The home services industry is witnessing a flurry of action in recent times. From fundings to consolidations to new investors, the industry is slowly ripening towards consolidation. So, while Gurgaon-based UrbanClap raised $25 Mn in a Series B round, Mumbai-based Taskbob acquired Zepper, another startup in the same domain. November was also a busy month for the NCR-based hyperlocal online marketplace for service providers, FindYahan, which added The Times Group’s Brand Capital as its investor. The same month saw yet to be launched Hyderabad-based home improvement services platform, Renowala.com, raising a funding round from Logtally. Another major consolidation that happened in this sector was the acquisition of hyperlocal services marketplace Near.in in a cash-and-stock deal by Paytm in a bid to strengthen its presence in online to offline space.
So where is this $100 Bn industry headed? Are the recent fundraising rounds now making a way for consolidation and would lead to some clear winners? Is the industry solid enough to give India the next unicorn?
Anubhab Goel, CEO & Co-founder of Zimmber strongly believes so. In an interview with Inc42, Anubhab speaks about the industry’s future, profitability, and Zimmber’s plans to assert its position as a thought leader in the home services market.
Inc42: Given the current number of players and structure of the industry, what will it take to become a clear winner in the services sector?
Anubhab: If you look at the industry now, it is segmented into four major brackets. First you the players with the listing models; then you have the booking platforms; then come the full stack players such as Zimmber; and lastly you have the individual category players such as someone doing only laundry or housecleaning.
We feel the leader in the services sector will be the one who owns the customer experience. So, we define full stack in a different way. For us, full stack means I will send you the right person at the right time and he will do the right thing. If I do these three things, then I am a full stack player. Also, along with a full stack model, you need to get your pricing right. Because you cannot charge a premium for the same service someone else is giving at a lower cost, neither can you discount it too much as customer will not return back.
Now open or listing platforms will send you someone at some time and he will do something. So there’s no guarantee of owning the customer experience there. And, the moment you are a cross category player, things even become more difficult. On the other hand, if you look at single category players, they are trying to solve a single problem, but with them the struggle is unit economics. They will spend similar money which we will spend on acquiring a customer, also they don’t have more choices for customer to come back so repeat will be low but cost of acquiring a customer will be same. Consequently, margins will be low as well. And you need to make some money on each order to be profitable and to be the winner in this sector. Hence, I believe it’s a full stack player only which can crack this model.
Question: Why do you think the discount economy won’t work in this sector?
Anubhab: The thing is for a company to be profitable, at some point your revenue and cost graph need to converge at a point to put you on the profitability track. But if your revenues are not increasing at par with your costs, they will never meet. People are missing this grossly, then they try to give discounts. But if you lure a customer with discounts, he might not come back for your service.
In India, for instance about 40-50 Mn people indulge in ecommerce shopping. But the fact is people who are not doing discount shopping, and are actually willing to pay what you are asking could be much lesser. Now in order to build a sustainable business, it is these customers you need to target. So, you can be the no. 1 on papers saying you have 30 Mn customers, but you won’t be able to sustain that business forever because you will continue to burn money.
Magic will happen only if you get those 10 Mn customers who are good customers and sustain with them. And the only way to get them is by delighting them with your services, which means by doing a full stack model.
Question: How do you see the industry evolving in the long run?
Anubhab: Right now, a lot of money is flowing in the industry and the entire ecosystem around it will evolve. Payments will revolutionise, training and development will play a key role, and delivery will play a key role. For instance, take the case of laundry, while delivering ironed clothes back to the customer, you need to stack them properly. So what our delivery partner did for us was make customised bags to stack them. Because adding on more vans would only cost more.
The home services industry is in a very nascent stage right now, so we want to set the rules right now. If you try to build your business on solely incentives and minimum guarantees, it is difficult to pull them back then. Take the case of unrest in logistics companies which faced the same issues when they tried to revise the wage structure. So, we are very cautious as to what are we trying to do at a massive scale. Because for us it is a forever game.
We want to build this business. The whole problem with ecommerce is that they tend to think in a smaller frame. How can we become number one company in one year? How can we be ready to exit in three years? This I think is not the right way to build a business. If you look at initial businessmen, they never thought how they will exit the business when they were building it. It’s in recent times the trend has started. Infact, to quote Jack Ma who says that he wants his company to last 101 years so that it can see three generations. That’s the kind of vision we also have. The industry is corrected now and is moving from a discount economy. So evolving in this industry is more like playing a test match than a T20.
Question: Do you think what happened with Homejoy in the US can happen in the Indian services sector as well?
Anubhab: Homejoy had a leakage problem. See you have to understand the US is a different economy. Handymen there earn a lot. Compared to that, in India, there is no incentive for him to fix the leakage. That’s where the margin balance comes into play. One has to see what kind of margins you are driving from the service providers. How much can he save by leaking from me? If that’s as pithy as INR 100, that is no incentive for him to do leakage.
Secondly, in India, predictability is important for a blue collar worker. He would always want his next month’s income to be fixed on some company. So, when he works with us, he gets the benefit of predictability. For instance, if a customer books a plumbing job for the weekend, the plumber knows he is getting some money after seven days.
Thirdly, we are well prepared to deal with this as we track his utilisation rate as we would want them to do our jobs only. On our supply side app, we have the green and red button. If he refuses them for a considerable time, we take him off the list. If he accepts it by pressing the green button and still refuses it, then it becomes a serious issue with penalty kicking in too. So the idea is that while we don’t give them minimum guarantees, but we give them the app to plan. We want them to plan their time on our app so that we know when he is available for us. If he is mostly not available for us, then he is not a reliable guy. And, if someone has done a leakage, he is fired with no questions asked. That’s the culture we want to promote which will ensure a Homejoy won’t happen here.
Question: How do you go about hiring service providers and what are the tools used for motivating them?
Anubhab: For blue collar worker, there are three things we look at-job, money and recognition. We have now become sort of preferred employers for them, they aspire to work with us. So, either through walk-ins or through word of mouth or through our on ground fleet we get data points for service providers.
We only hire people who have been in the same city for a couple of years, have a good track record, can give us customer references also, and ideally should be married as well. After collecting their documents such as the Aadhar card, we do an on boarding session. The first half of this is more like an interview to evaluate them more. Mostly, 50% leave as they do not fulfil the criteria. The ones who do are given a temporary card and a phone. They are then put on a trial basis for 10 days where we evaluate them by giving them certain number of jobs. If that goes well, they are on confirmed, otherwise they are taken off the list.
Simultaneously, we do soft skills training, dos and don’ts training, and some technical training. We have tie-ups with institutes wherein we send people in batches of 20. Once fully on-boarded, there is a regular month-on-month evaluation. Based on that and customer feedback, we recognise the best champs in a public gathering. All these methods ensure that attrition is very low. Others just give them leads, but we give them jobs.
Question: Do you think the home services industry is overcrowded and ripe for consolidation now?
Anubhab: I think, it is already settling in after getting overcrowded. Last year, there were some 128 companies in the sector as per Tracxn but only seven to eight managed to get good institutional backing. Going further, only five to six will be able to raise the next rounds of funding. So, it has already settled in. It is a hyper competitive market that’s why more than one player will survive, but it is not an overcrowded market anymore. We will see clear emergence of three-four winners in this sector.
Anyone who has not raised money will not survive and will pivot to be the backend for us. Because you need money to run the operations as you make only 10-15% margin in this business which are not enough to sustain it. It’s a game where capital is required.
Question: So when do you see the service industry becoming profitable? What will be the driving categories for you?
Anubhab: That depends on when will the cost of acquiring a customer become positive and when the whole business will become profitable eventually. So, for Zimmber, within 12 months, the cost of acquiring the customer will become positive and within three-four years, we should become profitable as a business as well. If you look at a smaller bucket say how many repeat customers are cash positive for me, that’s already happening.
Overall profitability will only happen if you are making money on each order and people are coming to you again and again. That’s how you become fastest sales positive. So even if 30% of your customers are becoming sales positive in 12-15 months then it is a good business. And that’s what we are targeting.
See, you also have to realise that we are not a vitamin selling company, we are a painkiller company. You won’t call a plumber or an electrician unless there’s a problem. Though of course, we believe that daily services such as laundry and driver will become big business for us, and even home cleaning. Home painting, home cleaning and pest control are high ticket items for us, whereas driver and laundry are more penetrative.
Question: Will you be launching more categories and hiring more people in the future? Tell us about your expansion plans in the backdrop of on-going attrition and layoffs in the industry.
Anubhab: Yes, we will be launching a new category every 45 days. We launch a new category only when we have a good supply and we can do some value add to it. So, only when we can standardise and scale it, we introduce a new category. We are hiring more tech and product guys. We believe in smart growth, so we don’t over hire. We believe in only hiring good guys. So we are 100+people now and we need them. Similarly, I can hire 2000 service providers but then they have to be utilised well.
We are India’s No. 1 blue collar full stack company today, and we are recognised as thought leaders in the industry. We are setting the rules. People might have raised more money but they are following us. We were the first one to use auto as a channel for marketing. People followed us and we were happy to set the benchmarks. We put boards on hardware stores-people followed us. Even in operations and supply side, our competitors are closely watching our practices and trying to follow our best practices. We are happy with this stage since the rules have to be defined the right way from the beginning and Zimmber is clearly leading the way. We see so much of traffic from competition on the website as well (smiles)!
Our whole motto can be summed up as FOCK– Fun at work, Own what you do, Care for your Customer, Be Kickass. We continue to live the vision of uplifting the entire ecosystem of the Home Services Industry.