2016 – The year gone by….

Today is the last working day of a very fulfilling year of my life. I am exiting the year in fitter and better shape than when I entered it. More importantly, Urban Company, the company I founded 2.5 years back, is exiting 2016 in a far fitter and more robust shape.

In this post, I will talk about three topics. The first is an important journey we undertook in 2016 at Urban Company, shifting gears as a marketplace from liquidity to monetization. Secondly, we picked customer experience as an important battle to fight in 2016, and made some progress there, and I will touch upon this. Finally, I will briefly talk about our plans for 2017.

1. Building the marketplace – from liquidity to monetization

We launched Urban Company on 10^th Nov 2014. In our first calendar year of operations (CY 2015), we identified three focus areas, each of which were non trivial –

A) Iterating on the product and operating model fit:

Like any young company, Urban Company went through its fair share of experiments and tweaks to arrive at what we now believe is strong product-market fit. Today, we divide all services on the platform into two types. The first is standard, low ticket home services (think plumbing, beauty or home cleaning), which are fulfilled by us and we take end-to-end responsibility of service delivery (Some like to call this a full-stack model). The second is customized, high ticket services, where we understand the customer’s needs, and connect them with interested professionals, while curating everything else needed to make a confident hiring decision, including quotes, profiles, reviews etc.

B) Creating threshold marketplace liquidity:

In early 2015, there were 300+ companies in the home and local services market in India. We knew that most marketplaces die young, not because they have not been able to build a great product, but because they have not been able to hack liquidity. Beyond our young, new age competitors, there were also erstwhile online yellow page like competitors, who had the benefit of liquidity. So building threshold marketplace liquidity was super critical for us, and we somewhat succeeded in doing this. We ended the year 2015 with about 2500 service requests everyday, and nearly 10000 service professionals, no mean feat given that we had started the year with nearly zero on both counts.

C) Building a great team and raising capital for the journey ahead:

I am also very proud of the team we have built at Urban Company, an ongoing effort, but the seeds of which were laid back in 2015. We were able to hire a great and highly committed set of VPs early on, each of whom have stuck with us, and helped the founders build the rest of the company. We were also lucky to partner with respected VCs – Saif, Accel and Bessemer, and raise enough capital to systematically build the company for the next 2-3 years.

One area we deliberating did not focus on in 2015 was monetization. We had our hands full as a company with the above, and decided to park monetization for later. Entering 2016, we knew that this had to be the most important area of focus for the company, and we had to make meaningful progress on revenue generation, and growth, without spending incremental marketing dollars. Easy to say, very hard to do.

Below are four graphs – Monthly commission revenues net of seller refunds, # of professionals on the marketplace, monthly service requests, and marketing dollars spent. As you can see, the first three graphs move up and to the right, while marketing remains flat to declining. Infact, our Dec’16 exit revenue run-rate is 12x more than Dec’15 run-rate, exceeding our paid marketing and other direct costs.

The above progress has been achieved by brutal, heads down execution by our team. It also helped that most of the 300+ competitors died this year, and we emerged as the dominant player in the category. We could have done better, particularly on new user growth and repeat, and were very late to focus on key levers like SEO. These will be focus areas in the coming year.

2. Focusing on customer experience

The second key area of focus for in 2016 was customer experience. The world over, successful marketplaces grow on the back of fanatic word of mouth, we knew that well. What we had under-estimated was the level of deep investments, and hard decisions building this would take. I will talk about two such initiatives here, amongst many other lead bullets fired by the team.

A) Removing 1/4th of our professionals:

As Urban Company gained popularity, we started seeing a lot of organic sign-ups from service professionals. Today, for the 50,000 ‘approved’ professionals, we have another 200,000 sign-ups, yet to be vetted and approved. Despite efforts to control quality, many not so good professionals had seeped into the marketplace in 2015. We started a clean-up drive, removing 3000 professionals in Feb, and another 5000 in May-June of 2016. This call was not easy, and impacted short-term liquidity significantly, but was important for long-term marketplace health. We now do this on a regular basis every quarter.

B) Investing in select categories like beauty:

For select categories like beauty, home repairs, cleaning etc., we had taken the call to own service delivery in 2015. 2016 was the year to make heavy investments in these categories, particularly beauty services. This meant initiatives around training, technology, controlling their supplies etc. Beauty services at home was one category where we did a lot of heavy lifting, building it as a recruiter category for our core TG (Women aged 25 to 45), given the strong repeat use-case. As we continued to make investments, we saw systematic improvements in our repeat cohorts, which was heartening. Here is a clip from one of our beauty customers, one I really enjoy:

These investments and more helped us improve average customer ratings, repeats and NPS. Below is a graph of our average user rating month on month, no mean feat given that we were growing all this while –

We also slipped on occasions. In April, we saw massive surge in AC installation and repair demand, and during Diwali, we saw a surge for home cleaning. We bit off more than we could chew here, and customer experience took some beating. We learnt, and will be better prepared next year.

3. The year ahead – 2017

If 2015 was the year of product market fit and liquidity, and 2016 was the year of monetization and customer experience, 2017 for us will be the year for user and supplier growth. While supply growth is often a function of time and hard + smart work, user growth is a harder problem to crack. In my opinion, it needs more than just building a strong supply side and customer experience. Here are three sub-areas of focus for us next year –

A) Spurring and spreading word of mouth:

Every happy customer can become a promoter, if tapped at the right time, with the right incentives. We have done some interesting experiments around promoting referrals and word of mouth, particularly via video on Whatsapp and on Facebook. Some of these experiments have shown good early promise, and I am eager to see how these and others shape up in 2017.

B) Double diving on paid and brand marketing:

Although a bit controversial, I believe it is important to spend money to grow. That said, it has to be done smartly, on channels that work, where lifetime value of users acquired exceeds the acquisition costs, and while remaining within a defined budget. For us at Urban Company, we have seen both Facebook and Google as strong acquisition channels, with plenty of depth. Additionally, we also see TV and Youtube ads as a cost effective medium for building the brand, if done smartly (Short, crisp, demonstrative films worked best for us in 2016). We will continue to invest in these channels in 2017

C) Search Engine Optimization:

This is one area where we were late to the party. Again, contrary to recent notions, organic search has massive depth in most categories, is fast growing, and web as a platform is here to stay. Local and home services represent high search volumes in India, a lot of them on mobile. Ofcourse, many old school rules don’t apply anymore, and one has to be smart about how to build for SEO in 2017.

There are many more exciting initiatives in the works for 2017, a lot of them around categories and cities we see promise in, and building deep supply side capabilities. We enter 2017 with strong tail-winds of growth and a robust balance sheet. But most importantly, what fuels my confidence is the hard at work, 320+ team members, across 8 cities, toiling away to build on the vision Varun, Raghav and I had seen 2.5 years back. At the cost of sounding clichéd, it is really just day 1 for us!

Onwards and upwards!