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 🛠️: Home Services
Scaled 📈: Airtasker; Took growth slow and steady, built a marketplace business model in the home services space that took advantage of tech but didn’t face the same problems as many gig economy startups.
Failed 👎: Homejoy; Saw great growth in its early days, but foundational issues, lawsuits, and unsustainable momentum eventually killed the startup.
Lessons Learned 💡: Grow sustainably, not as fast as possible. Not every industry can be commodified like the “Uber for X” business model. Gig economy platforms need an incentive to keep clients and workers on board or a model that avoids the issue of leakage altogether.
Today’s Topic: Home Services 🛠️
Hello everyone, apologies for being a morning late; it has been a very hectic week. Let’s get into it!
My dad is an old-fashioned guy; he taught me quite a bit about taking care of and improving the house and made me a very meticulous cleaner (after many long years). Of course, even the handiest of home improvers will run into problems they can’t tackle alone due to lack of equipment, skill, or time. An economy of service providers exists to provide solutions in these cases (or if you just don’t want to deal with it). Whether for cleaning up or fixing broken pipes, startups have also arisen to connect you to those professionals.
Homejoy was one of these startups that took on this space, starting as a simple online house cleaning provider before expanding into more home services. It saw explosive growth in its early years but ultimately shut down in 2015. Airtasker launched as a marketplace for odd jobs, facilitating work between individuals on any task imaginable. The company went public earlier this year and is now focusing on expanding to the US. While had similar offerings at the surface level, the business models and results are worlds apart. What led them down these separate paths? Let’s dive in.
Scale: Airtasker ✔️
Airtasker was launched in 2012 in Australia (I seem to cover Australian startups often) and has been given many names over the years, from “eBay for Odd Jobs” to “Craigslist for Chores”. The core offering is a platform available via web and mobile app for people, dubbed as “Taskers” to provide listings for odd jobs that others, known as “Runners” can bid on. The platform also provides a communication channel between the Runner and Tasker to discuss details of the job. It also has several segmented offerings, such as Airtasker Business for companies to post more business-oriented tasks for qualified pros as well. More recently, it also lets people list their services online. Essentially, Airtasker provides the marketplace for individuals to meet others looking for small chunks of work and lets them hash it out on their own terms, taking a small cut of the fee (quite a bit like a more expansive TaskRabbit). Of course, there’s nothing limiting the platform to home services; plenty of people complete more diverse tasks like catching Pokemon, resume reviews, guitar amp repair, and Salesforce setup for small businesses (from a glance at tasks available nearby). However, quite a few more tasks on the marketplace relate to cleaning, house repairs, and other handyman jobs.
Funding and growth weren’t explosive for Airtasker, but certainly steady and healthy. By 2016, 4 years after launch, Airtasker had grown its user base to 600,000, pushed transaction volume to over A$40M per year, and raised A$32M in funding. With more executive hires and board seats filled following its Series B raise of A$22M in mid-2016, Airtasker’s new goal was to become a household name throughout Australia. There were some bumps in the road on that path, as with any startup. The Labor Council of New South Wales (Unions NSW) tangled with Airtasker first over wages for Runners in 2017, eventually reaching an agreement to encourage higher pay rates and better conditions on the platform and gig economy overall. The two parties also agreed to work with the Fair Work Commission in Australia on an independent disputes resolution process, and Airtasker launched a workers’ compensation insurance product around the same time to support Taskers. In 2018, concerns were raised again because of unlicensed operators taking on dangerous work on the platform, leading to a senate inquiry and calls for independent regulation on the gig economy overall. Despite these issues, Airtasker continued on, becoming cash flow positive late in 2019 after cutting marketing spend to run learner. The timing was great given the effects of the pandemic early in 2020. Not that the pandemic was a huge roadblock; on the contrary, it accelerated Airtasker’s growth as more people needed alternative income. This helped the company push into new markets like New Zealand and Singapore. With all that momentum built, Airtasker had its IPO in March of this year, raised further funding from investors, and acquired an American competitor ahead of a push into the US. CEO Tim Fung has a wise analogy for building a marketplace startup:
A lot of entrepreneurs only focus on product and the reality is in a marketplace the people form part of the product so whilst you can sort of sit around trying to tweak the details of the website, a huge part of what makes the experience of the platform awesome is just the people – how many of them there are, and just the culture.
It’s the same thing for a nightclub, you can have the coolest nightclub with the best seats and awesome vodka martinis, but if you don’t have people dancing in there it’s lame. You need lots of people and you need them to be dancing.
Fail: Homejoy 🏠
Homejoy was launched in 2012 in San Francisco to bring affordable cleaning services to everyone’s homes. The founders went through Y Combinator, though it took them a few years to settle on the right idea. To better understand cleaning, they worked as cleaners themselves to find the pain points in the industry and decided to streamline things with technology. At the startup’s peak, users could use the web portal or mobile app to book house cleanings, furniture assembly, AC repair, interior painting, and many other handyman services at a predetermined rate. In contrast to Airtasker’s marketplace model, it was very much the “Uber for Home Services” that people imagine much of the gig economy looks like. The scope of services was defined by Homejoy and offered to customers through the company rather than individuals. Homejoy would background check, insure, and train (to a certain degree) its workers and connect them to its customers. Like Airtasker, it also took a cut of the cost. By reducing the friction of getting a cleaner or handyman and delivering on the trust component of letting someone in your home by vetting cleaners and providing info about them to customers ahead of time, Homejoy sought to make these services a part of everyone’s life rather than a luxury.
Known as Pathjoy in its early days, the startup raised a seed round and saw rapid growth in the early days, with hundreds of customers growing at 2-3x each month soon after the product went live in the Bay Area. Early in 2013, the company raised a further $1.7M and became Homejoy as it launched in New York and solidified its grip across major West Coast cities that it had expanded to since launch. Just a few months later, the company started offering house cleaning as a perk employers could give to their employees through the Homejoy platform as the company continued to grow across the US. Expansion soon pushed across the border as Homejoy launched in Canada. Growth was accelerating very quickly, reflected by the $38M Series B raise the company had at the end of 2013. With operations in 31 cities and thousands of cleaning pros on the platform, there were high hopes for Homejoy in 2014. The startup expanded to the UK, acquired competitor Get Maid, and launched a variety of home services besides cleaning throughout the year as it gained momentum. Cracks began showing at the end of the year as it paused operations in Canada, supposedly to focus on other markets like Europe. By mid-2015, Homejoy shut down entirely, citing difficulty raising further funding and lawsuits related to worker classification. Given the headlines lawsuits like that were making for Uber and others, it’s not surprising Homejoy was a casualty given how involved they were with their contractors. Others have pointed to problems with retention in pursuit of fast growth in too many markets, heavy discounts attracting the wrong customers, quality problems in cleanings as the startup grew, the huge crop of competitors popping up (including one from the infamous Rocket Internet), and customer-contractor leakage off the platform as additional core problems. The blend of all these issues was enough to bring Homejoy down despite a very strong start.
Lessons Learned 💡
Homejoy was a flashy headliner in its day, but all that growth didn’t move the needle in the end. Airtasker’s path was slower but proved more stable for long-term success. Their markets weren’t entirely overlapped given the variety of tasks available on Airtasker’s platform, but its business model successfully avoids some of the legal challenges Homejoy faced. By operating as a marketplace and letting clients and contractors negotiate details themselves, Airtasker gets to avoid the entire classification issue regarding workers. They don’t train, direct, or control the Runners on their platform; all they do is give them a place to look for work and verify some qualifications. It’s up to clients to select who they want to work with and determine if they’re up for the job. While this comes with some of its own problems, it won’t bring about as many extremely costly lawsuits as Homejoy faced nor will it raise as many questions about the consistency of work; people understand there’s no “Airtasker” standard to the work. As I’ve said many times on Scaled and Failed, “Uber for X” isn’t the answer for every industry. It’s hard to consistently deliver cleanings or commoditize a product in that market compared to transportation. Cleaning and handy work is much more involved and differentiated. The business model just didn’t align with the industry.
Airtasker’s tasks also reflect more one-off jobs that don’t typically become recurring work relationships with clients. Homejoy’s leakage issue arose because house cleaning is a job that requires trust in the contractor and a high bar for quality. If you develop that trust with a cleaner and think they do a good job, why would you continue paying the platform when you can take it offline? Cleaning is a recurring job, and it saves money for both sides to handle the process themselves. Airtasker, on the other hand, didn’t focus particularly on cleaning; many other jobs like repairs or installations really only need to be done once. You don’t need to develop the same level of trust or a working relationship with the handyman. Homejoy started rolling out services like that, but it came too little, too late. Nothing incentivized sticking with Homejoy’s platform for experienced pros or recurring clients. Similar startups would do well to have a clear value proposition to keep people aboard over the long term; if people can find a way to save money with no real risk, they’ll do it.
A point I’ve covered quite often on Scaled and Failed is that the growth at all cost mindset can very easily push a startup into the Speed Trap pattern of failure. A former employee of Homejoy discussed the effect of Homejoy’s pursuit of the European market on the business in a Medium post. He claims that the European push killed the company’s momentum and gobbled up most of the startup’s resources, making it impossible to address many of the other problems Homejoy faced. Airtasker had plenty of successful overseas expansions, but it took its time and waited for the right opportunities to do so. New markets push growth numbers, but they don’t solve retention issues or strategic problems affecting the business model. Sooner or later, things will collapse. It’s better to slow down and solve cracks in the foundation than try to outrace them.
More Reads and Info
A quick note; I’ve decided to start including some really interesting links I’ve read recently that aren’t exactly related to the current topic. I’ll separate them as below going forward.
On This Topic
Other Good Reads
Thanks for reading! If you’ve used a niche gig economy startup before, let me know how it was in the comments. If you found this interesting, consider sharing it with friends and subscribing if you haven’t already!
Cheers,
Amil