Are you being served?: The UrbanClap success story

Kanchan has been in the beauty business since she was 15. Last December, the 40-year-old returned to India after a three-year stint as a beautician in Dubai on account of her daughter’s education and family. Though she’d worked with several high-end Delhi salons such as Toni & Guy in the past, she chose a different path this time: Instead of working full-time with a salon, she decided to sign up with digital home services platform UrbanClap Technologies on her sister’s recommendation.

She says she now takes three to four jobs a day on the platform to meet her target of making ₹1 lakh a month. “A job ties you up. This gives you a lot of freedom. And everyone likes to earn money,” she tells Fortune India at one of UrbanClap’s training centres in south Delhi. “I like that the harder I work, the more benefits I reap.”

Ashzad Khan’s story isn’t very different. The AC technician, who worked for companies such as Voltas and Daikin before joining UrbanClap as a freelancer, says he used to make ₹15,000 a month earlier. But his earnings have gone up dramatically to almost ₹1 lakh before expenses, working three to four gigs a day through UrbanClap. The technician from Saharanpur in Uttar Pradesh, who supports a family of five, came to Delhi to do a polytechnic course more than a decade ago. He was unable to find a job in his hometown, pushing him to live in Delhi. Now, he plans to spend the next decade working with UrbanClap.

Millions of people in India have polytechnic diplomas or are trained as beauticians, plumbers, or carpenters. The government’s Skill India initiative, in fact, is one of the avenues for vocational training for many of these people. However, the job market isn’t always fair to them. If they’re lucky, they manage to find work at salons or companies at a fixed pay with long working hours. The salary is not very attractive, especially if they are living in a big city and supporting a family. Sometimes they just don’t find any work at all. The irony is that there is a huge demand for services like plumbing, carpentry, beauty services, and photography, but most of the earnings in these jobs go to the middlemen—contractors, salons, beauty parlours, studios, etc. Here’s where UrbanClap steps in. The Gurugram-based company is a digital service that connects people with service professionals from plumbers and electricians to beauticians and yoga instructors—without any middlemen.

It was started in 2014 by three young men with a big idea—Abhiraj Bhal, Varun Khaitan, and Raghav Chandra—who in barely five years have already made UrbanClap the go-to platform for urban Indians looking for anything from pedicures to painting houses. In this short period, they have added 20,000 exclusive service professionals such as Kanchan and Khan to the platform across 10 cities in India and also in Dubai. And funds have been pouring in. UrbanClap has so far raised more than ₹700 crore (about $110 million) from investors such as Accel Partners, SAIF Partners, and Tata Sons’ chairman emeritus Ratan Tata. In less than two years, it had become one of the highest funded startups in the hyperlocal segment and is valued at around $480 million.

Last year, hyperlocal startups garnered most VC/PE investments in India, to the tune of $1.6 billion. “The [sector] is highly unorganised, fragmented, has no concept of quality, no concept of trust or reliability,” Bhal says, sitting in their Gurugram office. “All those problems exist and yet it is a very large part of the spends of an average household, and there seems to be no large company solving these problems. There are hardly any large sectors which don’t have large companies,” he adds, as he recounts how he, along with Khaitan and Chandra, zeroed in on this sector when they were exploring ideas to set up a company of their own.

The three UrbanClap co-founders set out on this arduous journey of connecting service providers with consumers, and in the process are trying to organise the market itself. Today, they have managed to make big inroads in the market, at least in the big cities, and barely have any close competitors. Sure, there is Justdial and Sulekha that also list handymen, carpenters or beauticians, but UrbanClap says the difference is that it has cut through the middlemen who list on other sites and keep most of the earnings. Its revenue model is based on a commission on the fee paid to the service professionals and they also sell products to be used by their professionals. “This is one of the more interesting startups I have seen in recent times. There have been other companies also like Housejoy and a few others, but unlike the others, UrbanClap has continued to evolve. While most of them are just aggregating a few independent service providers, UrbanClap has put in systems for quality control and training being done for some of the service providers,” says Arvind Singhal, chairman and managing director, Technopak Advisors.

This financial year, the company plans to expand its base to 10 more cities in India, and to Abu Dhabi, its second international market after Dubai. Bhal says the company is also in the process of identifying one more international market outside of West Asia. “We believe our solution is sticky and is the right solution, especially for the trust-deficient emerging markets,” he says. In the next five years, the company sees its base increasing to one million exclusive service professionals and the number of customers leaping to 50 million from 3 million. In FY19, UrbanClap posted an operating revenue of ₹116 crore, a 150% rise over the previous year. Of course, like many startups in the digital world, UrbanClap is still to turn a profit; if anything, its losses only widened 26% to ₹72 crore last year.

For a company that has moved slowly but steadily in the past five years, adding 10 more cities in one year is a colossal target. Bhal says the top 10 cities represent a very large market for them, and winning in these cities has given them the confidence to accelerate their growth. The company also thinks that the market in smaller cities wasn’t mature enough for a service like UrbanClap until now, but that is changing. Look at their latest additions, smaller cities such as Chandigarh and Jaipur. Next on the list? Ludhiana, Vadodara, Surat, and maybe Lucknow. “Our latest cities—Chandigarh and Jaipur—have grown in four-five months, where our first eight cities would have taken 18-24 months to get to those milestones. With that confidence, we are going to enter the next 10 cities,” he says. “The playbook is much, much more well-defined, so we know exactly what to do when we enter.”

Now, it is true that the founders have a lot of clarity about where they see the company going. But that wasn’t always the case. IIT Kanpur batchmates Bhal and Khaitan did short stints as consultants with Boston Consulting Group (BCG), Bhal in Singapore and Khaitan in the U.S. Meanwhile, Chandra, who is a couple of years younger, studied computer science at the University of California, Berkeley, interned at online review company Yelp and worked at Twitter in its pre-IPO days. “That was the year of the Ubers and Airbnbs being in the third year... The buzzwords in my head were economies of scale, social platforms, creating mass jobs; that was really my idea of impact,” Chandra says. He did not want to work for the big Silicon Valley companies, where he believed he would be a mere cog in the wheel.

The three of them moved back to India in 2013. Khaitan and Bhal started a movie streaming company called CinemaBox, and were introduced to Chandra by a common friend. Chandra had his own startup, an auto rickshaw aggregator called Buggi.com. He was a one-man army coding in the morning, meeting autorickshaw drivers in Noida in the afternoon, and marketing in the evening. In his own words, he says, he felt like Shah Rukh Khan from Swades. Not surprisingly then, he also spent time campaigning in the 2014 elections, which saw a lot of young people rallying alongside the Aam Aadmi Party following the anti-corruption movement led by Gandhian activist Anna Hazare.

It was also the time that some of India’s first big consumer Internet companies such as Flipkart and Ola were scaling up fast and garnering a lot of interest from investors. InMobi, Snapdeal, and Flipkart were already unicorns. In 2014, Indian tech startups raised almost $5.2 billion in funding from private equity and venture capitalists.

The UrbanClap co-founders believed there was an opportunity for them to return to India where a startup ecosystem was coming together and funding options were becoming available, in addition to the lure of a billion-strong consumer base. “Over the last decade or so, for the first time there is an ecosystem where if you are an entrepreneur, you don’t have to necessarily belong to the 15-20 or 25 families that have controlled India’s corporate sector,” says Bhal. “If you have a clear vision, if you have a product or a service that has a market, access to capital is available. You can go out there and build a company.”

In one of their initial conversations, Bhal and Khaitan dismissed the idea of joining Chandra’s company, while he expressed the same feelings about joining CinemaBox. They did not believe that either CinemaBox or Buggi.com had the potential to become big companies. They were both shut down shortly after. The three started meeting at Bhal’s house to brainstorm. They were all convinced they wanted to start a company that could have a larger impact.

After much discussion, they eventually zeroed in on home services. Initially, they began with finding photographers, beauticians, and plumbers who they would connect to family and friends in need of those services. They started giving demos to groups of employees at companies their friends worked at and would also browse Facebook groups for people looking for services, find the service providers and connect them. Chandra says they even scouted for customers in markets in Delhi, asking people if they needed a yoga trainer or a tutor. A website was created soon after, and the company made its first investment of ₹4,000 on advertising on Facebook.

The founders bootstrapped the company until U.S. venture capital firm Accel Partners and early-stage investor SAIF Partners invested $1.6 million in the firm. At the time it had two employees in addition to the three co-founders. Abhinav Chaturvedi, partner at Accel Partners and an UrbanClap board member, says, “Large companies are built on the back of solving difficult problems. If it were an easy problem to solve, a lot of players would be in the market. Google became a large company because it solved a really tough problem. UrbanClap is solving a really tough problem as well, procuring supply, and making sure it is accountable.”

Today, UrbanClap is already a big brand in the hyperlocal space. The hyperlocal sector recorded 80 PE/VC investment deals worth $2.3 billion in the period 2013-2018, mainly skewed by a single large $1-billion investment in Swiggy by Naspers, DST Global and others in 2018, according to an EY report on e-commerce in India. Naspers, Tiger Global, Sequoia, and Accel are some of the most active PE/VC funds in the hyperlocal segment. Hyperlocal firm Swiggy became a unicorn last year, while BigBasket joined the unicorn club in March this year. “The ‘near me’ concept is catching up with the consumers with more and more large and small players entering the ‘hyperlocal’ space. Growing Internet penetration, rise in the number of people using smartphones and increasing disposable incomes have acted as a catalyst for the hyperlocal sector while reshaping customer behaviour and expectations,” the report says.

The way UrbanClap has evolved over the years reflects the evolution of the market as well. Chandra says it started out using the lead generation model for suppliers, who would respond to customer needs. It slowly evolved into a reverse auction model in which there are many potential suppliers for a customer. The app was launched in March 2015. The real challenge began when the company started going directly to service professionals rather than contractors or middlemen. It had to ensure quality to the consumer while making sure that the service professionals make enough money to stay on the platform and make this their primary source of work. “If a beautician is working for a salon, she might be getting ₹15,000-20,000; if she works as a freelancer, we would have to guarantee her a certain amount of money,” Chandra says. “These individuals are the most atomic form of business units in our society. Because they are not fully businesses, they need a lot of help. If India needs to grow, if consumers need to benefit, they have to be empowered.”

Additionally, the company had to standardise the services for which it needed the service providers to buy quality products and tool kits. That’s when the idea of partnering with NBFCs to give loans to service professionals came about. The company also started training centres to provide the service professionals with some technical and soft skills. Khaitan says skilling the professionals is a key focus area for UrbanClap. The professionals undergo a basic 15-day course, provided they pass a written exam and an interview. They are taught soft skills and the finer nuances of their work before they are allowed to accept any jobs on the platform.

“They are undergoing a life transformation, from being an employee to a micro-entrepreneur and running their own business. A huge part of the training focuses on—how do they manage a business on their own, how do they manage their finances, manage family along with business needs,” he says.

The selection process in itself is quite rigorous. The company says only 20-30 of the 100 people who apply actually are selected. The selection isn’t permanent either. If the professional’s rating falls below 4.5 out of 5, they are in the red zone; if it falls below 4.2, they are out of the platform.

Safety—of both service professionals and customers—is of paramount importance. In May, two technicians were killed when an air conditioner (AC) they were servicing exploded in Gurugram. Unlike an Ola or Flipkart, UrbanClap is one of the few big companies that has its service partners going into people’s homes. So how does a company that is growing at a rapid pace and wants to serve millions of customers deal with the safety issue? Bhal says there is an elaborate background check process, including checking of temporary and permanent addresses, for which the company works with third parties. The company also ensures it only has the same gender services and people are only served in their homes, and not hotels or any place outside.

During the time the service is being delivered, the mobile app has the location of the professional, which the customer is aware of. And any complaints from the professionals regarding customers, says Khaitan, are taken seriously. “If there is any, even slight misbehaviour from the customer, they are blocked from using UrbanClap,” he says.

This story was originally published in the June 15-Sep 14 special issue of the magazine.