ripe for Silicon Valley style efficiency, transparent pricing, seamless payment processing and economies of scale.
And many still think that’s so — it may just be that Homejoy’s approach didn’t work or that the market needs to consolidate into a few big players.
New players
Tech giant Amazon jumped into the market this year, launching Amazon Home Services. Meanwhile Google is reportedly also eyeing its own foray, despite having led a $ 100 million funding round in San Francisco’s Thumbtack, which acts as a marketplace for home professionals, rather than a middleman like Homejoy and Handy.
Homejoy recruits its cleaners and repair people from Craigslist and personal referrals. That results in sometimes- spotty quality, several sources said. Witness its Bay Area Yelp reviews, which split between five- star raves and one- star rants about cleaners who never showed up, or left the house dirty. ( Its average is three stars.)
“In comparison, we focus on going after licensed professionals who have been doing this for a long period of time,” said Matt Ehrlichman, CEO of Seattle’s Porch. com, which has a business unit that overlaps with Homejoy. Porch, with over $ 100 million in venture backing, started as a marketplace where homeowners could research and find home- service professionals who paid to advertise on the service. This year it added a service called Porch Booking that lets consumer directly book and pay for repairs and cleanings just as they can with Handy and Homejoy.
“People want to know that someone they let into their home is a quality professional,” Ehrlichman said.