Big News: FounderDating is joining OneVest to build the largest community for entrepreneurs. Details here
Latest Notifications
You have no recent recommendations.
Name
Title
 
MiniBio
FOLLOW
Title
 Followers
FOLLOW TOPIC

Question goes here

1,300 Followers

  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur

Is the Homejoy shutdown a bad signal for all on-demand services?

Homejoy (the on-demandish cleaning service) announced it wasshutting down yesterdayin case you missed it. They had raised $40M so it was a pretty big move. And they claimed it was because of lawsuits of whether to make workers (the ones that do the cleaning) employees instead of contractors. There has been a lot of press about this lately and now wondering if as an early stage entrepreneur thinking about the sharing economy I need to be worried about this or if this is a cover?

12 Replies

Brian McConnell
1
1
Brian McConnell Entrepreneur
Head of Localization at Medium.com
This is just the beginning. A lot of these companies just offer a thin rind of web/mobile "bling" on top of an existing service business. Now that they are being forced to play by the same rules as incumbents, and not systematically screw their workers, many advantages they had will evaporate. Long term winners will be companies that develop enabling technologies for existing operators (Flywheel for taxi dispatch is a good example, as they focus solely on improving dispatch and payment, not competing with the taxi companies they serve). There are probably decent opportunities in this area, but since you can't count passthru revenue as your own, the business won't be valued as highly, and investors will probably be less interested. My $0.02.
Steve Simitzis
2
0
Steve Simitzis Advisor
Founder and CEO at Treat
The problem with Homejoy was that there were no efficiencies to be found, and no technology leap to be made. The only profit would have been by delivering a commodity service at the lowest labor cost. Even if you could somehow cram workers down below the minimum wage, they would leave the platform.

If they found a way to mix robot cleaners with human cleaners, thereby cleaning more houses more efficiently at a fair wage, then they'd have a technology business and a valuable company. Otherwise, house cleaning doesn't scale.
David Schwartz
4
0
David Schwartz Entrepreneur • Advisor
Multi-Platform (Desktop+Mobile) Rapid Prototyping + Dev, Tool Dev
Like it or not, companies built around hiring independent contractors to fill their employment base are basically putting a target on their backs that say, "Sue me!"

They have a simple option: hire them as employees! But if their business model doesn't work to even pay their workers minimum-wage, then it begs the question: if the costs are the same, how can workers possibly be earning minimum-wage after expenses as contractors?

Unfortunately, most of the people being hired as ICs are not savvy enough to realize the same extent of tax deductions that a typical company can realize, let alone a more sophisticated business owner. In the end, I'd call this a "false economy", and I believe it's simply a matter of time before Congress enacts legislation that plugs the holes. This will probably happen in 2017-18 timeframe as the GAO releases tax data for 2-3 years showing the horrific losses both the IRS is facing, as well as the losses being suffered by ignorant workers thinking they're getting a great deal working as ICs.

That is unless Congress goes the other way and decides there are no limits on the lower-end of what people can earn working for themselves as ICs vs. employees.

Personally speaking, I think everybody is far better served if these companies treat their workers as employees and pay them a fair wage for the time they're working. Uber was giving minimum hourly guarantees for a while in many cities after they'd cut fares so low that it was impossible to drive profitably. They know what's involved. They just don't want to do it.

It might help if these companies were required to publish a guide to prospective workers that explain the basic financial issues, including income taxes, FICA, FUTA, and other stuff that the law requires, then show how it's accounted for when they're an employee vs. an IC. Then show how this works out at their current pay structures given to ICs vs. if they were employees, and let the person choose which option they want. What will become quickly apparent is that the fees being paid to ICs by most of these companies work out to less than minimum-wage for most hours worked. Right now, it's invisible and being kept at bay through a bunch of hand waving and back-door politicking.

As someone who drives for Uber, Lyft, and several other services, my perception is that the needs of their workers takes a back-seat to everything else. It astounds me, for example, that while Uber can hire the smartest marketing minds in the known universe, the only strategy they seem to think works best for increasing ridership is to cut fares. This was entirely unnecessary this past winter here in the Phoenix area; while it might have appeared to boost ridership here, I think it did far more harm to drivers who were anticipating a lucrative and extremely busy season along with everybody else. As it was, we got squeezed while Uber made all of the additional profits. This only supports my contention that they don't care about their drivers, only their bottom-line profits.
Peter Horan
3
0
Peter Horan Advisor
Founder, Horan MediaTech Advisors
This is a legitimate issue and has been for years. Microsoft had a major fine on this issue. When I was CEO of About.Com ten years ago we were very aware of maintaining our guide's status as Contractors. Uber hasn also been under scrutiny. It should not be a deal killer but it is something that internet companies need to respect. Peter C. Horan T: PeterCHoran S: PCHoran M: [removed to protect privacy]
Reem K. Yared
2
0
Reem K. Yared Entrepreneur
CEO at Help Around Town, inc.
Re. Homejoy closing down

I think there's going to be recognition that companies that guarantee a) response time &/or b) quality of service are agencies, not peer-to-peer marketplaces. In a peer-to-peer marketplace each side makes its own decision and both parties are truly making free & autonomous contracting decisions.
As soon as a company guarantees that they will send plumbers/ house cleaners /... selected among the top [10]% out there, then they need to be routing the hiring decisions, guaranteeing supply of services and quality of service, etc. They're hiring. They're an agency. They typically take a 20% cut. Notwithstanding the marketing spin, they're a web-enhanced agency, not a peer to peer marketplace.

It's much harder to start a true marketplace, because you can't guarantee the supply or quality of services. You have to be willing to take that risk as you expand that demand will not find its supply. And find ways to feed both sides without steering the transactions. It takes incredible nerves and steadfastness to pull off. Craigslist has done it beautifully. HelpAroundTown is doing it in the Greater Boston area.
Ethan Anderson
7
0
Ethan Anderson Entrepreneur
Founder & CEO at MyTime

The main reasons for Homejoy's failure went beyond just the contractor issue, although that was part of it. The way I see it, the primary causes of failure were:

  • Poor quality cleaning service (I personally tested it several times and was shocked how bad the quality was). People didn't want to use it again. Just check the Yelp reviews.
  • Selling the service below cost (there is no way they could profitably provide cleaning services at $20-$25/hr)
  • High CAC (lots of ad spending, daily deals and other forms of customer acquisition that was higher than their lifetime customer value)
  • Lawsuits that scared off potential investors (the cleaners were contractors but may have been treated as employees in the eyes of the law)

Homejoy diddo a number of things right that we can learn from, including awesome customer retention marketing and well designed websites/mobile apps that customers loved. This is partly why they grew so quickly. In fact, it was the fastest growing company out of the famous startup accelerator called Y-Combinator (which also launched successful companies like Dropbox, Airbnb, Zenefits, etc).

See:https://www.quora.com/Y-Combinator/In-June-September-2013-which-company-is-Paul-Graham-referring-to-as-the-fastest-growing-YC-company

Joe Milam
0
0
Joe Milam Advisor
CEO AngelSpan, Inc.
It would be interesting to see how may other 'sharing economy' companies, and specifically home based services like cleaning services, were already funded or in the process of being funded at the time of the last round. These investors need to be held up in the proper light, and then maybe folks would stop focusing so much on 'how to get vc funding', as it is clear this is not 'smart money'.
Lane Campbell
0
1
Lane Campbell Advisor
Lifelong Entrepreneur
The sharing economy will adapt and invest in machines to replace human labor at a faster rate because of the court rulings. That said, it seems like building a true two sided marketplace where individuals can start whenever they want, set their own rates, bring their own tools, and track their own time, will allow organizations to still classify them as a contractor. Uber and HOMEJOY were being too strict and broke the law.



Claire Guth
0
0
Claire Guth Entrepreneur
CEO at Home Runner
Excellent insight, all. Homejoy should not be blaming impending legal costs for their demise. Building a business bybending the rules has become increasingly difficult to pull off (unless you are FedEx, Starbucks or Uber).

Uber is now referring to themselves as a "lead-gen" app in hopes of avoiding future legal battles. It's not as lucrative but can't some on demand businesses employ a true lead-gen business model to avoid the IC vs employee issue?

We are launching an on demand home service app where clients will be able to log on, see which home service professionals are nearby and currently available, read reviews and have them show up within minutes. We are bringing the simplicity, speed & personalization of Uber into finding and booking home service professionals. Each of our fully accredited home service providers and partners are privately owned business. Most IC vs employee battles are about control. The only thing we control is a CPL. Any input is appreciated!
David Schwartz
3
0
David Schwartz Entrepreneur • Advisor
Multi-Platform (Desktop+Mobile) Rapid Prototyping + Dev, Tool Dev
Uber calling their service a "lead gen" service is disingenuous at best, and borderline fraudulent at worst.

Uber sets their fares and drivers have no say in the matter. Some drivers love surging, some hate it. And drivers universally hated it when they cut fares during our peak season here when very few riders noticed or even cared.

I'm happy to pay for "leads" but not when the lead source controls what I can charge. That's BS.

Also, both Uber and Lyft implement policies that incentivize driver turnover and do nothing currently to reward drivers for long-term service. However, Uber has started taking a higher percentage of initial rides (30% instead of 20% for the first 20 rides) from new drivers, probably because they have such a fast drop-off rate.

If they want to charge for leads, fine! They can act like any other lead source and let us set our own fees, determine whether we want to participate in surges or not, and give us volume discounts or rebates for sticking around.

Anyway, the point is that when you try to redefine your business model this way, it can up-end the entire business.

Someday there will be an app that integrates all of these services in a vendor-agnostic way. You'll want a ride somewhere and enter your destination, and it'll show you the cars around you and what their offers are, regardless of service. You'll want your home cleaned and you'll enter the date, time, and how much cleaning needs to be done, and you'll get a list of options and their prices and reviews. You'll want a meal or something picked up at point A and delivered to point B (possibly with specific time-frames), and you'll get a list of services, their availability and price offers.

Today we're at the very beginning of these kinds of services. Uber may well end up being the 3000 lb gorilla in the market, but where they're at today is not where the market is heading. Today they want to control far too much of the overall end-to-end transaction, but don't want to shoulder any of responsibility that enables that degree of control.
Join FounderDating to participate in the discussion
Nothing gets posted to LinkedIn and your information will not be shared.

Just a few more details please.

DO: Start a discussion, share a resource, or ask a question related to entrepreneurship.
DON'T: Post about prohibited topics such as recruiting, cofounder wanted, check out my product
or feedback on the FD site (you can send this to us directly info@founderdating.com).
See the Community Code of Conduct for more details.

Title

Give your question or discussion topic a great title, make it catchy and succinct.

Details

Make sure what you're about to say is specific and relevant - you'll get better responses.

Topics

Tag your discussion so you get more relevant responses.

Question goes here

1,300 Followers

  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
Know someone who should answer this question? Enter their email below
Stay current and follow these discussion topics?