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'No first mover advantage in services space'

India is seeing a lot of good second time entrepreneurs, says Housejoy CEO Saran Chatterjee.

Oct 1, 2019 by Ebin K Gheevarghese
'No first mover advantage in services space'

Housejoy CEO Saran Chatterjee has a thing for the Chinese hustle. He spoke about the level of intensity entrepreneurs like Jack Ma bring to the game. He said he had it on good authority how the Alibaba founder held his meetings with attendees upside down in order to, ironically, keep them on their toes. But in India, entrepreneurship is a different animal altogether.

Housejoy had to tough it out to reach the point where it is at now. The company has broken even and is profitable at unit economics level. Present in five metros, Housejoy has added construction to its offerings six months back.

In an exclusive interview with The Passage, Housejoy cofounders, Sanchit Gaurav and Saran Chatterjee, retraced the startup’s journey and spoke in length about the multi-billion dollar opportunity in both the on demand services and construction verticals.

The Passage: What services do Housejoy offer?

Saran Chatterjee: We started off in the on demand services space which by itself is a USD 20 billion plus opportunity. We recently added home construction, home renovation and interior to our services. These three verticals themselves are USD 50 billion plus opportunity. The differentiation of Housejoy from day one has always been that we are a full stack player. We take full end to end responsibility of every single service. Between Urban Clap and us, we barely scratch 3% of the market. 97% of the market is unorganised, which will come online and that is the opportunity.

The home construction business is no different. We take full responsibility from plan approval until handover. We are always true to our overall philosophy. These businesses are tens of billions of dollars of opportunity each and that's what we're excited about.

The on demand services business has the salon at home and the maintenance categories. We are today at the scale of between 1,000-2,000 orders a day.

We are a tech-enabled home construction company. The unit economics of that business model is different. Today, as an entity we are profitable, primarily because there's no other player pan-India that offers everything from home construction to home maintenance in a full service way. And last I checked, there was no other start-up in this space that is profitable and at the scale that we are in.

The Passage: Could you go a bit deep into your construction vertical?

Sanchit Gaurav: Housejoy has an IRC (interior, renovation and construction) business. Construction is a high AOV vertical. We are a service provider. We’ll take care of everything from government approvals, building execution, designing to handing over.

We have four packages such as Rs 1,600 per sqft, Rs 2,200 per sqft, Rs 2,400 per sqft and Rs 2,600 per sqft. Rs 1,600 per sqft is a bare shell. Rest of the package includes interior which covers modular kitchen, wardrobes and fixed furnishing.

We also do customised package.

The Passage: What percentage does each category account for?

Saran Chatterjee: It's very evenly distributed. We have three large categories. Salon at home is about 20% of our business. If you look at the home maintenance categories, which are the plumbing, electrical and carpentry, these are about 20-25% of the business. Home care, which is the cleaning and pest control, is about 30%. And the rest is divided between painting services and other small categories.

The average ticket size on our platform is around 1,200.

The Passage: How do you onboard technicians on your platform?

Saran Chatterjee: We are a managed market place. We have a filtering mechanism for recruiting professionals. First, there's a basic level of evaluation. The second step is we get them tested on a friends and family type job. If they're able to do a live job, we quickly do the background verification. Once that is approved, we onboard them to the platform. Now the theoretical evaluation, background verification, document uploading is all through the system. So we have everything digitized. Once they're on the system, they first get three to five jobs and everything is graded. If the rating starts falling below a certain threshold, the feedback is passed onto the individual and they get removed from the platform.

The professionals work on fixed commissions - 20% for Housejoy and 80% for the service provider.

At this point, there is more supply than demand. The rating for our platform is around 4.3. We have a 2% complaint rate which typically comes because there's a mismatch between what the customer is expecting and the service provided. Those we have to fine tune.

One reason why we are actually profitable today is because as we are scaling, we don't need as many people and that is being enabled by technology.

The Passage: What’s the tech process involved in ordering services on your platform?

Saran Chatterjee: The process of selection of the service provider is a very complex algorithm. First we check for active service providers within the 2 km radius around the customer. From that result, we filter by ratings and skill level.

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The Passage: How did you manage to grow in such scale?

Saran Chatterjee: There are different strategies. One strategy is to grow at any cost, meaning for a thousand rupees job, I would actually end up spending two thousand rupees. It’s typically what’s happening for well-funded players in the startup ecosystem.

We have been a little bit more conservative in terms of marketing spend. So our math is, if I’m making two hundred rupees, my loaded cost is at most three hundred rupees. So I’m losing, but I'm not losing as much. But then the funds that I have, obviously run a lot longer because my losses aren’t as high as some of the other players.

We know how to scale. We've done it when we had raised a larger round in the past. We were scaling quite aggressively, except that at this point, we are choosing not to scale as much.

We are just trying to keep it profitable and manageable. And hopefully at some point, if we're able to raise money independently for the on demand services, we will become a large player as the vertical evolves.

From an investor standpoint, there are ample opportunities to make returns.

We're trying to keep costs low. And whatever little money that we want to invest, we invest in the right areas like growth, sales or whatever that doubles up the revenue.

The Passage: How did your experience as a product manager benefit you as a CEO of Housejoy?

Saran Chatterjee: I'm a tech guy by training and product management experience. I left Flipkart in 2015 to come to this venture.

It's always a clean start no matter what experience you have because the business is different. But what you inherently learn through experience is things like dealing with certain situations. You are able to think a little bit better from a strategic standpoint.

With experience, little bit of structure comes in. I see that as the main difference and advantage.

The Passage: Do you think Chinese startup scales faster because of the ready availability of funding?

Saran Chatterjee: I think that's one main criterion. You need the money to activate the users. I feel the Chinese entrepreneurs are extremely risk taking. The market obviously is large and the potential to activate those users are higher in China than in India. Here we have anywhere between 40-70 million shoppers who can transact online. The same number in the China is close to three-four hundred million, maybe more.

In China, the effort entrepreneurs put in is insane. That level of hustle doesn’t exist in India.

The Passage: How do you take on a competitor with higher marketing spend?

Saran Chatterjee: You have to have some noise. If you're looking at my competitor, at least you should know that there is another player that I can consider.

The beauty of services is there is no first mover advantage. You are actually going inside somebody's house and spending one to three hours. There is always an opportunity to provide something wow in that one to three hours. That can become your unique selling proposition because of which a customer will choose you at some point.

The customer always goes to the first player. But the first player will also be constrained by supply. And suppose you get exposed to a top notch service level when you choose second option. Now what happens is, the second time you're considering this, you actually consider the second option much more strongly. That's the beauty of services.

As much as 80% of our business is repeat customers. We spend about 10% of the revenue in marketing.

The Passage: What made you throw construction vertical into the mix?

Sanchit Gaurav: The AOV (Average Order Value) is low in the home maintenance business. Construction has huge potential and there are no big players in the space.

I was running a traditional construction company. When I was researching about Housejoy, I understood it’s a technology company which is already doing well in on demand services. I said why can’t we join together and make this a billion dollar company. The vision is to become a tech-enabled construction company. Housejoy is the best platform to do this.

In renovation, we have completed more than 150 projects in six months. In construction we have around 50 plus projects.

The Passage: Are you are looking to raise funds?

Saran Chatterjee: Yes. But now we're looking at it very differently. We are looking at funding for our home maintenance business very differently from construction business. In construction, revenues are much higher. In next three months, we will be doing business of about eight to ten million dollars a month.

We want to touch about thirty million a month in the course of one and a half years. These are obviously exciting for any potential investment because you're coming in at a very early stage and you will be part of this amazing growth and return.

The maintenance business, on the other hand, is very different. They need continuous capita if you want to keep on activating users and competing. We would like to get some capital to be evenly matched in this sector. And the good news is, the sector is still at a very early stage.

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The Passage: Amazon had invested in Housejoy but didn't participate in last year’s round

Saran Chatterjee: Investors choose to invest or not invest based on their strategy. Amazon has a different challenge. Now, they're looking at payments and hyper local groceries and fashion in a much stronger way. When they invested in us, Amazon was super bullish on home services. But three years down the road their priority has changed. Amazon doesn’t have a separate VC fund. Their money comes from the balance sheet. So unless it’s in the top three priority, the money will never come.

The Passage: What’s your projections for next year?

Saran Chatterjee: The construction, renovation, interior business is a solid gold mine. The business is scaling in a profitable way. Our current projection is about 10x in the next 12 months.

On the home maintenance business, right now, we are streamlining. We are preparing for growth. We are trying to see if we can double the revenues the coming year.

The Passage: How did India’s startup ecosystem evolve in the last ten years?

Saran Chatterjee: We're seeing a lot of good second time entrepreneurs. They tried the first thing, didn’t work out, but they learnt. Second time when they're starting, they’re much more focused, resourceful and aware. The overall quality has gone up, primarily driven by either second time entrepreneurs or the rise in general awareness about these entrepreneurship because it is being pushed by pretty much every single stakeholder, be it government, or the entrepreneur or the VC funds. Everybody is pushing hard. When there is so much collective effort, obviously the ecosystem will mature.

The Passage: What are the teething problems you have faced while scaling?

Saran Chatterjee: Growth in any company is always a challenge, especially when you're running a B2C entity, which is hyper competitive. When we started out, there were about sixty companies. So sometimes you tend to take ‘follow the competitor’ model.

That’s the worst mistake anybody can make. We made that mistake. You can look at the competition but you have to stay focused on what is right for you. And you have to keep innovating and move fast.

With the right focus, the right business plan and right team, you can actually grow businesses in a much more sustainable way.

Ebin K Gheevarghese

Ebin Gheevarghese is a Bangalore-based tech journalist. He focuses on emerging Indian startups. He can be reached at ebin@thepassage.cc.

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