In early 2016, CEO Oisin Hanrahan, of the on-demand home cleaning startup Handy, watched his cost-cutting strategy backfire. He had implemented an online method of “onboarding,” or recruiting, cleaning professionals. Handy’s co-founder and COO Umang Dua had resisted the automated recruitment method, fearing it would lead to unqualified candidates and incomplete applications. Eventually he acquiesced to a trial in their Miami and Washington DC markets.
The online onboarding idea came as a reaction to a lukewarm capital raising round. They successfully raised $50 million, but the investors included the caveat that the funds may soon run dry. By late 2015, venture capitalists were becoming more stingy with funding. Fellow startups were struggling to raise capital and even “unicorns” or billion dollar startups, were failing. In order to survive, Handy recognized the need to shift their company’s focus to profitability.
The obvious solution towards improving profitability was to implement the online onboarding solution company-wide. This would save millions a year in payroll. But in the trial, the improvement in efficiency proved disastrous for the customer experience. Successful recruitment dropped 40%, so the demand for cleaning professional quickly exceeded the supply of workers. Appointments had to be canceled, causing an influx of irate customers calling in complaints. But, it proved to be just one of the many necessary roadblocks to overcome on Handy’s path towards profitability.
Sacrificing growth for profitability is a rather new concept for Silicon Valley startups which were comfortably capitalized in 2014 and 2015. Handy Inc was no exception, raising $110M in venture capital that was earmarked for growth and market penetration. But the venture capital bubble started deflating in early 2016, when the amount of funding available contracted by 11% and the number of investments decreased by a whopping 29%.
Handy.com stuck to its guns and weathered the online on-boarding fiasco. Within six months, the online recruitment process had been debugged and enrollments soared. In fact, Handy hopes to become profitable, rather than money burning, by mid-2017.