The Shutdown of Washio and the Future of On-Demand Startups
Just hearing any new business being associated with the term “Uber-for-X” seems like the foreshadowing of a doomed venture. In 2013 Washio was launched as new alternative to traditional laundry routines. As time becomes the latest trend in nonrenewable resources, on-demand startups quickly showed signs of progress as the next tech gold mine.
Now only 3 years into the business, Washio has closed up shop on August 29th according to a new report from TechCrunch. It’s hard to pin point what exactly went wrong for the company after being able to raise $16.82 million in funding from several venture capital firms. The startup even hit the major markets of Los Angeles, Boston, New York among other areas, proving to other people it could actually expand as a potential household name. The shutdown now raises underlying questions on tech startups, their unpredictable valuations, and the level of difficulty in creating a sound proof exit strategy.
On-Demand Is A Crowded Market
Everybody who knows Uber is sitting on a potential $68 billion dollar valuation is literally salivating at the next great idea with the same business model. Naturally, we all want to understand just how many is too many? Everyone expects the bubble to burst at some point, but for every on-demand startup that fails, there is another one quickly gaining traction in funding rounds.
In the laundry business there are a few known “1099" app services including Rinse, Cleanly, FlyCleaning, and Housejoy. Similar startup Homejoy acquired a laundry startup called MyWash, but this was not enough to save the parent company from shutting down in 2015 because of low retention numbers. High user growth will convince an investor a company is performing extremely well but these are usually based on promotional user deals that are almost 50% lower than the margins of a regular customer.
While there is a small market for users who could benefit from being a returnng customer for services such as these, once there is more than three alternatives on the market, the low margins per sale is not enough to keep some competing startups afloat. The first industry to suffer from this is the food delivery industry that is still seeing new food delivery apps pumped out each day, each claiming to be the next best thing.
HR Horrors From On-Demand Economies
One surprise no one predicted was the now serious threat of class action lawsuits for misclassification of contract workers. Uber made an $84 million dollar mistake due to implementing a minimum number of rides needed to not become terminated from the company. Although Uber escapes keeping the core of their business model intact, similar businesses inspired by the Uber model may now have to watch their backs for similar suits. This could easily turn away investors from investing in promising ventures in early seed rounds.
When employees actually start divulging some of the humiliating situations being considered a contractor brings upon itself then things get worse. There are dozens of online accounts of crazy, deranged people treating Uber drivers with total disrespect. Cleaning service app Handy detailed a few accounts; including one creepy customer following a cleaner (mostly females) around his house trying to touch her inappropriately. These are real dangers for contract workers in the on-demand economy and they can be a real headache for startups working to keep a good PR status.
Hope In The Market
So what exactly keeps people interested in this vertical of the tech industry? Are we really that convinced that humans will become totally indolent creatures that use apps for every little thing? Could there be a silver lining in the whole concept that we don’t grasp?
One interesting fact to point out is that this is an economy shared almost equally by multiple target markets. Although millennials make up half, 35–54 year-olds and even the elderly contribute to revenues as well. This means families and the senior citizen market see a great need in these supportive services.
At the end of the day, this is an industry that is aiming for a pool of money with a valuation of as much as $57.6 billion in spending power. As new generations are classified under digital natives, the chances of that spending power growing seems almost automatic to investors. With families that make less than $50,000 also enjoying on-demand apps, this proves the economy isn’t just for “lazy rich kids.”
The verdict is not out yet on the scalability of on-demand startups, we are just able to witness the growing pains of a new pioneering economy.