Hello Alfred: Or Should I Say, “Goodbye Alfred”
Hello Alfred: Butler's for everyone? Not just yet.
Are you a city dweller who works long hours only to find yourself returning home at the end of the day only to be greeted by an increasing state of disarray, clutter, and an empty fridge? If you answered yes to these questions, live in Boston or NYC, and make more than $75-ish thousand a year (the current target market), then Hello Alfred is anxiously waiting to help make your life considerably more convenient, that is, if they stay in business long enough to do so.
Hello Alfred, or Alfred (nailing down the exact name of the service rather than the company is a rather daunting task; probably not a good thing for name recognition), is an on-demand, $99/month service that provides customers with an assigned personal butler, called an “Alfred”, who coordinates and performs your weekly chores through the use of participating and integrated on-demand apps. The service is one of the first out of the gate in what those in the know are calling the “On Demand Economy 2.0”, with a vision to “Automate the on-demand economy”.
The company was founded and launched in Boston in 2013 by two Harvard Business School students, Marcela Sapone and Jessica Beck, and has subsequently launched in New York City, with near-term plans to put its $12.5 million of Series A venture money to use by expanding into San Francisco, Los Angeles, and Washington, D.C.
Hello Alfred has identified their target customer as mid- to high-earning (making over $75k per year) professionals, working long hours, and living in high-density urban areas. This target customer is further segmented into two major parts:
- People who see a well-managed and organized home as a central part of their life, yet are unable to achieve this standard on their own.
- People who enjoy having or subscribing to a new, novel item or service.
The company has employed a subscription model where the customer pays $99 per month in exchange for a dedicated house manager, your “Alfred”, who makes two trips to your home per week to pick up tasks to be completed, drop off completed tasks, and perform a variety of household chores. These tasks are requested by the customer via a schedule that they create for their Alfred, or through a specific request using the mobile or web app.
Your Alfred will complete requested tasks through the use of third-party service providing apps, such as Instacart, Handy, TaskRabbit and others in order to complete the requested tasks. These third-party apps are vetted by Hello Alfred and integrated into the mobile and web apps, which enables a seamless experience for the customer and drives additional usage for the partner app. Additional revenue streams above the $99 customer subscription fee are possible through Hello Alfred negotiating commissions for driving traffic for these partners, and will be a critical component of their profitability success in the future.
At the core of Hello Alfred’s operating model are the processes and procedures to establish a high level of trust early on with the customer in order to enable them to feel comfortable with having a stranger (who they will most likely never meet) enter their home twice a week to handle personal items. This trust is established through the following:
- All Alfreds are put through a comprehensive and rigorous screening process.
- The company has taken a hard stance on classifying all Alreds as W2 employees who are eligible for benefits and are paid between $18 and $25 compared to on-demand competitors who classify workers as 1099 contractors who are illegible for benefits. This enables workers to view this opportunity as a more long term option versus a filler job which reduces short-sighted thinking which could comprise trust built with customers.
Additionally, Hello Alfred’s model is to employee workers who live in the community in which they establish a fixed route of customers and are enabled to set a schedule that works for both them and the customer. This enables Alfreds to group visits to customers to cut down on travel time and gain efficiencies in running errands.
Currently, Alfred only performs a set list of recurring tasks that have been scheduled by the customer, but it is the plant to increase the scope of possible tasks that can be performed as well as the number of third-party service provider apps that are integrated into the service.
In order to assess the feasibility of this operational model, assumptions were made based on press-releases from the company as well as work-block optimization, and were captured in Exhibits 1-5.
Additionally, it was assumed that Alfreds will perform all work during normal business hours (8am to 5pm) in order to minimize disruptions to the customer and to maintain a normalized work schedule for employees. Based on this, I assumed a conservative estimate of each Alfred serving three apartments per apartment building, and performing four discreet events per customer per week (Prep and Scheduling 3rd Party Service Providers, First Visit, Completing Errands, and Second Visit).
Based on this, I determined that 1 Alfred could serve a maximum of 36 customers per week (Exhibit 2 and 3), resulting in 36 hours worked per Alfred, per week. This showed that a fully-utilized Alfred, would make $848.57 per week, while generating only $766.31 per week in revenue, resulting in operating income loss of $261.94 per Alfred per week (Exhibit 5). Assuming that Alfred payments should be no greater than 24% of revenues (based off of comparable companies, see Facebook model in Exhibit 4) in order to cover remaining operating expenses, then each Alfred, given the current operational model, could only be paid $4.78 per hour (Exhibit 3).
Further analysis was unnecessary at this point, given the radical changes to the business model that would need to be performed in order to either meet the customer promise of $99 per month, or the ability to hire and retain qualified Alfred’s. Therefore, I do not think that the Alfred model is scalable beyond its current level in a profitable manner without establishing significant monetization avenues through third party app integration and partnerships.
- Facebook’s 2013 10-K report
Student comments on Hello Alfred: Or Should I Say, “Goodbye Alfred”
This is a really interest business, Matt. I agree that as the company is currently operating, there is no path to profitability, however, as the business grows, I wonder if there might be a way for the business to become profitable by either increasing the productivity or efficiency of Alfreds so that each individual Alfred can serve more customers, thus reducing headcount needs. I also wonder if over time, the Company could develop a tiered pricing strategy in which a customer could pay more than $99 / month for additional services or attention. In this case, the cost per Alfred should be the same, but the profit margin to corporate should expand. Finally, over time, the Company might be able to achieve some operating leverage on some of its corporate SG&A and R&D.
I suppose time will tell how the story will play out.
Fantastic and thoughtful analysis. I thought it might be worth revisiting your assumptions though.
1) Alfred sells for $32 / week for 1 visit; $59 / week for 2 visits so the unit economics there change the math above.
2) Facebook’s opex will look very different to Alfred’s. Think about the R&D and SG&A requirements of a business that thrives on scalability of its technology and marketing (Facebook) and Alfred whose costs are mostly incurred at the COGS level. The bigger question is whether they can acquire customers profitably in the long-run (sales and marketing expense). You mentioned they’ll need to monetize on partnerships and I think that’s right. They’ll need to find additional revenue streams to improve customer lifetime value.
I think one of the really interesting things you note is that Alfred does not hire 1099s. That’s a big departure from places like Uber and so on. The fully-burdened cost is much higher but, you’re right, it could improve the retention of its workers. The question is: do people care who is taking care of their things as long as it’s done right? One of the reasons 1099 works for Uber is because it works for their business model — namely, people usually just want to go from point A to point B regardless of who their driver is. My gut says people will care and want to “know” their Alfred.
I love this thorough analysis Matt! To the comments both made above, Hello Alfred has been actively tweaking its pricing policy. Every single time I visit the site, it says something a bit different. Right now, it moved away from monthly pricing all together to display pricing by week: https://www.helloalfred.com/pricing. That can definitely change psychology and customer uptake.
In terms of profitability, is profitability the main metric to be judging Hello Alfred against? Or what do you think would be the most important operational metrics for Hello Alfred to track?
On profitability, especially with venture-funded companies, including Uber (which is not profitable) and Facebook (which was also not profitable for a long time), the bet they usually make is that they expect the NPV of all projected cash flows, which are expected to increase while costs relative to revenues will decline, is large and positive. What do you think Hello Alfred DOES need to do to ensure that it continues adapting to On-Demand 2.0 or 3.0 as the on-demand services it serves as an umbrella over change? What are the results of having workers with benefits? Has employee churn actually declined relative to Uber? And if it hasn’t, what can a service provider do to decrease employee churn if it matters for a person to have a “consistent” butler? I wonder if you can reach out to some Hello Alfred team members to do a follow-up since they are HBS alums!
Very interesting analysis! I am actually an Alfred customer and have been trying to understand the profitability for awhile now as well. I do think there is benefit to having a W2 employee instead of a 1099 Alfred as the Alfred can provide higher value, more customized services such as learning about your lifestyle (for example, my Alfred knows whether to put my lemons and apples inside my fridge or keep them outside, something that would not be worth teaching consultants with high turnover). To me, the most burdensome part of their business model is the customer service component. Right now, customers cannot communicate directly with their Alfred. All changes to instructions, any questions, etc. are sent through headquarters which is very inefficient as sometimes Alfred will not get the message until after they have visited your home. Changing the model so that a customer’s butler has a direct line of communication with the customer when the butler has a question grocery shopping for you if the store is out of an item, for example, will free up resources important for scaling. Yes, there is a trade-off between efficiency and quality control. However, having trained W2 workers should allow the company to preserve the right amount of quality while improve efficiency necessary to set it on a path towards profitability.
Matt – This sounds like a really cool idea and would seemingly make life easier for many of us. I thought at first it would all end happy and be the next best things until you broke out that stellar analysis. I thought it really interesting the way you added in the operating costs into the per Alfred cost. Do you think there’s anyway for them to push up the price and target an even higher segment to make this a more profitable business? I do think it’s quite interesting that the Alfred’s are fully employed by the business – I’d think that would help improve the trust and relationship between customers and the Alfreds which may also make the customers willing to pay more. I also wonder what the financials would like like if the possible ancillary services were added that you mentioned. Anyway, thanks for the introduction to Alfred!
Matt – really cool analysis! I think a lot of startup companies are burning money on an operating margin level but looks like “Hello Alfred” also has a negative gross margin. It would be interesting to think about whether you can somehow generate economies of scale when scaling the business. For instance there could be support tasks for Alfreds such as picking up laundry at a single location only, having people who go shopping and prepare baskets, having umbrella agreements with service operators etc. Maybe an Alfred could then increase the number of customers he can serve per week. I also find it interesting to think about the business model from the perspective of generating revenue via lead generation and rebates through high volume. For instance you could have volume discounts with dry cleaners or grocery chains that “Hello Alfred” would receive via kick backs but that the company would not pass on to their customers.
Nice job thinking critically about the business. People (myself very much included) are all too easily wooed by a cool concept or passionate entrepreneur and neglect to address such questions. My question is, what are we missing? These guys went to HBS; I’d imagine they’ve run some numbers on their business. Are they just hoping to achieve scale at an unreasonable price point? Do they think they can drive costs down if customers are more densely populated? I think it would be interesting to compare unit revenue / labor time spent for Hello Alfred to a company like Instacart as a benchmark. If labor costs are similar, there should be a “magic ratio” at which the model becomes profitable.
Just found this article during my search for some information.
Described model is flawed because it doesn’t include one very important revenue stream – service providers revenue share. Most of the services Alfred delivers are 3rd party services (dry cleaning, apartment cleaning…) and Alfred is taking his share for sure. Hard to estimate how much this can be but I suppose this may even double expected company revenues.