Handy: Turning Product Into Platform
Busy “yuppies” with messy apartments used to be stuck with two unappealing options: either go for an expensive cleaning firm that often caters to commercially managed buildings or the gray market where immigrants with questionable legal statuses work for below the minimum wage.
Now they can use an app, Handy, to enter the parameters of their apartments and look for an available cleaner at a convenient time. Handy turned the cleaning service model from a product to a platform. Employed as contractors, these cleaners are not on their staff. They build up both the supply side, the cleaners, and the demand side, the users looking for cleaners, and position themselves as a platform in the middle. Compared to the incumbent subscale small businesses, Handy’s model offers clear network effects: more cleaners mean more availability and choices as well as shorter wait times by users, while more consumers on the platform would attract more cleaners, in addition to the other areas of home services the company is expanding into, including plumbing, repairs, etc.
Handy’s journey to scaling a platform
City-by-city strategy: borrowing a page from Uber’s playbook, Handy has a launch team that goes into each city to recruit cleaners, sign up users, and build momentum for a business that operates very much by geographic region. $60M of venture capital funding have enabled them to aggressively expand into 25+ cities in the US, UK, and Canada.
Standardization: given the massive diversity of cleaners that are the “product offering”, Handy uses design to standardize their experience. For instance, every cleaner that joins must attend mandatory trainings and abide by guidelines, e.g., wear Handy uniforms to jobs, hefty repercussions for being late or missing a job. The centralized Customer Experience team fields and resolves customer concerns in a consistent fashion.
Product differentiation: while users would undoubtedly have varying standards on cleanliness and ability to pay, it is hard to differentiate pricing and product offering. Handy tries to price discriminate by offering tiered pricing — $15 to $22 per hour — depending on the cleaner’s rating.
Handy’s scaling strategy has so far successfully allowed them to win the US market; it’s main competitor Homejoy just shut down earlier this summer.
Challenges to further growth
However, it is not yet time for celebration. At three years, Handy is still unprofitable and facing challenges. When the “product offering” are services provided by humans, it is challenging to fully standardize the offering before ruffling feathers.
As Handy scales, the trade-off between experience and costs become harder to manage. A major criticism is that Handy treats cleaners like employees, but pays them like contractors — because it is 30% cheaper to use contractors and there are fewer rules governing their labor policies. However, one could argue that with the stringent requirements that Handy cleaners have to follow, they are perhaps under-compensated and with limited bargaining power against the platform.
Then, as with any platform, there is a risk of disintermediation, where users that have found good cleaners can mutually decide to take their relationship off the platform. This adverse selection problem would cause good cleaners to slowly leave the platform, so only mediocre cleaners would remain. To address this, we must believe either that 1) there is a huge unaddressed market where more cleaners will continuously join the platform for the forseeable future, or that 2) the value provided to either side (though more likely the user side) of the platform is so great that they will not leave.
Finally, as Handy consolidates this market, it becomes a big target and bring the latent discontent to the forefront. Cleaners who left the platform file lawsuits alleging unfair labor practices. Users have to face a perhaps uncomfortable truth and wrestle with their own feelings about social justice: the majority of cleaners in New York City are low income black or Latino women. As the new face of the cleaning market, Handy will attract increasing scrutiny on how it is impacting this industry and, as such, may need to aspire for higher standards.
I completely agree with your concern about disintermediation. I used Handy this summer and realized just how difficult it was to use it for one-off cleanings instead of a regular appointment. My roommate and I were shocked that the nice, efficient lady who cleaned our place to help us get our security deposit back didn’t even give us her contact information beyond how to request her again through Handy – we would have gladly given references to friends looking for a similar one-time cleanning. I wonder how long this will last that somehow in each new market Handy (at least temporarily) is preventing disintermediation?
Interesting take on Handy. I was looking into a cleaning firm this summer and they had so many negative reviews on Yelp – administrative issues, automatic charges that weren’t properly cancelled, untrained contractors. I think this is a common risk when you are trying to scale extremely rapidly to take advantage of network effects – you may not be able to manage the growth properly and might have to give on customer experience, which in turn contradicts your efforts to scale, as users like myself can look up reviews on sites like Yelp. Thank you for the post!
Thank you for interesting post. I too share your concerns that Handy will be unable to avoid the same fate as HomeJoy. They are definitely in a catch-22 with their contractor business model since they cannot guarantee the quality of their contractors and I don’t think the economics will work if they switch to an employee model where they would have more control. Rumor has it that Google hired a large number of HomeJoy’s tech team after they shut their doors this summer. I am curious to see if and how Google actually tries to tackle the home services market… perhaps they will be able to avoid the pitfalls that plagued HomeJoy and Handy (e.g., high customer churn, high customer acquisition costs, trade-off between economics and control over quality, etc.)
Thanks for this post! I tried to use Handy for the first time over the summer for a one-time cleaning and it was a complete disaster. The cleaner cancelled on me on very short notice and there was no way to recover the payment that had already been processed. Instead, Handy offered me credit which I was unable to convert into a refund given that there was absolutely no way to contact their customer service! As such, I’m probably not very objective in my commentary. 😉
While disintermediation is a real risk, I think the bigger problem and honestly where Handy falls flat, is on the standardisation of its service offering. Handy may claim that all cleaners have to undergo training etc but I have heard (and read) very mixed reviews of the service, which speaks to the variability of the service. This is the part over which Handy has no real control and yet this quality variable may play into the utility that users are able to derive from Handy. Furthermore, shoddy customer service does nothing to retain customers. As such, I think the network effects (both direct and indirect) are too weak for Handy to be a viable long term business. They may be forced to switch to an employee model – it seems inevitable, otherwise people will find other options for home services.
Interesting topic! Building off of some of the other comments, I too have noticed that there is not standardization in quality. My roommates and I use handy every few weeks for the past year now and we have had extremely mixed results. Some cleaners are great and some are sub-par. The results are always different and the user is unable to lock-in the same cleaner for repeat business. It appears Handy makes this a challenge to detract from the possibility of disintermediation, but I’m not totally sure. Either way, when we have a bad experience, the cleaning session is always comped. Their customer service is excellent.
One key advantage they have is insurance. Despite being recommended local cleaning services (usually independent contractors), I feel as though the consumer takes a risk that the contractor is injured in their home while cleaning. Incidents may be rare, but the piece of mind through Handy’s liability coverage is the main reason we keep going back to them.
Matt
Great post! I’m a handy user myself and while I do like the service, I find their quality to vary heavily from contractor to contractor – I’ve had some great cleanings and some that left something to be desired. My take, in part, is that some of this is driven by what you mentioned about how Handy structures their employment agreements as contract, rather than actual employees.
While Handy can provide suggestions for cleaning tactics, quality standards, etc., the company legally is limited in what standardization practices it can hold contractors to since they are not actual employees. While at a small scale, this may not be an issue, it does become an issue when Handy reaches a larger scale where monitoring quality becomes extremely difficult. They’ll likely have some customers who find a good cleaner and stay with him/her for the duration (providing there is no disintermediation); however, should a new client have a poor experience early on, customer lock-in may prove difficult. I’ll be interested to see how they tackle the labor issues, especially as new entrants begin to eye the market.
I really enjoyed reading your post! I think you bring up an excellent point about future growth challenges due to employee retention. I recently read an article about the challenges facing on-demand companies like Handy. The article discussed the difficulty of training, managing and motivating the freelance workforce. A company called Managed by Q (https://managedbyq.com/) some have argued is reinventing the on-demand economy. Managed by Q has a similar value proposition to Handy, but has rejected the independent contract trend and instead hires “operators” as employees instead of independent contractors. Do you think this employee model might help standardize the Handy user experience? I have only tried to use Handy once, but I was very disappointed. The appointment was rescheduled 4x.
Great post!
Although I agree there is a disintermediation risk, I still believe that there is great potential for this business especially for people that do not have recurring cleaning services or that just moved to a new city because it reduces the research required to ensure safety or a minimum level of quality. I also think they are doing a great job by partnering with Airbnb to facilitate property management for hosts. By leveraging Airbnb’s network they can probably become profitable.
Handy has always sounded interesting to me, but without exception, everyone I’ve heard who’s used their service has had nothing but terrible things to say. Something about the platform controlling the quality of inputs to consider here, esp. in biz where you’re letting randos into your home.