“Competition separates men from boys,” goes the popular adage. And, it’s quite apt in the case of few Indian startups who beat the competition to emerge as winners. Oyo and UrbanClap are such examples that have outshined and built a seemingly unbeatable dominance in their respective domains.
Oyo has exceeded the expectation by a significant margin through its valuation, global ambition and staggering fundraise, and similarly, UrbanClap has cut through the competition and turned out as a leader in home service space.
Back in 2014-15, there were multiple startups operating in horizontal as well vertical home service segment. However, they fumbled as VCs shied away contributing funds on the pretext of poor unit economics.
Only two large horizontal players – UrbanClap and Housejoy survived the bloodbath in the space. However, joy for Housejoy lived temporarily as it quickly started losing out the two-way battle to the Gurugram-based firm.
Meanwhile, doubling down its growth UrbanClap reflected sheer dominance in the segment during the 12 months period (Nov 2017 to Nov 2018). “We have recorded 3 to 3.5X growth in revenue and order flow in the aforementioned the period,” said Abhiraj Singh Bhal, co-founder and CEO, UrbanClap.
Although Bhal didn’t reveal the monthly order volume figure, our estimate indicates that UrbanClap has an order run rate of 300,000 to 350,000 in the last month.
Home salon and beauty services lead the growth for UC
Beauty and grooming services constitute 45% of the overall volume for the company followed by home repairs (appliances such as AC, TV, refrigerator, electricians, plumbers etc.) and cleaning. The obvious question is why the beauty vertical has been outperforming other categories?
Bhal answered, “Part of the reason why beauty has done well for us is that we have focused on it disproportionately. The category creates an opportunity to touch base with a customer multiple times a year, given its natural frequency. At home convenience, coupled with affordable pricing and a standardized, consistent service experience has helped us scale rapidly. Consequently, we are India’s largest salon chain today, without owning a single physical outlet. And we think we are just getting started.”
Besides offering convenience and quality to customers, the company has helped beauticians significantly improve their earnings.
“Typically beauticians will earn Rs 10,000-15,000 per month in physical salons, with a bulk of the profits pocketed by the salon owners. In our model, the beautician is a micro-entrepreneur. 80% of what customers pay goes to her. Consequently, our average beautician earns Rs 35,000-40,000 per month, with many earning even more than a lac a month. There is no upper ceiling to your earnings now, the more jobs you do, the more you make” added Bhal.
According to Bhal, partners take 80 per cent of the earning while UrbanClap keeps 20 per cent as commission.
While one may think that the beauticians and other technicians are on UrbanClap’s payroll, Bhal clarifies that it is not the case.
“We think of them as micro-franchises of UrbanClap, who work for themselves, but under the safety umbrella and norms of UrbanClap. We do not hire professionals full-time, but partner with them under this model. We believe it preserves their entrepreneurial zeal and is most aligned to creating a strong end-user experience”, emphasized Bhal.
Besides giving business to partners, UrbanClap helps them with opening bank accounts, financing, training, uniforms, payments, bulk procurement of supplies etc.
Presently, UrbanClap has a base of 15,000 service partners. “We want to grow this number to a million in the next four years,” said Bhal. A few months ago, there were media reports speculating that UrbanClap was set to enter a private label in beauty products. However, Bhal said there is no such plan in near future.
“Private labels is margin enhancement strategy which is not a priority at the moment. This is a play we will explore in the future” added Bhal.
With $50 million fresh round from Steadview and Vy Capital, the firm has started testing out tier II towns – Chandigarh and Jaipur. At present, it has a presence in 10 Indian cities and Dubai.
When asked about the firm’s plan to set up operations in smaller cities. Bhal pointed out, “There are no such immediate plans. We will evaluate the performance in Chandigarh and Jaipur over the next quarter or two, and basis the results, evaluate entry into more tier-2 towns.”
UrbanClap’s ESOP plan and the recent employee liquidation event
During its recently concluded Series D round, UrbanClap also facilitated secondary exists for the employees. Approximately 100 employees were given the option to liquidate part of their vested stocks, while 51 have exercised the option. These employees have made money anywhere between a few lakh rupees to a crore.
This is the second time UrbanClap has allowed its employees to liquidate ESOPs, the first instance being together with its Series C round in July 2017. It’s important to note that the founders have not liquidated any of their shares till date.
Employees cashing out ESOPs is not a new thing and several startups including Rivigo, Lenskart, BigBasket, and Zomato have facilitated such transactions recently. However, UrbanClap ESOP structure seems different on several fronts from most of the startups.
For an instance, the price of each share in case of ESOPs is Re 1 irrespective of time of joining. It essentially means that the strike price of ESOP share is same whether someone joined four years ago or today.
Importantly, there is no holding period for ESOPs. Holding period lets shareholder vest in a given timeframe and it also brings short-term taxation liability. “We have no holding period for ESOPs, and you are allowed to hold your ESOPs forever or till an exit event (IPO or strategic sale)” mentioned Bhal.
Several experts and analysts have questioned UrbanClap’s business model and profitability. Reacting to such skepticism, Bhal concluded, “We know that our model is both capital efficient as well as profitable. There will always be naysayers, we welcome their feedback, but beyond a point, we are focused on doing the right thing for our customers and partners.”
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