Hello Alfred: Your new best friend when life is a clutter
Presenting an e-platform of dedicated butlers to take care of your chores. But how scalable is this operating model?
Ever wish you had your own butler who would pick up your groceries, reschedule your appointments and track down an Amazon package? A Harvard Business School startup Hello Alfred does exactly that. In the growing on-demand service economy, Alfred offers users a one-stop mobile solution to set up weekly chores or instantaneous task requests that is then delivered by your friendly neighbor acting as your personal butler. Within a year of launch, Alfred has made “18,000 runs for its customers, including dry cleaning 57,600 shirts, delivering 3,326 pounds of dog food and placing 1,280 flower arrangements” in Boston and New York. (1) (2)
Alfred’s Promise to Customers
Alfred’s business and operating model supports a simple but powerful customer value proposition: with our lifestyles becoming ever more hectic, it promises a personalized service to seamlessly fulfill your “basic” needs. A two-tier subscription model offers a $32 per week “basic” and a $59 per week “service” options that allow users to setup weekly chores. These chores are then run once or twice a week by carefully vetted community members, freeing up valuable post-work and leisure time for users.
Unlike other on-demand companies, Alfred aggregates existing single-task solutions such as Handy, Shyp and Instacart, and creates value for its users through a simplified one-stop mobile solution. A select set of chores including laundry, groceries, basic repairs, cleaning and mail drop off allow users to pick from a simple menu list and butlers to anticipate the range of tasks at hand. The platform in turn captures a portion of the value generated from time-savings and ease-of-use through its subscription pricing model. The flat fee structure generates upfront payments from customers which the startup then invests in its butlers and supporting technology.
How Alfred aligns its business and operational models
Automated on-demand technology
Alfred operates a simple mobile application for users to enter the type of tasks with few clicks. For instantaneous requests, users can also send a text directly to the butler. In both instances, a seamless technology allows users to communicate requests and butlers to coordinate pick-up/drop-offs without any physical interaction after a first in-person “consultation”.
The app stores previous orders from users, allowing butlers to forecast demand and plan daily runs and users to repeat requests using a single click and no incremental payments each time. This operational technology facilitates Alfred’s promise of freeing time for end users.
Community members as full-time employees
Alfred’s operations rely on hiring members from the local community as full time employees and have included stay-at-home parents and recent retirees. In contrast to Uber and Lyft which hires freelancers as part-time contractors, Alfred’s service personnel are on W-2 contracts with full-time time pay and benefits.3 While it imposes 20% higher salary expenses, this operational choice aligns Alfred with its community-centric business model where butlers are well-incentivized to provide quality service. 3
Culture of trust
Trust is a core component of Alfred’s business model. To provide these services, Alfred identifies, rigorously screens through background checks and interviews (for three hours) locals in neighborhood communities. Only 3% of applicants are accepted. 4 This focus on trust generates a competitive advantage for Alfred as it pairs the same butler every week with an user and allow for a personal trustworthy relationship to build up. Users are comfortable in letting strangers access their homes knowing butlers are vetted employees and butlers have a sense of ownership in working for their neighbors.
Iterative learning process
Alfred combines online and offline engagement to better understand users’ weekly needs. Users can avail a “set it and forget it” option on their apps and rely on Alfred to customize their delivery needs. 5 The longer a user stays on the system, Alfred’s proprietary app analyzes history of previous orders while the same butler learns individual preferences (e.g. amount of starch for dry cleaning or type of coffee). 6
What’s Next?
Having raised over $10.5m in series A funding, the platform is looking to expand to LA and San Francisco. 2 However, it is still unclear whether Alfred is a real winner. Its business model faces operational risk in scaling the supply side, specifically in finding numerous trustworthy butlers in new neighborhoods and cities. Higher expenses associated with a full-time employee model also requires Alfred to grow to a large critical base of subscribers before it can turn profitable.
In the meantime, users seem to be in the good hands of Alfred:
[1] Company Website: https://www.helloalfred.com/
[2] TechCrunch http://techcrunch.com/2015/04/14/alfred-series-a/
[3] Wall Street Journal http://www.wsj.com/articles/startups-scramble-to-define-employee-1438228860
[4] CBS News http://www.cbsnews.com/news/hello-alfred-butler-app-runs-errands-americans-increasingly-busy-lives/
[5] The Street http://www.thestreet.com/video/13264403/hello-alfred-offers-overworked-americans-personal-butlers.html
[6] Business Insider http://www.businessinsider.com/alfred-founders-explain-why-they-created-a-startup-to-do-your-chores-2015-6
Hi Batman – Robin here. You always do such a good job in everything you do; that’s why I’m proud to be your right hand man. I think you correctly identified that pain point in the two-sided marketplace that Hello Alfred participates in will be scaling the supply side (i.e., hiring qualified butlers) given the current manual process and the company’s desire not to compromise quality. Aside from supply side scalability, do you think that Hello Alfred will have difficulty scaling geographically? Presumably, city/population density will affect unit economics of this business (i.e., more attractive in New York vs. Kansas City)?
Robin – as always, you prove to be a trusted counsel. Geographic expansion will likely be limited as population density as you identified correctly in your response. I would liken this to what several other on-demand e-services such as Uber and Instacart may face. You understandably need high density for the suppliers (butlers, drivers, grocery-deliveries) to efficiently batch orders and disburse/deliver in a short span of time.
I do think though that the business model need not expand to low density locations and may remain a better urban fit for now.
It’s nice to know that Batman also goes to HBS, too.
I would be interested to learn more about the business model on the supply side: what kind of employees do they hire, how much do they make on how much work, and how much could they make otherwise. This sets the baseline for the value added by the app, as a platform that connects cheap labor with high-price buyers of spare time. The business model is dependent on socioeconomic factors like income disparity, population density, and geography.
The operating model, as I can see, is still in the experimental stage. The complexity appears to be growing geometrically as the business scales. (As the numbers of labor suppliers and buyers grow linearly, their interactions will grow geometrically.) Fortunately, modern computing is capable of handling massive data processing, but to use it to build up quality and consistency will require numerous iterations of improvement.
Comparing the US market to China, where I come from, I see China has higher income disparity, great population density (in cities), but lack of trust among people will be a key hurdle, which can potentially be overcome by employing labor full-time. In US, I feel the cities will be more suited for this model for now.
Mr. Wu Hao, an HBS case on Gotham inspired Batman to become the leader he is today.
On to your thoughts – Alfred hires local community members, typically stay-at-home parents who have spare time (when kids are at school). The individuals are paid per chore as well as per account. The model for now does not rely on socio-economic disparities but rather on capturing idle time that folks in a neighborhood may have and would like to use to monetize. There is also a strong non-financial incentive to Alfred’s hiring model – it allows butlers flexibility to choose the time they want to work and take on as much or as little work load as possible.
You do rightly cite trust as a major driver of this model, explaining why it may be difficult to take off in places such as China. Alfred itself is experimenting in building up this trust gradually in its core markets and relies heavily on hiring and motivating the right butlers. Perhaps if Batman has to save Beijing one day, Alfred might come along…
Hi Batman- Joker here! Why so serious? I think you are being to hard on poor Alfred. HelloAlfred is doing a great job of simplifying urban life for it’s customers. I think it is a scalable model but would require a lot of tweaks when it goes into different geographies given the supply side constraint and trust issues. So far, they have been great with their execution in the areas they are serving in. But it’s a business which needs to grow organically to be successful.
Hi Joker, I think you’re being a little too nice on Alfred. At the current price points, I see this as too difficult to grow profitably. For $32 a week, a customer gets a weekly tidy up, grocery shopping, laundry drop off/return, and dry cleaning drop off/return (and more!). Based on their strategy of providing a trusted butler to each of their clients (they have 20% hire labor costs b/c they don’t hire as a contractor), I don’t see how they’ll be able to pay their employees a fair wage with out using VC money to subside their salaries. I’m curious what Hello Alfred’s butlers earn per year.
You got some fight in you! I like that! It’s a good question, if they are using VC money to pay off their Alfred’s then there is a serious concerns. However, if they try the service out in areas where labor is cheap and trustworthy, then they have something going for them. Otherwise, I have to agree with my arch-nemesis, Batman.
Easy Carl. Batman is not a fan of activist investors hanging around the hoop – at least not at this stage of Alfred’s growth!
To your point though, the pricing model is two tiered – $32 per week for one visit and $59 per week for two visits by the assigned butler. Assuming each visit/run takes about an hour, Alfred makes about $30 per hour per butler. The breakdown of this revenue in covering expenses is not public but I assume that Alfred could be paying up to $20 per hour to incentivize and retain the right butlers. If that is the case, Alfred may not be necessarily “burning” VC cash but is is able to cover the largest component of its cost structure – butler pay.
Hi Batman. While I like the Alfred operational model at its core, I am worried about its competitive positioning. InstaCart boasts that it can get groceries delivered faster than other apps and with higher accuracy; this is in-part because Instacart super-shoppers dedicate themselves to one task and can therefore become more productive. Apply a similar logic to other dedicated apps (Washio for drycleaning, etc.) Alfred may run into an issue where consumers that have a small amount of recurring errands may prefer to maintain a portfolio of dedicated apps, sacrificing convenience for potentially greater performance. I am curious whether Alfred will be able to capture the “multi-app” consumer given this challenge.