When it comes to starting a house cleaning company, there are two sides of the stigma coin. The one side: your new house cleaning company is going to be a conversation killer at your next college reunion. The flip side: you don’t have to worry about the market being overrun next year by your alma mater’s graduating class. And for a capable, intelligent, well-capitalized business person, the flip side is what makes success in the industry achievable with a fair degree of probability.
If you’ve spoken with the house cleaning franchises (call them!!), then you already know that the industry is growing at a much faster rate than the economy. Just as importantly, because of the industry’s stigma, house cleaning regularly attracts qualified managers at a lower rate than its high growth would otherwise warrant. Since dirt abhors a vacuum, what the industry instead attracts is a legion of experienced cleaning professionals who lack basic business skills. It is the dearth of qualified management prevalent within the industry that someone with the right qualifications and funding should find attractive about starting a house cleaning enterprise.
While winning clients from existing companies isn’t exactly like taking candy from babies, neither is it like trying to compete with Toyota for selling the next compact car. The market is rife with competition, but of the sort which tend to fall on their own swords before their first year in “business.”
There are a few myths about the industry which I would most like to dispel. First among them is the low-investment fallacy. Last week, I received a call from the manager of a concierge company who invited us to follow her company into 12 new remote geographic markets next year. She asked me how much investment would be required to open up a new house cleaning office in another city. She was surprised at my reply of, “Less than $5,000, I suppose.” So what’s the problem? That’s a pittance, right? No, wrong. The real cost of opening the office, includes cleaning and office equipment purchases, lease payments, deposits and what not, but it also includes losses during the startup period, and these might be ten to twenty times more expensive. Unless you are going to clean houses yourself (in which case you might actually be more of a wage earner than a business manager), then you are going to incur losses, and will not pay yourself a salary, for about 18 months, or so. And if you are not prepared for this base case scenario, then please don’t start a house cleaning company.
For those business persons who do not clean homes themselves, embarking on the venture with a lack of sufficient funding is the primary cause of failure. As opposed to those non-business persons who do clean homes themselves—for them the primary cause of failure is getting old and tired before they actually manage to scale their company.
The second matter about the business which is not always fully understood is that the 7am to 5pm schedule is ultimately a terrific reason to choose the industry, but until the business becomes scaled to an extent that you can hire support persons to perform every management task in the company, you, the owner will be performing every management task yourself. And that is a lot of tasks which together may represent more work than you can possibly manage to complete during opening hours. When I started Denver Concierge, six years ago, I worked like a dog for the first six months, every single day of every single week, and most nights late. Maybe I could have worked less, I’ll never know. But I don’t regret a minute of the time I invested during that period, because now that the company is scaled, I’ve delegated every one of my own tasks to other managers. I was able to do so because we developed systems which allow it. I look at much of our existing foundation in terms of systems and know that it was during our startup period that most of them were developed. We really did recreate the wheel. If we had to do it over again now, we could do it more easily, but that’s partly because we’ve learned so much. For us, the startup period was a painful process.
The Denver Concierge Startup Saga
Hanna and I were working in Finance and Banking in Moscow, when Russia defaulted on its foreign debt and devalued its currency. We were both binned in the same week. We had been giving a lot of thought about an ultimate transition anyway, because our lifestyle wasn’t conducive to raising a family. We had decided that when we left our high-paying, high-travel, high-stress expatriate jobs that we would use our savings to buy a company. Getting binned simultaneously certainly made it easier. And looking back on it now, as expatriates, having Moscow as a starting point was incredibly liberating, because we could have started a company of many sorts, in any city, in any country, of our choosing.
I would have had to veto Hanna’s Sweden because I don’t speak Swedish, but we both were familiar enough with London to seriously consider it as an option. Anyway, Hanna chose America, not me. And thinking about the prospects of getting some kids, and then coaching their softball teams, and then teaching them how best to knock over a tailback, made it a good choice for me. So, the country was settled without much discussion.
The city was chosen scientifically, sort of. I ran the numbers for population size, income levels, population growth, income growth, housing prices, and real estate appreciation rates. Based on this analysis we came up with a short list of about a dozen cities which included in the order of our gut-feeling preference: Denver, Seattle, Portland, Minneapolis, and Phoenix. Hanna vetoed Phoenix for its heat. So, we proceeded to visit the other cities and search for a business to purchase. It was no accident that we started in Denver (and then never made it to the rest). I knew Colorado well from when I was a kid, and figured Hanna might like it.
I’ve since come to realize how few new startups have the privilege of choosing a really good geographic market. And this is sad, considering the importance of this factor on a venture’s potential success. I believe that not enough people think outside the box on this issue. I get told things like, “This is my daughter’s last year in high school—we can’t move because she has friends here.” I always kind of wonder what your daughter would choose if you just offered her a $50,000 bribe to move. She might agree, you know, and given the incremental net present value of opening a company in Boston, MA over opening a company in Hanover, NH, you might in just a year or two find yourself significantly richer, even after the bribe.
When we got to Denver, we visited 20 companies which were for sale. We couldn’t afford big-box retail or manufacturing, so we were pretty much constrained to service and specialty retail. There were a lot of great companies to buy, but most of them felt a lot more like jobs, than scalable enterprises. The little wine shop seemed fun, but how would we have grown it? The antiques shop was quaint and Hanna loved the inventory, but since it wasn’t particularly profitable was that really a good reason to buy it? The sandwich shop seemed fattening, and opening the second and third wouldn’t make it more thinning. The specialty retail required that we put all our money down on day one, and then hope somebody stopped by our shop in the mall. In the meantime, we would stand around in the shop and hope. The auto repair shop seemed like the wine shop without the wine. The dry cleaning shop was always missing its presser. And so on and so on.
It was an interesting experience. From it we came to realize that businesses of all kinds can be sold for fantastic values. And not fully understanding the financial and personal pain which a startup can entail, we decided we were going to start our own company, run it for five years, then sell it for our own fantastic sum.
This led us to the next leg of our journey: let’s consider buying a franchise. Not because we were dying to sign a franchise agreement, but because we thought it prudent to explore the concept before making a decision. We figured that even if we decided against it, the process would be informative. It certainly was. Our only regrets now are that we didn’t just spend another two months and look at ten instead of three. But we were in a hurry to really get down to business losing some money, ASAP.
We had a nice franchise broker show us all those glossy brochures for all those business opportunities. I never before considered the breadth of possibilities. We visited three different companies in three different cities. In addition to two other corporate headquarters, we visited The Maids in Omaha. It was great. The Maids was Hanna’s idea. She liked the relatively low-risk profile of the industry. I liked the possibility for scale. We liked The Maids. The company was great. The management was great. The franchisees were great. The business opportunity, in principle was great. So what next?
We were shown the available service areas. Oooooh. The concept was sickening–picking an area which had already been rejected by everyone else. Looking at the existing franchisees, we could tell that some had done well, and others had done less well, and driving around their service areas, it was easy to see why. We concluded that the best area was obviously already taken. We checked with Molly Maids and Merry Maids for Denver. The same areas were taken. More or less the same picked-over areas remained for each. Aha! Maybe the service area was actually more important than the company! Once we came around to this idea, that the service area was more important than the brand, that’s when we decided that we wanted only the best service areas. And once we decided that, we chose to start an independent house cleaning company.
Well actually, it wasn’t that straight forward. The franchise agreement annoyed us because it didn’t really encourage us to be creative in terms of the types of services we could offer. See, we had this idea that a full-service concierge company which offered house cleaning services as one element of many kinds of services might offer more opportunity than just a straight-up house cleaning company. So we founded Denver Concierge, a full-service, high-end concierge company which also cleaned houses. It took two years for us to come around to the realization that the only scalable part of the business was house cleaning. Once we resorted to just cleaning houses, life became easier. It was an enlightening experiment.
So now, in retrospect, all the reasons for choosing house cleaning as an industry have proven valid. It’s truly scalable within our own financial and managerial constraints. Denver Concierge presently has about 60 employees, cleaning for over 600 customers. In terms of profitability, it now exceeds our original expectations. It’s a cash cow. In terms of lifestyle, we work 7am to 5pm five days per week. And now it is worth real money, in terms of its sales value. Since we never created it to pass down to our children, it now seems likely that we may end up cashing out with a smile.
Something else which warrants consideration by someone at the crossroads: entrepreneurship tends to be a one-way street. Hanna and I have compared notes with loads of other entrepreneurs about this; it seems a common phenomena that there is something about starting your own company which makes you unemployable. Somewhere along the line, we just became less good at being told what to do than at telling everyone else what to do. I suppose some people arrive at the same spot in their careers, and find that they have become CEO of General Electric. For the rest of us, starting a company is a pretty good solution. As for what’s next? In one form or another, we’ll simply do it again.