How UrbanClap grew one on-demand service at a time

New Delhi: It was 2013. Two college friends, Abhiraj Bhal and Varun Khaitan, decided to quit their jobs at the US office of Boston Consulting Group (BCG) to find a place in the then rising wave of Indian start-ups. The decision took their families by surprise. After all, they were yet to find an answer to the most important question— “What was the start-up idea?”

But though the “what” and “how” were yet to be discovered, Bhal and Khaitan were convinced they were ready to take the plunge. “The idea was to build an enduring business, no matter what it takes,” recalls Bhal with a wide smile.

“We spent several weekends during our stint at BCG, just discussing what kind of business we could start…these conversations went on for two years until one day we told ourselves either we should act on it or just face the brutal reality that we don’t have the guts,” he says.

In the summer of 2013, Bhal and Khaitan returned to India and launched their first venture, Cinemabox, that made entertainment devices for buses, trains and planes.

Around the same time, Raghav Chandra, who would later join Bhal and Khaitan’s venture as the third co-founder leading technology, was building Buggi.in—a mobile application to book on-demand autorickshaws.

A computer science graduate from the University of California, Berkeley, Chandra previously worked with Twitter. He had also moved to India in 2013 to become a part of the growing club of entrepreneurs in the country.

By May 2014, both Cinemabox and Buggi had to shut shop after operating for six and eight months, respectively. “We (Bhal and Khaitan) felt that there was not a very large market opportunity and the profit pool that we were chasing was very limited. We decided to shut the company down,” explains Bhal.

But the entrepreneurial spirit was very much alive.

“Even though our first start-up failed, we were really rock solid in our commitment (to start a business). We were not affected by the decision to shut the first start-up. We moved on to the next start-up real quick,” says Bhal.

While Bhal and Khaitan wanted a tech co-founder, in another part of the world Chandra was looking for a business co-founder. A mutual friend brought them together.

The three of them pooled in Rs10 lakh each to set up UrbanClap, which was incorporated in December 2014.

The idea was to redefine how local services and servicemen were being hired in India. The founders saw opportunity in the broken system of how the country connected with various service providers.

To search for an electrician or a plumber, people had to ask friends and neighbours or flip through yellow pages.

“Our personal experiences made us realize that even in 2014, hiring local service providers was actually extremely hard and difficult—whether it is a reliable plumber or a reliable yoga trainer or a reliable wedding photographer,” says Bhal.

This realization led to the formation of UrbanClap, which would soon become India’s largest online services platform.

The name UrbanClap wasn’t the first choice of the founders, who almost spent Rs2 lakh to buy the domain Prohunt.com. Among names such as Prowaala, Ovalslate, Worthyfit, Prodiary, Protrumpet, Joystation, Servemonk, UrbanClap emerged the winner.

The company began with a vision of going beyond being a mere search and discovery platform by building a business model that encompasses on-boarding service providers, training them, managing quality control while at the same time giving users the assurance of standardized services and prices on a platform where they could make payments and write reviews.

Bhal says that online versions of directories such as Yellow Pages were created even with the first wave of the Internet. But they did not fundamentally re-imagine the model, relying on the customer to do all the legwork of finding the service providers themselves.

“And consequently if you had to find a plumber two-three years back in India, then it could take you an afternoon to find one. And if you had to find a wedding photographer or a yoga trainer, it could take you few days. And honestly, it shouldn’t be that tough,” says Bhal.

The UrbanClap founders started aggregating service providers on the one hand and building an online platform on the other, enabling customers to request services online through their website or mobile application.

“Essentially, as an end-to-end service delivery play, users specify the service they needed and everything is standardized, the pricing, service and the experience,” says Bhal.

UrbanClap, which currently lists 107 services, started by listing services that had a higher ticket size—experiential categories such as wedding photographers, yoga trainers, interior designers, dieticians.

At the time when UrbanClap began its journey, hyperlocal firms such LocalOye and Timesaverz were already operational. Timesaverz had raised an undisclosed amount in seed funding in 2014. Other companies such as Housejoy, Zimmber, Taskbob, Spini and BookMeIn were also launched during 2014. These companies are among the top 10 funded hyperlocal services start-ups.

UrbanClap grew fast and soon caught the eye of investors. Within six months of building the product, it received a seed funding commitment in January 2015. “I remember when SAIF Partners told me (that) they would cut a cheque for us of $1 million, we were thinking wow!—are they seriously going to do that?” says Bhal.

However, the funding didn’t come in until April. “We did sign a term sheet with SAIF in December 2014 and then Accel (formerly known as Accel Partners) came on board in January (2015), and in the meantime Kunal (Bahl) and Rohit (Bansal) also wanted to participate, which took us some time to finally close the round,” he explains. Bahl and Bansal are founders of e-commerce firm Snapdeal.com.

In April 2015, the company announced it had raised Rs10 crore in a seed funding round led by SAIF and Accel.

Two months later in June, UrbanClap raised an additional $10 million from SAIF and Accel to boost expansion. In November, it went on to raise $25 million in a funding round led by Bessemer Venture Partners and existing investors.

By the end of 2015, UrbanClap had already become the most funded start-up in the hyperlocal segment. Out of the total of $77.5 million raised in the segment across 27 rounds in 2015, UrbanClap raised $36.6 million in three rounds, according to Tracxn, a start-up data tracker.

In December 2015, Ratan Tata, former chairman of Tata Sons Ltd, invested an undisclosed amount in UrbanClap.

By that time, the hyperlocal segment was booming. Housejoy.in (Sarvaloka Services On Call Pvt. Ltd) raised Rs150 crore in funding led by e-commerce giant, Amazon India in December 2015, which made it the second most funded start-up in the segment. Housejoy is also backed by Vertex Ventures, Qualcomm Ventures and Ru-Net Technology.

In the last two years, the on-demand services sector has witnessed some consolidation. Zimmber, founded in 2014, acquired Dhulai, a laundry services firm, in 2015.

Mint reported in February 2016 that Taskbob (Crenovative Ideas Pvt. Ltd) acquired Zepper Services Pvt. Ltd in November 2015. Others, such as Timesaverz Dotcom Pvt. Ltd have been reported to be in talks with category-focused firms to expand services and enter new cities.

But the high-growth sector has also seen the likes of Tiger Global-backed LocalOye (Imma Web Pvt. Ltd) lay off 60 of its 200 employees in 2016 after automating processes at its call centres.

The hyperlocal services segment is still at a nascent stage in India and more than competing with each other, these companies are collectively challenging the status quo of how service providers operate in the country.

Neha Singh, co-founder of Tracxn, points out that supply aggregators such as UrbanClap and Housejoy are competing more with standalone service providers such as MyGlamm (that provides only at-home beauty services), than traditional listing firms such as Justdial.

As per Tracxn, over 270 start-ups catering to home services have been set up in India in the last five years. These include both horizontal firms that have numerous services categories, and category-specific aggregators providing specific services such as laundry, home cleaning, plumbing, wedding planning, photography and fitness instruction.

By way of comparison, hyperlocal services in China have received six times more funding than those in India.

More than $87 million has been invested in start-ups in India since 2011. Compared with this, companies in China and the US had raised more than $534 million and $1.23 billion, respectively, until October 2016.

Comparing the most funded hyperlocal start-ups: UrbanClap raised $36.6 million in the past two years, China-based 58Daojia, also founded in 2014, raised $300 million and US’s Thumbtack, founded in 2009, raised $273.85 million.

Getting the categories right

Among the top categories by contribution to revenues, services such as beauty, home repairs, electricians, plumbers and carpenters form a significant chunk.

In fact, Bhal refers to beauty services as the company’s anchor and the most important category. “I can just thump my chest and promote beauty as a category for any new customer,” he says. The category brings in the highest proportion of UrbanClap’s revenue at 20%.

The company’s other top categories by revenue include yoga and fitness, academic tutors, wedding services and movers and packers.

While training is a prerequisite for sustaining quality, it is not among UrbanClap’s highest spends. “Our supply team doubles up as trainers in the electricians, plumbers, carpenters and appliance categories, and we only have eight specialist trainers for beauty on our payrolls,” says Bhal. The company has also standardized the procurement of products used by the beauticians.

UrbanClap monetizes by way of charging a percentage commission of the value of services rendered. In case of beauty, its take rate is 20% of the value of services rendered. As a result, beauticians are able to see a three-four times increase in earnings vis-à-vis working in a beauty salon, says the company. “If you see the economics in a beauty parlour—the beautician keeps 15-20% and the parlour keeps 80%. So, for us, it is reverse math; from earlier making 15%, now (they) make 80% and this is from where they get 3-4x jump in their monthly earnings,” points out Bhal.

“From a place where these beauticians are earning ₹ 0,000-15,000 monthly, some of our beauticians (are able to) earn upward of ₹ lakh (a month). It is simple math; average ticket size is ₹ ,500, and on average she does two to three jobs a day, that is a daily earning of ₹ ,000-4,000 of which UrbanClap keeps 20%. Even if we take a conservative amount of ₹ ,500, then UrbanClap’s 20% share amounts to ₹ 00 and remaining ₹ ,800 goes to the beautician. With cosmetics and other monthly expenses of ₹ ,500, and them working for 25 days, that itself is ₹ 65,000-70,000 (income).” explains Bhal.

Building for an IPO

“We are not building this company to sell. We are building this company to last forever, so we are not going to sell. We will go for an initial public offering (IPO) and we will be a very large Indian and potentially a global company,” says Bhal.

Since UrbanClap earns per transaction and not by advertising vendors on its platform, Bhal says the company is chasing a large profit pool, which makes it a lucrative investment option.

Singh of Tracxn agrees. “UrbanClap in that sense has got a good head start—they are No. 1 right now, if they execute right, they can maintain this position,” she says.

UrbanClap became the segment leader 24 months after its inception, but a bigger test would be in maintaining this lead. Given the presence of companies such as Amazon in on-demand services (it invested in Housejoy), a natural question that emerges is: Would the segment survive on its own in the long term or would it get subsumed in a larger sector?

Online home services start-ups create a new generation of entrepreneurs

Bhal is clear there is no possibility of UrbanClap getting absorbed into another ecosystem. “Our promise is not that shallow. I think if we were in the information business, then any of these (e-commerce companies) could disrupt us, but we are not in the information business, we are in the service discovery and delivery business, which needs curation, quality control, training, making sure that the person is on time, standardization, and a lot of operations,” he reasons.

In addition, experts point out that hyperlocal services will not be a winner-takes all market; that among many firms there would be one brand that would disproportionately take up a large share in the horizontal space. But this would take time. An online marketplace in such a segment takes time to establish itself due to the inherent lags in the process of curating and on-boarding service providers.

UrbanClap rejects as many as 75% of the supplier applications it receives to keep quality intact, says Bhal. The company currently has 150,000 suppliers in the pipeline, of which up to 50,000 will be accepted as service partners in the next one year.

UrbanClap has created a technology platform, a website and a mobile app, and has a presence in eight cities: Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune. Thanks to the funding it received in December, the company currently has a runaway for up to two- and-a-half years, says Bhal.

With a team of 320, the company clocks about 7,000-8,000 service requests daily. While the average basket size is Rs3,000- 4,000, the price of a service can range from Rs200-250 for plumbers to as high as a few lakhs for an interior design project.

Beauty continues to witness the maximum number of orders. On an average, 65% of monthly orders are from repeat users, those who have consumed at least one service before.

Having partnered with over 65,000 service providers across the eight cities, UrbanClap has served more than 1.5 million users in the last two years, as per its website.

Among the cities, Delhi contributes the largest share to its revenue, followed by Bengaluru and Mumbai. While the services were recently launched in Ahmedabad and Kolkata, Bhal targets a launch in Chandigarh and Jaipur by March.

Bhal estimates a five- to sixfold jump in revenue in the next 12 months. He, however, declined to share the revenue numbers of the company.

According to official documents filed with the Registrar of Companies, UrbanClap posted a loss of Rs59.2 crore on revenue of Rs2.8 crore for the year ended March 2016.

UrbanClap has disrupted the model by taking out the middleman: Abhiraj Bhal

Going forward, UrbanClap envisions becoming a part of every household in the next five years in every aspect of how they consume local services in India. “We basically see ourselves as the company that has defined the way people hire local services. We want UrbanClap to become a verb when it comes to hiring local services. The next time somebody needs a plumber, a wedding photographer or a yoga trainer, or a beautician, then the immediate reaction should be let’s UrbanClap it,” says Bhal.