Shocking News: Profits Actually Matter
When Umang Dua started Handy, angry callers would mistake his accent for an outsourced representative in India. Today, he’s almost a unicorn.The key? Do whatever it takes to get in the black.
“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.”
Not something you’d expect to see on the S-1 of one of the hottest companies on Earth, but there it is front and center on Snapchat’s IPO. And why should Mr. Spiegel give a shit anyway? Profits, it’s been argued, just don’t matter anymore.
If that sounds ridiculous, it’s probably because it is. As Jeff Bercovici recently argued in Inc, the pendulum is a swingin’ and it’s about to hit founders who ignored the importance of good ol’ profits right in the ass. Bercovici profiles Handy, the home services app (i.e. house cleaners on demand), as proof that while valuation and investment might be sexy, they’re no substitute for profits. Handy has taken a more practical, grassroots approach to growth than its competitors, and it’s the only one in its sector still standing.
We spoke with Handy co-founder Umang Dua about ignoring what’s sexy on the company’s arduous path to profitability.
Is it a new phenomenon for companies to chase investment and valuation over profit?
I think that it’s new in that there’s a large amount of capital being deployed in private companies. You have a lot of first time entrepreneurs who are building businesses in this environment, where there is or at least was a lot of capital.
But I think the important thing to keep in mind is that every company at some point needs to make money. I think that gets lost sometimes, when companies are just so focused on growth, or they feel like there’s an endless stream of capital pouring in. You’re starting to see it show with companies where the underlying premise or the underlying economics weren’t necessarily sound. People will always buy something for $0.80 that costs you $1.00 to make, but that’s not sustainable.
Do you think it’s harder to make a profit today than it’s been in the past?
I wouldn’t say it’s harder to make a profit. I think what people prioritize has to some extent shifted. For some reason profit is not as sexy. What is sexy is growth and raising dollars. But I don’t think it’s actually fundamentally harder, a business is a business today as it was 25 years or 50 years ago.
“I think the important thing to keep in mind is that every company at some point needs to make money.”
Why do you think that priority has changed?
I read a great quote, “It’s never been easier to start a business, but it’s never been harder to make a business scale.” You can create a website for a few dollars a month. You can incorporate your company online, using ready-made template docs for a few dollars a month. Companies also scale at rates the world has never seen before. Facebook and Amazon and Uber and Snapchat, these are not old companies in the traditional sense of the word. They’ve been around for like, 5, 10, 15, 20 years at the most. Which, if you compare that to manufacturing companies, obviously the cycle has shrunk tremendously. I think those break out successes have somehow colored the perception that it’s easy. I think somewhere along the way some people have forgotten that it’s the middle bit that’s the hardest part.
Let’s talk about labor. There’s this idea that in order to be profitable you have to cut labor costs, but seems like you guys discovered that putting your professionals first was a key to profitability. Is that true?
Absolutely. It’s something we try never to forget. If we can make sure the professionals on the platform are happy and they’re productive and they’re doing the jobs they want and have the flexibility they want and they can make the amount of dollars they hope to make, then everyone stands to benefit. Yes, we’re an app, yes we’re a technology company, but at the end of the day we provide a very real world service. We’ve got some incredible professionals. We’ve got over 80,000 people onboarded onto the Handy platform. To a large extent, it’s on their backs that we create value and we create a business.
Do you see a lot of people doing the part-time cleaning thing? Or are people setting up their businesses using Handy as a platform?
We do see a decent amount of people working part time. It’s actually amazing. 90% of the professionals on our platform are women. 60% of those are caring for a dependent, whether it’s a senior or a child. 70% of those people are actually a primary income earner for their household. This is a very, very powerful driving force for us. People depend on Handy for a flexible source of income.
Do you see automation in Handy’s future?
When we think about automation, we think about it as a supporting function. Automation is absolutely critical for us, but it’s critical in the sense of lowering our cost to serve bookings, not in terms of people performing jobs.
So no robot cleaners in the future?
I don’t think so. People develop relationships, especially when someone is in your house. There’s a tendency to want to get to know the person, a sense of trust and similarity that no other degree of technology is going to replace. We’ve actually taken that to heart and said, “Let’s try not to build an anonymous, faceless system.”
How do you prevent people from just going outside the app and forming their own relationships?
It’s something we think about a lot and it’s obviously hard to quantify. It’s not like we see X% or Y% and we’re constantly trying to drive it down. What we see is our own set of retention data and it’s pretty strong. I think from the customer side, there’s real value to having the flexibility and the convenience of using technology to take away some of the pain points. Then on the supply side, it’s really about making sure professionals continue to get value from the relationship. The incentives in the system are built in such a way that the more jobs you do, the more jobs that the system offers you. We see that working pretty well.
A lot of our readers are trying to get where you are right now. What does it feel like to be making it work at this level? What does it feel like to be in your shoes, day to day?
You have two pretty contrasting emotions. Sometimes one will take over, then the other. One is a feeling of “you haven’t done this yourself.” From the outside, sometimes it looks like, “Oh, XYZ person somehow built this company.” The reality is we that have a lot of people who’ve worked incredibly hard for three or four years, and it’s almost a feeling of… it’s a mixture of luck and gratitude.
I think the second is that by nature entrepreneurs are pretty competitive and never satisfied with where they are and that’s what keeps the company going forward. People spend upwards of 300–500 billion a year on home services in the US alone. There’s really no brand in this space the way Amazon has built for physical goods. We see this as this ginormous opportunity, and we’re just such a small percent of the way there. It’s this driving force, which is like it’s ours to lose.
I think that’s kind of the yin and the yang of any ambitious person. There’s a great drive to really be a positive force, but then there’s also the fire of competition.
Exactly, and on any given day, you never know which one is more prevalent.
Do you feel like you represent one and your co-founder represents the other or is it more even?
I’ve definitely seen combinations like that, but I think in our case I think we are pretty alike. That being said, I think on certain days, something happens to one of us, or you just wake up feeling a certain way whether it’s overly optimistic or you’re making something a bigger deal than it is, and it’s important for the other person to step in.
Did you guys always have a good working relationship from the start?
Yeah, for sure. Obviously it feels very distant now, but for the first year of the business, this was an incredibly real world operation. Our priority was not necessarily building the slickest app or figuring out the economics of the business on the first day. That meant rolling up our sleeves and getting it done no matter what.
What sort of stuff did you do to make it work no matter what?
That’s the part of the business that you don’t talk about a lot or that people don’t see on the outside. The first few customers we got was not in the way people would think by advertising or Google or Facebook or the stuff people spend a lot of money on these days. It was a street team. Old school, giving out flyers, trying to convince people to make bookings. We realized very quickly people weren’t stopping. No one wants to get a flyer, everyone sort of brushes these people aside and walks by. Then we had this idea that actually worked really well, which was we put bowls of dog treats under the stands. Then we went around the West Village in New York. Suddenly all the dogs started stopping and the owners had to stop and talk to us.
Oh also, for the first, I think, four months, I was literally customer service. That doesn’t stop. You work all week, and then on weekends at 8:00 am you’re getting phone calls saying, “The cleaner didn’t show up,” or “I want to make a booking.” Obviously the person on the other end has no idea you’re trying to build this business.
Like people yelling at you on the phone, having no idea you were the founder of the company?
Yeah, all the time. And because of my accent, people would think I was in India. It was bizarre. I’m sitting in Cambridge, and people are like, “Can you transfer the call to someone in the U.S.?” I’m like, “Okay, one second.” It was pretty cool.
