Profits And Sustainable Startups Remain Elusive In The On-Demand Economy

Consumers continue to value convenience in their increasingly busy lives, and a number of startups are poised to take advantage of that despite an overall slowdown in the on-demand space.

Last week, we looked at the delivery side of the last mile space where companies like Dropoff are providing same-day delivery services on behalf of businesses. This week, we’ll take a look at startups focused on picking up items up from customers and ultimately returning them for a fee.

Delivery Routes Are On Rocky Roads

The competitive on-demand space has undoubtedly seen its share of ups and down. For example, Los Angeles-based Washio shuttered in August 2016 after raising a total of $16.82 million in funding. The dry cleaning and laundry service simply didn’t survive the low-margin, on-demand economy that requires quick growth and expansion. On-demand cleaning service Homejoy also closed its doors in July 2015 after failing to raise enough money to continue to grow.

But other startups are learning from competitors’ mistakes. For one, New York-based Cleanly raised $5 million in a Series A round led by AddVenture, with participation from returning investors Initialized Capital and Altair Capital. The Series A funding was also joined by newcomer Millhouse Capital. It has raised just under $9 million in total since inception.

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In a space where so many other have lost steam, Cleanly claims to be on the path to profitability. In April, Cleanly told TechCrunch it was making money in New York and was about to break even in Washington, D.C. The company is only in three markets.

CEO Tom Harari told Crunchbase News via email that Cleanly is different from competitors in a variety of ways. For one, he wrote, it’s the only app-based laundry and dry cleaning service that offers guaranteed one-hour windows of delivery. Harari said the startup also offers early morning to late-night pickups and the ability to track a driver.

To beat the odds of success in the on-demand space, Harari said the company is focused on “making something people love and always being mindful of unit economics.”

“If we get those two things consistently right, as we have, we will continue to grow to become a very large business,” he wrote. In 2016, revenue grew four-fold over the year before, Harari added.

Making Space For What You Need, And Then Delivering It

Earlier this week, San Francisco-based self-storage provider Trove Technologies Inc. came out of stealth mode after raising $8 million late last year. Greylock Partners out of Menlo Park was the lead in that round, which also included participation from friends and family.

Trove is the brainchild of former Uber executive Michael Pao and former Facebook software engineer Jon Perlow. Pao left Uber in late 2015 and spent about six months at Greylock as an Entrepreneur-in-Residence.

Pao and Perlow used to ride home together from work and observed the sheer number of self-storage units lining Highway 101 from Menlo Park to San Francisco. The pair started digging into the space. After research, the pain points became apparent, Pao said.

When moving, people often have to rent a storage unit and rent a moving truck. Or they hire movers, buy boxes, pack boxes, and get their items into storage.

“We thought there has to be a better way to do this,” recalled Pao, who serves as Trove’s CEO.

So in 2016, the pair founded Trove in an effort to connect expert moving companies with consumers. The companies will help pack, assemble, disassemble, and even photograph and catalog a customer’s belongings. They will also transport their items to a storage facility. Meanwhile, the customer will be able to see where their items are located at any given time. When ready, the customer can then request their items be returned to them at their new home.

“Trove can serve as a one-stop shop for the consumer, who then won’t have to piece together their experience,” Pao told Crunchbase News. “We can provide a high-quality, affordable hassle-free storage experience.”

The consumer pays a flat rate based on the square footage they need, meaning customers only pay for what they store rather than renting unnecessary space. The company is operational within 40 miles in and around San Francisco.

Pao believes the company’s model of partnering with existing companies with years of experience provides a consumer with a higher quality moving and storage process.

“Customers value proximity and convenience in a storage unit, but that can be challenging to find given how quickly urban centers are developing and the scarcity of land in many of them,” Pao told Crunchbase News. “We’re looking to redefine what customers think when they think of convenience, which has traditionally been ‘I need it close to me at all times.’ “

Both Cleanly and Trove aim to grow slowly and not expand into too many markets too quickly – a mistake made by many of their predecessors in the on-demand space.

A VC Perspective

Simon Rothman, a partner with Greylock Partners, worked with Pao on Trove’s incubation.

He was most drawn to Pao’s and Perlow’s background and potential when choosing to invest in Trove. In a May 23 blog post, he wrote:

“They are both special entrepreneurs. Each of them could have anchored their own startup. But together, Mike and Jon are the dream team. I would have backed Mike and Jon in anything they wanted to build…. (But) with Trove, Mike and Jon have the perfect blend of operations and technical experience to tackle the pain of self storage.”

The premise behind Trove, Rothman wrote, is that “you should own your stuff instead of your stuff owning you.”

As a VC, Rothman wrote that he looks for large, broken markets that can be massively disrupted by technology. Self-storage, he believes, is just that.

“The industry is extremely fragmented. There are 30,000 storage companies. And there is no real service of any kind,” he wrote. In Rothman’s opinion, Trove can make the pain of storage easier by transforming the industry from a real-estate business to a technology marketplace.

So while the on-demand space will likely continue to suffer from growing pains, time will tell if convenience will continue to be valued enough to bring these startups to profitability.

Read our prior work on the delivery space by clicking here