Is the Homejoy shutdown a bad signal for all on-demand services?

The main reasons for Homejoy's failure went beyond just the contractor issue, although that was part of it.  The way I see it, the primary causes of failure were:

• Poor quality cleaning service (I personally tested it several times and was shocked how bad the quality was). People didn't want to use it again. Just check the Yelp reviews.
• Selling the service below cost (there is no way they could profitably provide cleaning services at $20-$25/hr)
• High CAC (lots of ad spending, daily deals and other forms of customer acquisition that was higher than their lifetime customer value)
• Lawsuits that scared off potential investors (the cleaners were contractors but may have been treated as employees in the eyes of the law)

Homejoy did do a number of things right that we can learn from, including awesome customer retention marketing and well designed websites/mobile apps that customers loved. This is partly why they grew so quickly. In fact, it was the fastest growing company out of the famous startup accelerator called Y-Combinator (which also launched successful companies like Dropbox, Airbnb, Zenefits, etc).

See: https://www.quora.com/Y-Combinator/In-June-September-2013-which-company-is-Paul-Graham-referring-to-as-the-fastest-growing-YC-company

The "Sharing Economy" is a misnomer. You really are talking about a "Piece Work Economy". There really isn't a question of whether these are your employees. They are. You are vetting them, they receive their pay from you, the contract through you. You provide the tools of work, youset the quality standard and even in some casesrequired procedures.

.

That they do not necessarily work a 40hr work week doesn't really change that.

.

So the reality is that the primary reason to treat them as "contractors" is to improve YOUR profit margin. And essentially that is at the cost of compensating them less ( you avoid having to pay into their FICA and Workers Comp and pocket that revenue ).

.

Calling it the "sharing economy" is essentially putting lipstick on this rather ugly pig. And this is why CA is demanding that companies properly reflect this relationship. The Employee vs Contractor regulations were historically put in place precisely to prevent this sort of "race to the bottom" exploitation. And yes the government very did actively opt to fight Piece Work because it was harming both citizens and the economy as a whole.

.

What this means to me is that businesses like InterSchola need to rethink their business model from the outset. because they are either

• pricing too low to be profitable and compensate employees fully
• not delivering sufficient value to sustain a price that is profitable and compensates employees fully
• they are trying to game the system because they really are not comfortable as a contractor/client matching platform and the lower profits and image that go with it.

There is no need for a middle ground. Employees need notbe Full Time. You can have Part Time employees that have exactly the same flexibility as "contract workers". The main difference is that you have to pay Worker's Comp and FICA for them and withhold taxes.

Given the prevalence of automated solutions for these, this is not a significant cost.

1. Bottom line, if your business is based on matching employees to clients you have two options:
2. Really be a Lead Gen company and nothing more (but take the risk of poor quality of service as a result, and have very little brand control)

Hire workers.

Anything else is essentially an abuse of what is known as the Tragedy of the Commons

BTW it is not that ICs in large companies do not have recourse. One of the most common forms fo recourse is simply file a complaint with the IRS. And the IRS is something that even the Google's of the world are concerned about

Below is a post I wrote on my personal FB page immediately after reading about the demise of Homejoy (I service I admittedly never used).  To put this in perspective - my post was visible to my FB friends, family, colleagues, advisors and yes - former staff members. 

This hits very close to home as InterSchola's model was challenged by similar regulatory issues after we had created the first full service solution to help school districts and local agencies create a much needed revenue stream through the sale of their surplus assets and obsolete equipment through eBay style online auctions. Our model generated over $20 million in revenues for our clients (largely school districts and other local agencies), repurposed idle assets into the community and kept over 30 million pounds of surplus from going directly to landfill. Equally important, we created flexible work opportunities for many individuals in areas where similar jobs were not readily available. Our team enjoyed the work and found it rewarding.  Although not challenged by a single staff member (unlike Uber or Homejoy - both facing litigation from staff members), in 2011 the state of CA challenged us to convert our project based, flexible IC staff to employees. We did. That shift contributed significantly to our company's demise. We absolutely support workers rights and wished to provide a safety net, but the loss of InterSchola  infrastructure following our business closure left our staff scrambling to try to continue to support clients with no net at all. I sincerely believe the country needs to consider an alternative to the employee/independent contractor distinction - a middle ground that supports flexibility for those that want it or need it while also providing company sponsored support for workers. This is a new economy. Think what you will of the Uber's of the world - but small companies are trying to innovate. Meanwhile large companies have been using highly paid ICs for decades with NO recourse because they have the legal resources to structure these relationships to sidestep their transgressions. A middle ground is needed. Interesting to watch both parties presidential candidates struggling to address this topic in their campaign efforts.

There is some good advice in the thread above.  Certainly this topic is one that is and will increasingly be under scrutiny.  To be sure, if thinking of using the sharing economy as a backdrop for your model (our business predated this term - and likely looked more like Homejoy than Uber), please be aware of the multi pronged tests (differ by state) to understand the classification distinctions.  If the government wants to fight this  - they can and they will as the tests are nothing close to black and white.  Happy to share my experience...