It was 2013. Everything seemed to be going well for Homejoy, the young startup that helped connect customers with house cleaners for a decent price. It was a graduate from the prestigious startup accelerator Y Combinator. It had investors like Google Ventures and First Round Capital, who had injected about $40 million in funding, bringing the company to an unofficial valuation of $150 million.
Less than two years later, the company was out of business.
What went wrong?
Much has been published about the numerous worker misclassification lawsuits brought against the company, by independent contractor cleaners who claimed they were really employees. But it's worth noting that Homejoy's chief competitor, Handy, has similar lawsuits pending. Handy's still going strong.
Former Homejoy employee Hunter Davis thinks other factors were more pivotal in the startup's demise. In a fascinating LinkedIn blog post entitled Walking Away Successful--A Homejoy Postmortem, Davis reflects on why the company that had so much going for it ultimately failed.
His analysis highlights some important lessons for all business owners.
1. Software can't solve everything.
Davis tells us that Homejoy was led by two software engineers, "both wildly talented humans", but also out of place with respects to the nature of problem Homejoy was attempting to solve.
"While we threw software at every problem that existed on the periphery of the actual cleaning experience, we never found a way for software to move the needle on the actual cleaning experience itself (On demand drones that drop off Roombas?). We tried to brute force a very human problem with software. It didn't work. Turns out that some problems are still best left solved by 'old school' methodologies. Software solutions couldn't be substituted for domain expertise. By the time we made the big operations hires/investments it was too late."
Takeaway: Computers and software are excellent tools--but they're still only tools.
Identify areas where you need to invest in smart and discerning employees, and the return will pay off in the long run.
2. Resist distractions.
Davis blames FOMO (Fear Of Missing Out) for killing Homejoy's momentum. As a competitor began making headway in the European market, Homejoy feared losing out on a major opportunity and decided to go overseas--prematurely, in his opinion.
As Davis details:
"We were given the insane task to push our product to Europe in just a couple of months. This included internationalizing on a technical front, an operations front, a marketing front, a client support front, and a cleaner support front. Anyone who knows about the difficulty of internationalizing just a codebase should sympathize here. This effectively handcuffed the productivity of almost every department in the company and sapped our ability to build and react quickly. I think everyone in the company agreed that this was a bad bad idea."
Takeaway: Stay focused.
It can be tempting to expand your line of products or services, or to enter another market, before you're ready. Be willing to hold off until the time is right--and in some cases, indefinitely.
3. Don't be afraid to adapt or pivot.
According to Davis, Homejoy was incorrect in positioning itself as a product:
"...our product was marketed and treated as if we had turned a home cleaning into a product that was constructed on an assembly line. The reality was of course, that the cleaners and the cleanings themselves varied dramatically. Getting to that consistent Homejoy Cleaning proved to be way out of reach. As a result, each product interaction could be wildly different, unlike the consistent factory packaged product vision that we were pushing. As a former colleague put it, 'Our product should've been positioned closer to finding the right match on OkCupid, as opposed to finding the right macbook.'"
Takeaway: Don't ignore reality.
It's a wonderful feeling to come up with a great idea that others believe in, but your vision may not execute in real life. Constantly analyze your strengths and weaknesses, then adapt accordingly.
4. Beware of viewing growth as a "cure-all".
In what Davis describes as "the majestic startupville spell", much of the Homejoy team ignored the numbers with the view that with continued growth, the margins would take care of themselves.
"We were all too often a pack of disillusioned startup junkies that swore that even basic math could be defied by growth and startup voodoo. Let's discount $100+ cleanings down to $19. Not to worry, growth fixes everything. Let's lock customers into discount rates that even with infinite retention won't become profitable...Growth is...incredibly distracting, and it won't fix everything. It's kind of like being data-informed as opposed to being data-driven."
Takeaway: Focus on promoting growth, but don't sell your soul to get it.
5. Avoid thinking only about the future.
In hindsight, it appears that in looking to the future, Homejoy neglected the present:
"We would often shy away from building solutions for the now state of Homejoy. Instead we would build for some future state of Homejoy where problems X, Y, and Z had been solved...If building something or doing something now will get you to healthier numbers, you shouldn't be afraid to do it. Use judgment here, but never assume that everything will work out as planned or that no problems will arise in the future when making product or company decisions."
Takeway: Optimism is good, but get your head out of the clouds.
Sometimes, short-term solutions are necessary in order to buy time to make things bigger and better.
Davis's analysis is indicative of great reflection and insightful thinking. In the process that followed Homejoy's dissolution, it seems that he discovered the greatest lesson of all:
There is no such thing as failure. Only learning.