Handy Mandy: Your cleaner is here
Handy, the “Uber for handy tasks” such as cleaning and handyman, is an example of ineffectiveness for three reasons. Firstly, as a platform connecting cleaners and customers, it has little power to prevent disintermediation. Secondly, Handy’s insistence on its subscription model, and providing little leeway around it, makes for an annoying customer experience. Thirdly, the way it treats its cleaner contractors has caused a lot of dissatisfaction, even class action lawsuits and could explode to destroy the platform’s financial sustainability.
Handy was founded by two Harvard Business School students in 2012, to solve their problem of unassembled furniture and messy apartments they didn’t have time to clean. It aims to solve the problem of vetting cleaning professionals and scheduling cleaning appointments with a user friendly app and a subscription model. Depending on customer’s zip code and cleaning frequency, Handy charges its customers between $30-$40 an hour and pays its cleaners between $15-$22 an hour. It claims to maintain a 20% profit margin, in line with other “Uber for X” companies.
Handy claims the model is subject to the “network effect”, the more cleaners it has, the easier it is to schedule cleaning appointments last minute, at odd hours, the more customers it will attract, in turn, the more cleaners it will attract to the platform, and so on. To attract new customers, Handy offers $25 for two-hour cleaning visit, a great deal in most cities. On the employment side, it takes advantage of the economic downturn producing high number of cash-crunched, underemployed people and offers them starting hourly wage of $15 and the allegedly easy way to turn spare hours into wages. At its peak growth phase, it onboarded between 300 and 400 cleaners a week, spending $200 to onboard each cleaner. The result is that Handy is now in 28 cities, including Canada and the UK, schedules more than 1 million bookings with 10,000 cleaners. Their valuation ballooned as a result, reaching $500 million for a 3-year-old company.
I would argue that the business model is fundamentally flaw as it is subject to the leaky bucket issue. Once customers find a great cleaner via the platform, there is nothing stopping them from getting the cleaner’s information directly and disintermediating Handy in the future. Handy’s bookings do come with insurance; however, the need for insurance is eliminated mostly if customers plan to be at home during the cleaning appointment.
To fulfill the need of vetting cleaning professionals, Handy maintains a feedback system for their cleaners and a ranking system, which is a function of the quality and quantity of cleaners’ appointments. Cleaners’ hourly wage is determined by their ranking in the 1st, 2nd, 3rd or 4th tiers. Their ranking also determines their ability to pick gigs. The use of the ranking system creates an expanding middle, with the top cleaners getting the best gigs and making the most money and the new cleaners being underpaid and getting the worst shifts. Though this model can create an entrepreneurial gap in a full-time staffing model, in a contractor model, it walks a fine line of violating the law of contracting work. New cleaners are automatically put in the lowest tier, creating incentives for newer cleaners to overperform, leading to unpaid overtime and stressful onboarding. There are harsh consequences for missing or being late to appointments, but on the other hand, unpaid time if customers are late. Allegedly if a job goes overtime, not because of the cleaner’s inefficiency, the cleaners have to call in to get paid for overtime.
In delivering its promise of a seamless customer experience, Handy appointments can be scheduled via its app or its website. The design of these platform supports a great sign-on experience but a subpar exit experience. When using the generous first-time discount coupon, customers automatically sign on a subscription plan with recurring payments. There isn’t a clear cancellation option on the website and if customers want to call in, they first have to navigate a 5-level FAQ page to reach the conclusion that Handy’s customer service number is nonexistent. There isn’t an option for one-time cleaning. Though this tactic helps the churn rate, it eventually creates resentment towards the company and negative word of mouth.
This year, Homejoy, Handy’s main competitor, had to close down because of impending employment lawsuits. Though Handy now has the entire market, it’s unreasonable to think it won’t be subject to the same risks Homejoy faced, caused by the companies’ similar operating and business model.
Source:
https://www.crunchbase.com/organization/handybook#/entity
I would love to understand how Handy leverages technology and other tactics to block the issue of cleaners going offline and becoming recurring cleaners for the customer outside of the platform. In my opinion this is the biggest threat to these businesses as the habit of us using cleaners has mostly involved using the same person to build trust, know-how etc.,
Hey Yasmin! I think the problem is that they don’t. I don’t see any way they could capture offline interaction or prevent cleaners from going offline where they could get paid more. Potentially some entrepreneurial cleaners are using them as a marketing and customer acquisition platform 😉 Why not right?
I agree — you could use some GPS technology to see if the cleaners are going to addresses that were once customers of the platform and create penalties around that. It is by no means an elegant solution — but I do see it as the biggest threat to their model.
I agree with you and Yasmin that cleaners going offline seems to be a critical problem that Handy has not yet resolved. I’m also curious to learn more about the subscription service, since I know that I don’t get my apartment cleaned on a regular basis, but rather before or after big events. The minimal flexibility Handy provides seems like a big detriment
Hey Elyse, you have to sign up for a subscription service when you claim the starter offer and you get charged less per cleaning visit the more frequent your subscription is. They just recently introduced a Cancel subscription button but hide it quite well 🙂
I would be surprised if they are still around in a year without any major pivot from their current business and operation model
Interesting! It sounds as though Handy is experiencing growing pains from growing too quickly. Couple of questions…. Has Handy considered dynamic pricing? Are the contractors using this mostly as part time work on the side or really as their primary income? I’m not sure disintermediation is as big of a risk as standardization given its 1099 employment structure. Consumers experience so much turnover with housecleaners that work directly for them and so even if consumers do go direct, they often come back to agencies pretty quickly.
Those are very good points. I don’t have more data other than that zip code and frequency of cleaning visits are factors in prices that I am charged. For contractors, it varies. I never had cleaner before Handy so I guess they solved the issue of starting and if your observation of difficulty in scheduling directly with cleaner is common then I guess there’s a reason for Handy to exist.
Interesting critique. I myself have been close to taking the introductory offer but have never followed through due to the subscription requirement. Also, I would love to know more about the employment lawsuits that undermined Homejoy. Is this related to the treatment as a “contractor” when in fact the cleaners function as employees? I believe this is one of the biggest risks of the sharing economy – looping around employment requirements (e.g. healthcare, social security payments) which, while failing the worker who finds himself or herself in a disadvantageous bargaining position, will inevitably fall to the rest of society to provide these critical safety nets.
The main premise of the contractor/employee debacle is these startups are providing “guidelines” that in practice perceived and communicated as expectation of a company to its employees. If you think about the entrepreneurial gap, it’s up to the employees to fulfill that gap but if you are a contractor, that gap should not exist. Full time staffing will result in better quality services, there are more variability in using contractors. The consequence is Handy employees are having to deliver as much as a full time employee should but do not get the benefits of healthcare and job security and other protections provided by employment laws.
A few startups saw the writing on the wall and has already transitioned to a full time staffing model such as Alfred (which is another interesting post by itself)
Totally agree. Don’t know much about Alfred (other than assuming we’re alluding to Bruce Wayne’s butler) but will have to do my research.
My global partner for Field 2 is the “handy” for Argentina, so we have spent several phone calls thinking about this same disintermediation issue. We are specifically looking at the car services vertical, enabling Argentinians to book on-site car cleaning / maintenance appointments on-demand. Our service faces the same issue that handy faces in the US — that of people circumventing the app once they have established a first-contact with the service provider (the “cleaner”, in Handy’s case). Our proposed solution to this problem is to add features to the web / mobile app to enable the end-to-end service experience to be better when performed through the app than offline.
Examples of these ‘sticky’ features we are considering include real-time opt-in notifications that inform you when the service person is on his way, when he has arrived, when he has started the service, finished it, etc. These notifications could be via text, photo, or even video. Another example of a sticky feature is loyalty points that reward people after every 5 bookings on the app. These loyalty rewards could either be coupons for future bookings on the app, or offers for other partner organizations (e.g. retailers).
The problem you have pointed out exists in many online marketplaces and I’m excited to see what Handy and others like it will do to mitigate the risks of disintermediation.
-Anshul
Very good points. Thanks Anshul. I really like the loyalty program as well as value added services.
Ugh. Thank you for writing about this because this business infuriates me. My sister and I have both had horrible experiences. Unlike say Uber (which is the uber of uber–so sick of hearing about things being the uber of x), the quality of a service provided by Handy can vary vastly. Randomly recruiting people who are crunched for cash in a downturn does not mean they know how to paint or clean an apartment to professional standards. Handy has no real way of controlling its quality except booting people with bad ratings–after the damage to the customer relationship has been done.
Great point! Handy works on scale so there’s a reason why they hire too many cleaners without a good quality check. We will see how this pans out for the company future.