Homejoy

What did it do?

Homejoy was a platform for booking home services such as cleaning and repairs online. It matched background-checked independent cleaners with customers and charged between USD 25 and USD 35 an hour. The company operated in 31 major cities across the United States, Canada and the United Kingdom.

Why did it shut down?

To grow fast, Homejoy offered first cleans at very low prices, such as USD 19; in a market where competitors charged USD 85 for the same job, the strategy raised questions about the quality of that growth. The company quickly expanded to 31 cities, reaching as far as London, but struggled to sustain profitability. Lawsuits over whether the cleaners working through the platform should be classed as independent contractors or employees added to the burden. The company shut down in July 2015, citing its profitability problems and these lawsuits; part of the engineering team moved to Google.

The story

Adora Cheung did Homejoy's first cleaning jobs herself, and until the end of 2013 she kept going out to at least one clean a month in person. The company made the magazines as the start-up that had every new hire scrub toilets. The approach let it learn the customer experience in the field; in the end, though, what keeps a services marketplace alive is not care in the field but the profit each transaction leaves behind.

Adora Cheung and her brother, Aaron Cheung, founded the company in 2010. They received investment from Y Combinator in March 2010, but operations began in 2012. In early 2013 came a USD 1.7 million seed round with participation from Andreessen Horowitz and First Round Capital. Together with a Series A in October 2013 and a Series B led by Google Ventures in December 2013, the investment raised in those two rounds reached around USD 38 million. Wired wrote that Google was pouring millions into a field like home cleaning. With more than 100 employees, the company worked with thousands of independent cleaners and served 31 major cities across the United States, Canada and the United Kingdom.

The engine of growth was price. Homejoy charged an hourly rate of USD 25 and offered first cleans at eye-catching discounts, such as USD 19. In a market where competitors asked USD 85 for the same job, this was a fast but expensive way to win customers, and some observers questioned growth that came this way. In London the hourly rate was GBP 13, of which cleaners received between GBP 7 and GBP 9.50.

In July 2015 the company announced it was shutting down. It cited difficulties in sustaining profitability and lawsuits over whether cleaners were independent contractors or employees. Part of the engineering team moved to Google. A few months later it emerged that Aaron Cheung had bought the Homejoy customer database and used it for a similar venture called Fly Maids; once the news broke, that venture was shut down too.

Homejoy's story shows how quickly growth bought with discounts, together with legal uncertainties such as workforce status, can erode a marketplace. The unit economics question, put off while investment was plentiful, eventually came knocking at the company's door.

Lessons for founders

• Do not open in a new city before measuring whether customers who came in on a discounted first order place a second order at full price.
• Treat the legal status of your service providers as a cost line from the start; in Turkey, too, risks from the Social Security Institution (SGK) and the labour courts can arise in a similar way.
• Founders doing the work themselves helps them understand the customer, but it is no substitute for unit economics.

Sources

1. Homejoy (Wikipedia)
2. Homejoy Shuts Down, Citing Worker Misclassification Lawsuits (Forbes, 2015-07-17)
3. Homejoy Raises $38M As It Looks To Expand Beyond Home Cleaning (TechCrunch, 2013-12-05)

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