Welcome to Scaled and Failed! My name’s Amil Naik and I’m an aspiring VC and founder at The University of Texas at Austin. I write about startups that scaled and startups that failed to draw insights about the patterns of startup failure and how to avoid them. Everything is clearer in hindsight, so it’s worth looking back.
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TLDR
Today’s Topic 🧼: Car Washes
Scaled 📈: Spiffy; Clear targeting of the right customers, expansion of its services to meet market demand, and decisive pivots to combat the challenges of the pandemic have put Spiffy on the right track.
Failed 👎: Cherry; Lack of accelerating traction despite early success ended in an acqui-hire by Lyft ahead of its launch in Seattle.
Lessons Learned 💡: Not every on-demand industry needs contractors or to operate like Uber; there is value in owning the entire employment chain, depending on business model. Finding the right audience to target early on can help early adoption; maintaining that targeting once found is essential while scaling.
Today’s Topic: Car Washes 🧼
For the many new readers of Scaled and Failed that have joined in the past week, welcome! I do hope you enjoy this week’s issue. If you’ve got any startups or industries you’ve been itching to read about, let me know! For those who aren’t aware, I did a guest post on First 1000 (a great Substack that I highly recommend reading!) about the chocolate startup Mid-Day Squares. You can read it here!
If you’ve got a car, you’ve gotten it washed, whether by your own hand, those cool drive-through machines, or by on-demand startups in recent years. It’s one of those unavoidable rituals that accompany owning a vehicle, along with grumbling about rising gas prices (the first time I saw a gas station in San Francisco, I almost had a heart attack). Luckily, a smartphone is all you need to bring the car wash (and some other services) to you if you’re willing to pay up for the convenience. “Uber for Car Washes” is a segment that has seen its fair share of companies, surprisingly (or unsurprisingly if you remember how many “Uber for X” companies popped up a few years ago).
Spiffy is one such provider of on-demand car care, starting with car washes and other detailing services and expanding to a variety of services today in markets across the US. Cherry was another startup that brought the car wash directly to a vehicle, cleaning it on-site. Though it raised a cool $4.5M Series A and launched in 2012, it was shuttered by the end of that same year then acqui-hired by Lyft ahead of a launch in a new market early in 2013. What led Spiffy to reach the growth needed for a venture-backed startup while Cherry floundered? Let’s dive in.
Scale: Spiffy 🧽
Spiffy was launched late in 2014 in Raleigh, North Carolina as an “Uber for Car Washes” that allowed customers to quickly schedule car washes at their home or work via an app. The founding team had entrepreneurial experience in e-commerce and experience running a traditional wash and detail shop. The MVP hit the ground running in its home city for beta testing and was opened for a wider release shortly afterward. A bonus selling point was the startup’s special process dubbed “Spiffy Green”; water use is minimized, only the most eco-friendly chemicals are used, and cars are washed on a special mat that absorbed all dirty water for reclamation later ☘️.
Unlike most traditional car washes, most customers wanted their vehicles cleaned during the workweek while at the office; this posed a challenge seeing as most parking garage and lot managers didn’t allow car washing on-site. The Spiffy Green process along with a few minor tweaks such as designated wash zones became a necessity at these commercial properties to keep the area tidy and disturbance to a minimum. The modified process was successful in making parking managers more receptive. Additionally, unlike many “Uber for X” companies, Spiffy was committed to hiring full-time employees rather than contractors to ensure the quality of service and proper training. With a convenient app for consumers to schedule, location access to their hottest customer segment, and a differentiated wash process, the foundations for Spiffy were in place to grow going into 2015. Spiffy’s philosophy for taking on the market was centered on a killer combo:
We believe the marriage of these two — great technology AND great full-stack operations — is what it takes to delight customers.
2015 to 2016 saw over 150% growth and expansion to new markets; traction was looking good for Spiffy. 2017 shaped up to be the inflection point year, with an oversubscribed funding round raking in $7.5M in venture dollars, an acquisition of an LA competitor, a foray into oil change services in partnership with Exxon, and launches in more cities across the US as growth accelerated. Up until 2020, things were going great as new products and services, more funding rounds 💸, and more acquisitions leading to new markets and expansion into fleet maintenance all came together. And then, there was the pandemic.
Though things started well in 2020 with new backing from Shell, business took a turn for the worse quickly. Revenue dropped by 90% early on and 200 employees had to be furloughed in April. Facing a looming doom, the company quickly pivoted towards providing decontamination servicing for vehicles and corporate facilities. Recovery was quick that year, and Spiffy is back on track for 2021. Franchising is the company’s next move, opening more locations in even more locations across the country. With the worst of the pandemic behind, Spiffy’s future looks bright ☀️.
Fail: Cherry 🍒
Cherry’s story is a much shorter one; founded late in 2011, seed-funded by some of the PayPal Mafia, and launched in the Bay Area, Cherry allowed users to order a car wash to their vehicle’s location via an app as well. The service was a bit more on-demand than Spiffy’s with washers typically being able to come within the hour rather than requiring a schedule ahead of time. Additionally, the company employed more part-time workers and contractors compared to Spiffy. Traction was strong, with washes and the number of washers on the platform doubling every month since launch. A $4.5M Series A and an expansion to San Diego later in 2012 followed with the early success.
Although there was some controversy about poor promotion surrounding a free wash and automatic subscriptions following a switch to a membership revenue model, there were no very obvious red flags about the business. It was surprising, then, when Cherry shut down its car wash service at the end of the year. The CEO cited another exciting opportunity for the company emerging, which turned out to be an acqui-hire by Lyft ahead of its Seattle launch. For Cherry’s founders, the business just didn’t seem viable as growth didn’t meet the milestones expected of a venture-backed business as time went on. Before the “Uber for X” craze had really taken off and subsequently crashed, Cherry was already out of the running.
Lessons Learned 💡
Given that Spiffy has seen the growth expected of a venture-backed business and successfully pivoted and expanded to meet the market’s needs, the category of on-demand car washes isn’t unfeasible right now (unlike certain on-demand segments). Cherry was a bit early to the scene, and that is likely part of its demise; on-demand service is commonplace nowadays but was more of a novelty back then. Adoption would’ve been tougher for customers. That doesn’t address the entire story, though. Additionally, the terms of Lyft’s acquisition weren’t revealed (though the fact Lyft was young and not swimming in cash back then suggest it likely wasn’t a home run); the offer could have been just good enough for Cherry’s founders to accept and move on even if the business could’ve succeeded. However, several moves Spiffy made have put it a cut above.
With legal battles regarding 1099 contractor status raging for ride-shares like Uber and Lyft, it hasn’t been the safest bet for a business model in recent years. Even before that consideration, the contractor model just isn’t the best fit for every industry and on-demand company. Spiffy’s awesome customer experience and service are built on very specialized and expensive equipment, employees undergoing over 100 hours of training and apprenticeships with more experienced workers, and the trust in the brand that comes from that. Owning the entire employment chain was what made sense for these requirements rather than operating more akin to a marketplace. While operating with contractors can be a cheaper short-term alternative, not every business model is meant to incorporate them. Not every on-demand company is Uber.
Spiffy also focuses heavily on younger working professionals as the target audience, which often leads to a high volume of cleanings in a small area. Since most of their customers schedule services during the workday at the office, it makes it easy for each employee to tackle a ton of washes in a more concentrated area relatively quickly. This makes things more efficient and profitable for Spiffy in terms of volume. The targeting of the right customers was spot-on for Spiffy, and each expansion decision has centered around this. Selling to the right audience as a founder can make things a lot smoother, and maintaining that targeting once you’ve found it while scaling is essential to accelerating growth.
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Cheers,
Amil