When I stayed in Johannesburg my parents lived in Pretoria and as a student, I often headed home at 1 pm after my compulsory Friday morning shifts as a student nurse those days. It was roughly 60km that I had to travel but I never arrived before 4 pm. In my baby blue 1990 Toyota Conquest with only 4 gears and no air conditioner. I used to crank up some Mika and Nickleback on the CD player to kill time on the road and ignore the cramping in my left leg on the clutch control.
If anyone told me to make the trip in less than 3 hours I would’ve told them it was not possible. It simply wasn’t. I haven’t traveled that road in years but I sincerely hope it has improved with the Gautrain as an alternative.
Nonetheless, this critical point was one of many factors that caused the downfall of Homejoy, an on-demand service similar to our local SweepSouth cleaning service, and a Silicon Valley startup company.
Launched in 2013 with proper investment money of $38 million, it kicked off strongly and saw rapid growth within its first year. In only 6 months, Homejoy could be found in over 30 cities in the USA, and they hired more than 100 people within the first 2 years.
But things started falling apart by then. And with the success of SweepSouth as a counter to the pitfalls Homejoy experienced, let’s look at the 3 of the main reasons they are no longer around:
You might be wondering what has my Jhb-Pta trip got to do with this case study? You will see in just a moment.
I want to start with their growth. Within 6 months they expanded to over 30 cities and hired 20 employees already. This was their first mistake according to the research that I have done. A common perception is that rapid or exponential growth for a startup is a sure indicator of success. Clearly, they found a product-market fit and with a strong uptake from customers, what could possibly go wrong?
But this is not the first startup that failed because of growing too fast, too soon. but more on this in future case studies.
The investors and founders were obsessed with growth so all their efforts and money went towards growing the business. But at the expense of revenue.
Now this is a fine balance to achieve and not at all straightforward. In the beginning it is common practice to offer some value for free until you built up enough credibility or a database to start charging your planned rates.
But Homejoy offered massive discounts through the Groupon site at the time, with aggressive marketing strategies. So bargain-hunters jumped on these discounts and people flooded the website to book cleaning services.
But as with a typical startup, they started with a blank canvas and needed to put processes in place and with rapid growth, there was no time for that. They were bleeding money. Dozens of regional manners were in charge of purchasing cleaning supplies with no cost-effectiveness strategies, supplier deals, or accountability of supply usage.
Back to my depressing 3-hour trip to Pretoria.
Due to the high demand for discounted cleaning services, the algorithm that engineers put in place filled up the open spots with back-to-back appointments, often allowing for unrealistic travel times. The equivalent of expecting cleaners to make the Pta-Jhb trip in an hour on a Friday afternoon. As you can predict, rather disgruntled and unhappy clients awaited the poor cleaners upon arrival.
Despite numerous complaints and feedback from cleaners, the algorithm was not prioritised until much later as all the focus was on expansion.
And lastly, where SweepSouth is seemingly getting it right, is understanding that the one-size-fits-all approach is not viable. Every context requires an adjusted approach which is why they have only expanded to Kenya, Nigeria and Egypt beyond SA’s borders for now. Growing too fast, doesn’t allow to account for nuances in each environment and this was an expensive lesson for Homejoy when they realised their model was not as effective in all their cities. But with massive discount coupons already bought, there was nothing to do but hope for returning customers.B
But alas, their retention rate was zero to non-existent. Due to the massive discounts they offered, their target audience automatically shifted to bargain-hunters and not necessarily long-term customers willing to pay a premium for regular cleaning services.
Back to rapid expansion – they failed to maintain a high quality of cleaners with inconsistent in-service training and struggling to follow up on poorer quality cleaners. With the travel-time issue and lack of adequate supply of cleaners in many cities, customers ended up with numerous cancellations which saw them lose faith in the service. Additionally, they faced the rivalry of similar services already existing in these cities, offering consistent quality of cleaners and also higher rates for cleaners themselves.
While you might be wondering if people wouldn’t just opt for cheaper rates, then you’d be surprised to learn that more customers preferred regular cleaning services with higher rates if they liked a cleaner. But the app didn’t allow them to book the same cleaner regularly until much later when the company was already in a downward spiral.
Oh and did I mention that the good cleaners often got booked privately or built up a good enough customer database to start their own cleaning businesses? That must have been a steady outflow of customers and cleaners.
It comes down to basics. What are your customers needs and pain points? SweepSouth again seems to be doing something right although personally I haven’t used them yet. I was exploring the website as part of my research and without creating a profile (I’m desperately trying to clear my inbox of spam emails) my very first issue was that I couldn’t see any option for cleaning the kitchen or any other room besides bedrooms. So my personal opinion on SweepSouth is still undecided but they seem to be going strong because of the quality and reassurance of trustworthy cleaners that they offer.
So one Thanksgiving day there was a glitch in the system and a booking was placed without matching with a cleaner. The owner of the company was so dedicated that when she realised the issue, she grabbed a toilet brush and cleaning supplies and got scrubbing at the customer’s house.
While this is by all means admirable and many of us might feel the same about our startups, it didn’t stop here. The entire company was expected to have the same level of commitment. Except at the end of the day, the founders and the investors were reaping the benefits of revenue growth (while they still had some) while employees were still earning the same salary as before.
But the company was only closed on 2 days of the year and employees were regularly still at the office at 11pm, working on the algorithm. Despite a flat hierarchy and the founders jumping in to cover shifts when alternatives wouldn’t be found, they grew overconfident with the investment they secured and slowly stopped listening to those around them.
With mostly technical backgrounds for the founders and no relevant experience in the cleaning or customer support industry, they became desperate to cut costs and cut back on the customer support team, leading to increased waiting times for already frustrated customers. A recipe for disaster.
And as rapidly as they grew, they came crashing down.
I want to quote one of the founders of SweepSouth, Alen Ribic:
‘Much of this ability to grow, he believes, is down to the fact that SweepSouth took a step-by-step approach to both its expansion and its technology stack.
Where do you start if you want to build a great big marketplace? You become a super app right?” he says. “No, you don’t actually. Many companies do this, but we believe it’s wrong.”
Ribic points out that there are a couple of reasons for this. First, by trying to build a super app from the start, you miss out on some of the fundamental things about building the right foundation and having the right connection within the market.
This, in turn, means that you don’t get a thorough understanding of what customers in those markets want and are trying to achieve.’
Basically what he is describing is the MVP approach with an agile feedback loop. Constantly testing and getting feedback and growing as fast as you can keep up with this process, like the illustration below.
It can be challenging to follow this process as new ideas often sound so great that everyone just wants to built the best new amazing feature, often forgetting to start with an MVP and slowly build it up to reflect the ideal solution for the customer’s needs.
Have a happy week!
Wanna chat some more? Get in touch with me at lizfuzy@gmail.com
