If Homejoy cleaners were going to be classified as employees, entitled to minimum wage and subject to being verified as citizens or legal residents, then this seems like the right move. I can't see how they would ever be able to compete on price with all of the independent outfits out there that employ undocumented workers.
It's one thing to sell your services at a loss while you're growing. In the home-cleaning business, though, there will never be a shortage of undocumented immigrants willing to work for less than minimum wage, quite possibly at a higher quality level. There would be no way to ever raise prices to fully cover costs without immediately losing out to that competition.
Wow. Lots of doublespeak from the founder in the Re/code piece. While it's true that "The [California Labor Commission’s] Uber decision...was only a single claim", I'm not so sure it was "blown out of proportion." You could also see it as the tip of a big iceberg. Presumably, that's what the investors they were courting thought.
If Uber have had defend their case and employee classification, perhaps HomeJoy may get their next round of funding and not have to close...but year, the timing sucks.
The biggest is probably that the home care industries operate on such a shoe string budgets that there really isn't all that much room for a middleman to take a cut.
This isn't taxis where you can bank on regulatory arbitrage to take a cut. They seemed to be trying to make money on customer acquisition and scheduling, but I'm sure they realized too late that their partner companies don't spend a huge amount of money on those activities.
> This isn't taxis where you can bank on regulatory arbitrage to take a cut.
If anything, the incumbents are better positioned to arbitrage the law/regulations in this case. An online service like this leaves a paper trail, which makes it much harder to use the "shortcuts" common in the cleaning industry: use of undocumented immigrants, underreporting of taxable income, etc. Much easier to do that in a pure cash business with informal booking.
That's probably part of it, but also, to the extent that they were bona fide contractors, the cost of actually policing them to prevent direct contracting with and referrals from the people they were matched with through Homejoy was probably a problem.
Contracts may theoretically restrict this behavior, but actually policing them is non-trivial.
Yeah, I think that's part of the general cost breakdown here: something like house cleaning is already very competitive so there's a pretty narrow range where you can convince workers to give you a cut without pricing the service out of consideration. Successful attempts to do that rely on high volume, which is completely incompatible with the kind of things you mention or even basic customer service and quality review.
They got in trouble with lawsuits because of the recent Uber employee vs contractor verdict. In addition, they were bleeding cash in customer acquisition so that didn't help too. The lawsuit was the trigger but the bleeding of cash was the fundamental reason.
And maybe the main one: http://recode.net/2015/07/17/cleaning-services-startup-homej...