Here are the top startups working to solve problems around your home
Originally posted on October 4th, 2022 on Medium.
Few industries have seen as many attempts as home services.
As one VC described, “every venture capital firm has a home services skeleton in its closet.” Home services is an industry with plenty of shots on goal — but few that end up in the back of the net.
The allure is clear — a large market with tangible problems visible to the average homeowner. Few industries solicit a “why doesn’t this exist” response as often as home services. Every time your HVAC breaks and you don’t know what to do, or you spend three hours trying to find a good plumber, you shake your head and wonder why this hasn’t already been solved.
To understand the future, we must understand the past. We must look backwards — back to the phases of home services startup attempts and the lessons that they teach us.
Market definition
Before we begin, let’s quickly define the market we’re talking about here.
At the studio we divide our local life into 250 different sub-verticals. As an example, “food delivery” is one of those sub-verticals.
Our research team adds 1,000 local startups each month into our database across all of these sub-verticals.
This post will focus within our “home services” vertical and specifically look at a couple of sub-verticals:
- Horizontal Home Services Marketplaces (i.e., book any type of service provider for your house)
- Repair / Maintenance / Warranties (i.e., find a handyman in your area)
- Home Operating System (i.e., automate your home maintenance with a subscription plan)
We won’t dive into other adjacencies in this overview, but some of them include:
- Interior design (e.g., Havenly, Modsy, Homepolish)
- Laundry (e.g., Washio, Rinse, 2ULaundry)
- Cleaning (e.g., Helpling, ByNext, Cleanly)
- Furniture (e.g., Feather, Fernish, Kaiyo)
- Security (e.g., Ring, Flock Safety, Deep Sentinel)
History lesson
Phase 1 (1995 to 2007)
The aggregation & digitization of home services
The first wave of novel home services startups in the 21st century can be defined by the rise of the horizontal home services marketplace. These started with:
- Angie’s List, which was founded in 1995, became the first notable database of local service providers and their reviews. The company gained steam when it moved online in 1999 through its online subscription to its proprietary list.
- ServiceMagic (later HomeAdvisor) was the other major competitor of the day. Founded in 1998, ServiceMagic was used to connect homeowners with local service providers.
This phase of startups solved a key problem with home services: in an industry that traditionally relied on friends / family / neighbor recommendations, consumers could now see ratings and price transparency like they never could before.
Since this phase, a lot has happened to Angie’s List and ServiceMagic. Angie’s List went public in 2011, became profitable for the first time in its 20 year history (!!!) in 2015, and changed to a freemium model. They then merged ServiceMagic / HomeAdvisor, rebranded into Angi, and acquired Handy.
This was the first phase of home services on the internet.
Phase 2 (2008 to 2014)
The Great Recession & the rise of the gig worker
Many great companies came out of The Great Recession, and few as notable in home services as Thumbtack and Taskrabbit.
Thumbtack started by offering gig workers and service professionals modern tools, such as scheduling tools and landing page builders, to help them grow their businesses. While Angie’s List scraped local listings to be a directory, at Thumbtack, according to the CEO, “the average listing was higher quality, it was easier to book appointments, and you weren’t left with spam.”
Thumbtack grew to be the one-stop shop for consumers to hire handymen, cleaners, mowers, and the like, eventually raising ~$700M to grow their network nationally.
Taskrabbit grew with more of a focus on the gig worker and smaller “tasks’’ that can be done around the house. Taskrabbit grew quickly and gained capital from notable VCs such as Founders Fund before plateauing and eventually being bought by IKEA in 2017.
There were lots of other startup attempts in home services during this era, but most ran these two main playbooks.
Phase 3 (2015 to present)
Your home on autopilot
In the mid 2010s the U.S. was in the midst of one of the greatest bull markets ever. Home values soared and subscription models began to take over.
All of these forces led to the next generation of home services startups attempting to develop what we call the “home operating system” — putting your home maintenance on autopilot as much as possible.
One angle that companies have taken to solve this problem is to be the one-stop shop for information about your home. Companies such as Househappy, HomeBinder, and HomeCloud market themselves as a way to keep all of your information about your house in one place. Then, when it’s time for a repair, you can use one of their certified vendors.
However, the most common startup attempts in this space tend to offer upfront subscription plans for a combination of a preventive maintenance schedule + on-demand help if needed.
There have been plenty of shots with this model — many that have raised VC dollars between $1–10M. Most have seemingly either struggled to gain venture traction (Prefix, Setter, Sheltr) or are too early to tell (Bullpen, House Ninja, Onder, Exhale Home, Honey Homes, Dobby, BirdWatch, Homeplan).
A seemingly more successful approach has been the “home warranty” model. Some startups, most notably Super or Puls, offer subscription insurance plans against the highest dollar value appliances and systems in your house. Some of the math on their websites look pretty compelling, which may be why these companies have raised $80M and $108M, respectively. A related startup, Homee, has also had a great deal of success as an InsurTech platform for connecting insurers, policyholders, and skilled service providers for this type of work.
Texture of the problem
In the studio when we talk about important characteristics of problem spaces, we use the expression “texture of the problem” to describe the important nuances around each problem space.
There are several key frictions that startups have grappled with in building a billion dollar home operating system startup:
- Trust: There tends to be a high barrier of trust with customers at several key points — lack of trust with the service provider themselves, lack of trust with the company certifying the vendor, and lack of trust that you’re not getting ripped off on the prices that either of them quote.
- Poor price expectations: Consumers don’t have a strong understanding of what they actually pay for home services. A $6,000 HVAC replacement quote seems high until you realize you paid $8,000 the last time you replaced your HVAC.
- Labor shortages: Major problem all around this space.
- Customer experience: The easiest way to create a scalable business in home services is to outsource, but this means that the startup doesn’t control every part of their product.
Novelty
At Neighborhood Studios, we’re obsessed with one thing above all else: Novelty.
Novelty, or the quality of something being new, original, or unusual, is the thing that separates good startups from great ones.
The next billion dollar startup in home services will not be based on an idea that has been tried hundreds of times. It will be built with a new — truly novel — approach that gets customers excited like no attempt has before.
In our studio, we celebrate novel ideas to tackle these problems in all their forms.
We end each Industry Overview with a couple of the most novel startup attempts that we’ve seen recently.
Here are the most novel approaches in home services and its surrounding adjacencies:
- Streetfair: Streetfair allows homeowners to jump in on existing services coming to their neighborhood. That means discounts for consumers and route density for providers.
- MADE: MADE is a full-stack renovation company that focuses on bathrooms.
- Help Lightning: Help Lightning is a B2B software that uses Augmented Reality video calls to allow service providers to get help remotely.
- Realm: Realm is an app that allows users to track the ROI of potential home improvement projects. Similar to Zillow’s Zestimate, consumers can track their home value over time and when they want to pull the trigger on a project, connect them with vetted contractors.
- Freemodel: Freemodel is a pre-sale home renovation platform that remodels houses before sale and allows users to pay out of escrow (hence the freemodel).
- Jobox.ai: Jobox is an API that allows companies to build their own home services marketplace.
So what’s next in home services?
As a startup studio, we are always looking for what’s next in various hyperlocal spaces. We aren’t actively working on a startup in home services, but we think these parts of the problem are promising to explore:
- Full stack: There are lots of advantages to controlling the entire experience for one slice of home services the way that MADE does with bathrooms.
- Home concierge: The idea of a single-point-of-contact like a handyman from Honey Homes seems promising, especially if that person didn’t have to visit the home every time.
- Apprenticeship: Labor shortages are a major problem in this area. We LOVE various ways to foster less skilled workers working alongside more skilled workers. Maybe a model like Multiverse?
- Next-gen warranty: Super has raised $80M for home warranty plans. Is there a next-generation model here?
