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: Babysitting
Scaled: UrbanSitter; Leveraged tech to provide social proof in a space that relies on it, built a successful playbook for tackling new markets, and went against the grain developing its early service.
Failed: Poppy; Saw initial promise but couldn’t build a scalable business model as the value proposition didn’t hold for the wider market.
Lessons Learned: Test and verify with target customers beyond your expected early adopters and build out structure and process for scaling before you need it.
Today’s Topic: Babysitting
If you have kids or plan to, you’ll probably need a babysitter at some point. What used to be a space marked by word of mouth between parents in the community and cash under the table to avoid taxes has become a space wrapped by technology. No longer do you need to rely on your neighbor’s high school kid being free a certain weekend; with a few clicks and bits of information, you can find someone online on the fly. Of course, it’s a bit tougher to trust someone you don’t know beyond online reviews with your flesh and blood, but background checks and other safety features seem to be the standard on these services nowadays. Whether in need of a long-term nanny or a last-minute emergency sitter, there’s someone at the ready to watch your kids for you.
The childcare industry in the United States was around a $54B industry in 2019. Although it took a serious hit in 2020 due to Covid, it is expected to get back on track in growth as the pandemic subsides. It is difficult to estimate what portion of that is babysitting and how much of babysitting is even counted since many of those transactions take place in cash without report. However, demand for virtual babysitting during the pandemic saw a sharp rise, giving parents a break and keeping the profession alive when social contact has been impossible. As parents return to work, demand for in-person babysitting will undoubtedly rise as well, taking back a share of the childcare pie. UrbanSitter is one company leading the shift towards technology in babysitting, allowing parents to find and vet sitters and nannies that have had background checks, post jobs, and see who their friends have hired. They have rolled out across many major cities in the United States and raised a $17M Series C in 2017. Poppy was similar a similar company but attempted a more hands-on approach to matching sitters and families rather than being an open marketplace. Although the company raised over $2M in funding and was loved by many users, it ultimately shut down in 2018.
Scale: UrbanSitter
Founded late in 2010 and first launched in San Francisco about a year later, UrbanSitter has worked to leverage the power of connections and trust in the childcare industry. One of the founders, Lynn Perkins, was featured on an episode of the Founders & Friends Podcast as well as in a Q&A on StartUp Beat and dove into the story of starting up UrbanSitter, scaling the company, and creating solutions to many of the challenges the startup faced. When she was taking time off from her previous job, she plugged into different online communities of parents in San Francisco and noticed that social recommendations were a powerful validation check for products and services, particularly in childcare. Although people in these groups often didn’t know each other, there seemed to be some inherent trust in a recommendation by someone that was a part of the same groups. Following a lot of research conducted by interviewing parents and babysitters to define pain points, the initial site was created to simplify the booking process and to take advantage of the need for a trusted recommendation. The service was built to utilize the power of a person’s social network using Facebook Connect and show which babysitters were being used and recommended by their friends. In addition, it made it easy to search by availability, pay online, leave reviews, and book sitters directly. The goal was to build a network between parents in a community and a pool of qualified sitters so that there was always someone qualified and trustworthy available to babysit. The company has seen a lot of traction and funding over the years, expanding across many major cities in the US since then. They also acquired Sitter Inc. in 2019 and partnered with the parenting benefits company Cleo near the onset of the pandemic to provide childcare to parents returning to work.
The problem UrbanSitter was addressing was not a new one, nor was it one others haven’t attempted to solve. However, its value proposition of enabling easy social proof was a key differentiator from other services that also provided convenience in finding babysitters. UrbanSitter also focused on a market that had the greatest need for marketplace support on both sides: cities. Explaining why the market focus was on urban areas, Perkins said that:
We saw the greatest need for an easier sitter booking process in urban areas. Packed with potentially qualified sitters who didn’t grow up there, ‘urban sitters’ rarely have the word-of-mouth referral systems that their counterparts in smaller communities have. What’s more, families who live in or around metropolitan areas often have a particularly tough time finding sitters—i.e. many are ‘transplants’ and do not have family in the area. UrbanSitter encompasses this demographic and our desire to make finding a sitter in large markets much easier.
Additionally, Perkin’s co-founder Daisy Downs developed a “playbook” for the company that allowed them to replicate their initial success in San Francisco by making minor adjustments for each new market. This focus on nailing process and figuring out how to repeat what works is an often neglected practice in startups, but UrbanSitter has utilized it to penetrate new cities very efficiently with an 8-week plan while allowing them to adapt to the quirks of each market. This playbook included finding local superconnectors that would help forge local partnerships to build brand credibility, building a pool of high-quality sitters, getting involvement from parents and having them take a look at the sitters they’d recruited, and slowly transitioning these strategies away from a grassroots approach to a more technology-enabled one. By focusing on small segments of each city at a time and focusing on building great connections between sitters and early adopters, they could deliver an amazing experience that would facilitate growth in a more hands-off way throughout the larger market. It’s no surprise that this type of process-oriented thinking permeates UrbanSitter as the guiding framework for the company.
UrbanSitter also made a decision that clashed with the common Silicon Valley wisdom of always having a technical co-founder to build the product in-house early on. The company brought in consultants to build out the initial service and instead hired in-house talent over time to flesh out concepts they had seen success with. This allowed them to be more selective in the talent they recruited as they replaced the skills of consultants piece by piece with strong employees that could support long-term growth. It was unconventional, but it was a play that paid off.
Fail: Poppy
A part of Y Combinator’s 2016 Winter cohort, Poppy was founded by Avni Patel Thompson and started in Seattle to facilitate connections between parents and babysitters through a matching process rather than operating as a more open marketplace like competitors. In three years of operating, Poppy managed 36,000 bookings with thousands of families and sitters and raised over $2M. Unfortunately, the company shut down in 2018 despite a lot of love from its users. Patel Thompson appeared on Y Combinator’s podcast to talk about what it’s like shutting down a startup and how she concluded it was time to wind down. Ultimately, a sustainable business model couldn’t be built to make it viable to scale Poppy.
Poppy showed promise initially, with early experiments showing a need for the service in the market. Patel Thompson describes these days:
First of all, there's tremendously talented people that live within our neighborhoods, and I don't think I need to say that, but folks who are teachers, or students, or stay at home parents, all these folks, my hypothesis was always, they do exist in our communities, and it is our job to not only find them, qualify them, saying that they've been vetted, and then do the connecting part. We weren't making them, we weren't creating them, they did exist in the community. Anyways, that was a big hypothesis at the beginning that we did prove was in fact true. Because if it started to become that, actually, they don't exist, then that would've been a bigger problem earlier on, but no, they were there, and we created a mechanism for folks who are otherwise working at Trader Joe's, and just had recently graduated, we had more than a few who were pursuing dance careers, but they were working at Trader Joe's to make ends meet, they then started Poppying, and then quit their Trader Joe job, because it worked within their construct of dance was their first career and their first priority, but then they got to live their second passion, which is working with kids. Well, this is supply that isn't on other, like Care.com or any other kind of marketplace, so we’re unearthing supply that wasn't otherwise in the category. I thought that was tremendously powerful, because otherwise we were giving access to people that weren't working in the space. That was a really positive and encouraging dynamic.
Although there was a need for what Poppy was providing to parents and sitters, things changed as the company tried to find a viable business model at scale. There was a significant amount of pressure to keep low prices for parents but pay care providers more in childcare overall, and this tug of war made it difficult to find a space for a healthy margin. The issue was exacerbated by Poppy’s value proposition: the personalization of matching sitters and parents based on different information provided. That kind of service may be a differentiator, but it made Poppy more operationally challenging and increased costs to a point that it was no longer feasible to build a business upon it. The value just didn’t hold up at scale as it made the service more expensive than people would pay. Childcare in general is plagued with extremely thin margins, and it’s tough to make it with higher costs than competitors that can’t be passed onto customers. The combination of factors in the industry and a value proposition that customers wouldn’t or couldn’t pay for ultimately made it impossible to scale Poppy.
Lessons Learned
Poppy followed the “false positive” pattern of startup failure, as the company saw potential early on but was unable to make the business sustainable in the wider market. It’s important not only to test underlying assumptions about a problem and solution but to model the impact on these assumptions if the company grows. Can I charge the same price to customers who aren’t as acquainted with me, does the wider market have different concerns than my product addresses, does my margin get squeezed by costs that won’t be offset by revenue, what trends will affect the business on a macro scale? These are all important questions to ask and difficult to answer, but not impossible. More important than all of these, adequate value must be delivered to a wider audience, not just early adopters. Test a value proposition with more than those you expect to be the first users and make sure the business model can be sustained from the level of interest. If you’re aiming to launch in just your town first, research and test with customers that fall outside your initial geography as well. Wherever you want to start, make sure there’s a place to grow to that will want what you’re providing.
UrbanSitter’s focus on process and structure isn’t something a lot of startups do early on, but it presents enormous benefits if you’re on the path to scaling. Many startups can’t point to why they had success in one place but not the other, and that’s because they don’t know exactly what they did initially. If you can document and plan a process, there’s a chain of steps that make it easy to understand where failure occurs or success bounds from. While it may seem like a drain of resources to document and structure, it can make it easy to iterate, improve, and implement rollouts as scaling becomes a concern. It’s better to have a guide to growing on hand early than to have needed it yesterday. This goes beyond just the new market playbook they developed. I have used a similar adapted OKR framework in the workplace like UrbanSitter did and can attest to how easy it became to tie my actions to results and objectives as well as connect everyone to the larger organism of the company. This type of structure brings the benefit of unity while remaining very flexible, as is necessary for a startup. Build processes and documentation when you don’t need it so it’s ready when you do.
More Reads and Info
Founders & Friends Podcast Episode With Lynn Perkins, Founder of UrbanSitter
5 Lessons From Shutting Down Poppy by Founder Avni Patel Thompson
Y Combinator Podcast Episode On Shutting Down Popp With Avni Patel Thompson
Thanks for reading! Thankfully I don’t need a babysitter yet (and hopefully won’t for a while), but let me know if there are any cool startups in the childcare space you’re watching! If you found this interesting, consider sharing it with friends and subscribing if you haven’t already!
Cheers,
Amil