Startup Self-Immolation

Homejoy burned to death. It wasn’t the worker classification lawsuits that did it in, although those certainly didn’t help. According to former employees, the company spent all its money expanding around the world, offering first-time customers subsidized services in each new city only to see them never return.

Remember how proud Paul Graham was of Homejoy’s explosive growth? It’s not hard to acquire customers when you’re selling dollars for fifty cents.

My current favorite company is Jet. They reached a $3 billion valuation before even launching a product. The original business model was to charge a $50 membership fee for a discounted version of Amazon, but shortly after launch, they pivoted and removed the fee.

Today and tomorrow, everything on the site is 25% off. On any other day, you only get 20% off.

The discounts are intended for first-time customers. But after I create fake accounts for each of my 49 cats, what incentive is there to come back and pay full price?

Not all startups are burning to death. I just presuppose that any company needing to subsidize stuff to attract customers is pretty much screwed. And if you don’t actually need to offer free stuff to get customers, why do it?

Back in 2010, Groupon served as the definitive death rattle for restaurants and small businesses. Today, you’ll find all manner of apps and startups soliciting customers on Groupon. Including, previously, Homejoy.

See Also:
1. Homejoy at the Unicorn Glue Factory –Backchannel (medium)
2. Crowdsourcing the Race to the Bottom