Last week, UrbanClap raised $50MM to bolster its position as the leading home services provider in India. 

Home services are an age-old concept. The "old way" of availing local home services was for servicemen ("handymen") to market themselves through word of mouth, and then to use listing services such as JustDial. The father of local services distributed on the internet was Craigslist, and it is telling to see just how many startups arose out of attacking verticals on Craigslist. Craigslist started by solving the discovery problem, through listings on the internet, which would allow local service entrepreneurs to advertise themselves.

The concept would become huge, both in India and globally. 

The US Home Services industry is pegged at $600 Billion. The Indian Home Services Industry is pegged at $100 Billion. Let those numbers sink in. Now think about the largest players in this industry before the likes of UrbanClap and HouseJoy. 

It's likely you're drawing a blank, and that just shows why it has been both a compelling and a complex opportunity. Compelling because its large, and complex because people have tried to solve it, but failed. 

Local home services are inherently disorganized in nature, with individuals usually running business operations. Services range from carpentry, plumbing, beauty, laundry and so on. Think of anything you need in your home, that can't be solved by buying a product. That is likely going to be solved by home services. 

The trouble is, home services are not a commodity.

The high variance associated with customer experience has plagued the industry for years. Services are by nature variable. The core reason why people continued to rely on word of mouth after bad experiences with companies that attempted to do this, was because it was impossible to tell what you were getting into, even for something as "basic" as plumbing. Mastering scale became extremely hard because variance is a roadblock to scale. How do you know the carpenter is good, or the plumber will do a good job? Sure, the industry was ripe for disruption, but how would it really get disrupted?

Solving the industry's problem wasn't simply just helping with discovery, but creating trust. It is the trust problem that UrbanClap is solving, just like IKEA's now subsidiary TaskRabbit pioneered. 

UrbanClap, started just 4 years ago, by ex-consultants Abhiraj Bahl and Varun Khaitan, aimed to leverage the power of mobile internet to solve for the trust deficit that plagued the industry. Surprisingly, the company has hardly ever pivoted and has been solving the local home services problem from day one. 

That doesn't mean UrbanClap has had it easy. 

Local home services are such a visible and easy to understand pain point, it became a target for multiple companies. This was especially true for startups looking to "disrupt", by evolving the listings paradigm to a trusted "middleman". Uber had done the same for driver services, why couldn't a startup do the same for home services? The startups would be the Uber for Home Services. Seems fair?

It is easy to fall for a framing bias because there are fundamental differences between driving cars and home services. The core difference as I elucidated earlier is standardization. From a user perspective, if things go wrong in a home services experience, it's far worse than a cab ride. Your next ride will be in a different cab, but what happens if the carpenter broke your cupboard and nobody can fix it? It is this missed nuance that may have been the death knell for a lot of startups trying to scale, without getting the fundamentals on the service side right. 

This article on home services from just 3 years ago is telling of why UrbanClap "surviving" has been a big deal. Doormint, TaskBob, Zepper, TimeSaverz all raised money and do not exist anymore. TimeSaverz even called itself the Uber of Home Services, showing it may have been a victim of its own framing bias. UrbanClap's description of itself as the "managed marketplace" of home services is a signal that the company understood the complexity associated with home services. 

As a matchmaker of consumer demand with services supply, UrbanClap realized correctly that it had to solve the supply quality problem from day one. As far back as 2016, when most of the on-demand startups were riding on the "Uber" strategy, UrbanClap was crystal clear that its success is based on the quality of professionals.

It is likely the reason UrbanClap added service professionals in a sustainable manner. 

In April 2015, UC had 1,000 professionals. In April 2016, it had 20,000 professionals. In 2017, it had 50,000 professionals. In 2018 it has 100,000 service professionals. It expanded much slower than HouseJoy, its only surviving competitor. Having executed well, with some PR disasters in between, UrbanClap has scaled while keeping quality in check. I regularly quip to startup founders that the best way to win a market is to do everything to survive, most of the competition will not be able to cross this bar.

By surviving, UrbanClap has put itself in a good position to take the market. 

Like every other matchmaking platform, UrbanClap has to find both services supply and customer demand. As more customers come on board, more professionals find it attractive, and vice versa. This is the exact definition of network effects, whose implication is that the market is winner takes all. UrbanClap will thus begin to see effects in its profitability, as it leverages the advantages of the network.

It is indeed the case.

The company grew from $1.4MM of revenue in 2016, to $7MM of revenue in 2017, while narrowing losses from $10MM to $7MM. Going by the rate of growth the founder quotes, the company is at 3x revenue today, or $21MM.

On the supply side, for 100,000 service professionals, the company thus makes $210 per professional on average, annually ($21MM/100,000). As UrbanClap takes a 20% fee, the amount of work UrbanClap generates for a professional is $210/0.2 or $1,050. Per the founder, the average salary of a professional is ~$2,580, which implies that UC could utilize the same base to generate 2x as much revenue. This means there is latent supply, which could be utilized by adding demand. 

On the demand side, UC claims to do as much as 450,000 transactions per month. For 5.4MM transactions, the company makes $4/transaction (at a $21MM revenue). Per the founder, the company has 2.5MM users, with a 75% repeat rate. For ~5MM transactions, that is 2 transactions per user, or $8 or revenue per year. Assuming a customer acquisition cost of $4, UrbanClap needs one transaction to breakeven on customer acquisition. Those are good unit economics, for a business that will have repeat. 

For a deal that values UC at $500MM, it values each customer today at $500MM/2.5MM = $200. The LTV of UC customers, assuming a 25% churn and an $8 revenue per year is $32. For the $200 per user value, assuming the LTV remains stable, the implication is that there is expected at least 6x (200/32) growth in the number of users. Given the large market opportunity, it would indicate that this should not be complicated, and likely doable in the next two years. 

As the company scales and does more than surviving, it will begin to reap the benefits of a winner takes all market. With lessening competition, UrbanClap will find it easier to win market share. As Peter Thiel shared with Reid Hoffman, UrbanClap has broken away from competition. 

UrbanClap has survived, and may now be the fittest to win.