From idea to replacing full-time salary in 4 months | Hacker News Reader

From idea to replacing full-time salary in 4 months

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331 pointsinstakill173 comments

This time next year on reddit:

"From working my ass off 90 hours per week running a business that wouldn't scale to nice salary/benefits for 40 hours. I'm taking home the same net and I feel like I'm on vacation."

I don't want to sound too snarky and I really admire OP's initiative and ability to make things happen, but this just doesn't smell right. It's easy to get excited by nice revenue in the beginning (as he should), but this new business:

  - doesn't scale well
  - is notoriously difficult to get and keep good workers
  - is the first thing customers eliminate when times get tough
  - has minimal barriers to competition
  - is price sensitive
  - is difficult work
  - is almost 24/7 customer service
  - has major tax/liability/insurance issues
  - provides minor personal growth opportunity

It reminds me of growing up hearing the debate between 2 uncles at Grandma's every month. One ran his own grocery store and the other worked 9 to 5 for BigCo. Each thought the other had it made.

Uncle A said, "You get to go home every night at 5, never work weekends, get benefits covered, and have a life.

Uncle B said, "But you can grow your income as big as you want and you don't have to put up with an asshole boss."

Both were right.

OP is excited now, but I have a feeling that in about a year or so, he'll be feeling a lot like Uncle A.

Incoming anecdote..

My uncle, Peter Dussmann, started out cleaning offices, then started an office cleaning company, than bought an office building...now he owns one of the largest service companies in the world (50k+ employees).

http://de.wikipedia.org/wiki/Dussmann

When you make money it opens up other opportunities. How you leverage them is what matters.

That said, I'm 1000% Uncle B.

Too many people think of scaling too narrowly. They think it means doing more of the same thing, which it can. Or it can mean something like this.

There's no reason a cleaning service can't scale very, very far. Look at Merry Maids.

Great points. Also allows him to learn, grow (both in business and to look for new opportunities), and adapt.

Plus, its pretty easy to just "get a job". Creating a job or a business is much trickier. Kudos to your uncle!

I does not scale well compared to what? I might scale poorly compared to your average social network silicon valley mobile app startup, but it scales well compared to any other small business. He does not need a physical space and there are almost no other fixed costs. Also I feel he is using his "computer skills" to gain a competitive advantage by doing SEO and he also has an original brand. If he was able to replace his full time job in 4 month, he should be able to grow enough in a year time to hire someone to do most of the annoying administrative work for him.

Sure building a photo app and selling to Facebook would be cooler. I guess everyone has to figure out for themselves what they want from life.

I agree with your sentiment. I feel that a massive part of the potential for startups is in doing boring, everyday things much better. If there are already lots of providers that means there are already lots of potential customers.

Yeah we'll see. I don't even know if I want to scale at all. Seriously if I could double current earnings within this year, quit my job, help my family, (use some extra money to diversify a bit) I'm good.

Isn't the real message here that we shouldn't forget that many of us startup geeks can completely out-design and -SEO virtually any local service provider out there and that there might just be big money in doing so?

It is indeed important for him to realize that he'll be 'just an another agency' though and needs to start acting like one.

That doesn't negate the fact that a properly-SEO'd site which outperforms local agencies can be tremendously valuable and achievable.

>Isn't the real message here that we shouldn't forget that many of us startup geeks can completely out-design and -SEO virtually any local service provider out there and that there might just be big money in doing so?

THAT'S IT! I don't think what I did was that difficult (I had luck along the way, and went over the top in some ways,yes) but at the end of the day, I think this is the main takeaway from this experiment.

I think you're wrong on almost every point.

Seems like it can scale quite well. Look at Merry Maids and Jani-king. It wouldn't surprise me if a more modern maid service that was entirely corporate-owned (rather than a franchise) supplanted the current leaders at some point.

The margins seem high enough that layers of management could work.

Difficulty in keeping good employees hasn't stopped Wal-Mart or McDonald's.

Times are tougher than most people alive can remember, so if it's working at all now, it probably can only get better.

There may be a solid first-mover advantage, so barriers to entry that are non-financial may exist.

It sounds like his part of the work isn't difficult. I don't know if I'd define what a maid does as difficult either. It just sucks.

Running a business of any size is a major personal growth opportunity.

My guess is customer service calls will happen at reasonable hours. Nobody wakes up at 4 am to decide their maids did a bad job.

I can't comment on taxes. He claims to be insured/bonded. I don't know much about that for that sort of business though.

I think you are being a bit harsh on his ability so cale. Anecdote time:

I own a lead-generation business. We focus primarily on home services, and over the last couple of years I've gotten to see a lot of businesses on this guys scale operate. My favorite is an air-duct cleaning company that we work with out of Colorado Springs.

When they started working with us they were brand new. A single truck that was just trying to make ends meet. However, one of the owners is a natural on the phone. When we provide a phone call she closes that business something like 80% of the time. Over a two year period they've grown to 10 trucks, and 15 employees. They are providing service 7 days a week. They are turning a solid profit per truck, and the owners are really happy.

Yes it's a long ways away from being a billion dollar company, but that's not to say it never will be. They've cracked the sales cycle and their growth is only going to continue as the push out into more and more areas.

They won't be huge overnight, but over a 10-15 year period there is no reason to think that they won't grow into a hugely profitable business that makes their owners very rich.

It'll be hard work, and they have a lot of hurdles ahead (learning to manage a larger business) but that doesn't mean it's not rewarding or worth their time to try.

Based on the labor discussions here and on reddit, next time this year might be more like:

"I thought I had a good thing going paying my workers as 1099s, but then I was audited and all my workers were reclassified, the IRS went after back taxes and my workers sued for benefits, and the fact that I incorporated as an LLC didn't matter (since an LLC offers no protection against IRS recovery of back-taxes due to reclassification)."

I strongly recommend he seek out the services of an employment lawyer.

I will, this week. Luckily if I have to fix this I don't need to go that far back, I'm only in a couple months.

The comments here are really hitting home to me how self-aggrandizing and toxic hacker news is becoming.

This guy got off his ass and started a real business. How about a pat on the back or words of encouragement?

Here's a dose of optimism for you, OP: Good for you. You got this far, you will figure out the challenges ahead of you.

“It is not the critic who counts" has never been more true.

Wow this means a lot, thank you very much!

Interesting that all of these points apply equally to Exec (a ycombinator startup), but everybody had nothing but praise for them.

I agree and would argue that these points apply even more to Exec because at least with this idea, you are only handling a single task (cleaning people's houses).

I hate to rain on your cold shower but...

- doesn't scale well

Who said he wanted it to "scale"? If he has already replaced his income he may not need much "scaling". Nice buzzword though.

- is the first thing customers eliminate when times get tough

Times are tough now and he is growing his business (or "scaling" if you prefer buzzwords).

I'm interested to know what kind of business you're running and how well it is performing.

I agree, who says he has to scale? He can get to comfortable position and stay there with loyal customers.

It does seem to be generally true that running a business has a worse payout than a normal job, but in this case, the OP says he's spending seven hours a week on the maid business: http://www.reddit.com/r/Entrepreneur/comments/sblc6/from_an_...

Interesting because my ex-girlfriend basically did what the OP did and she worked like a crazy woman from 7AM to 8PM with no days off, dealing with her team, clients, etc.

I have a full time job.

I understand, though I'm merely stating that from firsthand experience seeing my ex work, she was going at it like crazy just to get it up and running smoothly. Hard to understand the difference between 7h vs. 90h per week for two successful people who had never worked in the cleaning biz before.

Perhaps the difference can be explained by this guy's employees - sounds like he started with exactly the right person as contractor No. 1 (or employee No. 1, given the other discussions on this thread). That has allowed the company to scale and train others to the same high standards.

Does it have to scale to national or global size? No. The guy covers a sizeable metropolitan area with an abundant potential client base. Does he have to scale up to 500 employees? No. He can keep his business small and profitable.

<OP is excited now, but I have a feeling that in about a year or so, he'll be feeling a lot like Uncle A.

you could be right my man. I'm not looking at this through rose colored glasses at all. I'm a realistic ^ 2. Thanks.

I understand the train of thought you're having. It may not be the best kind of business scaling-wise but if done right he could open some more somewhere else and horizontally scale that way. Everything can be scalable when pushed into the right direction.

More branches = more employees = almost automatic administration = more money.

Those are only my opinions, therefore not facts.

Another point why this result may not be typical of attempts to duplicate this business in other parts of the country is that he is doing this in Washington DC, the epicenter of where cash is being artificially injected into the economy by defecit spending. Silicon Valley, DC, and NYC exist in a different world from the rest of the US

You're right about DC having a regional effect, but wrong about "cash being artificially injected," especially since deficit spending has very little impact on DC's economy (think lobbying and consulting).

I lived in DC for a few years and there's a strong work + happy hour culture for young professionals. It's pretty standard to hit the bar after work and get home at 9-10pm on any weeknight.

The result: a group of tired young professionals who have zero desire to clean up their apartments.

Government spending IS spent in the DC area. Every government contractor has major offices if not outright headquartered in DC area. For example: Northrop Grumman, CSC, Lockheed Martin, and General Dynamics are all headquartered there. Any new bureaucracy finds offices in the region - TSA's 4000+ headquarters employees are in Northern VA.

I know I am going off on a tangent but since 2008 the US government has been spending $1,300 billion more than it collects each year! Instead of spending that in the DC area why not just send a check for $10,000 to each and every household in the US. Of course these numbers do not include the TARP cash that is deluging Wall St.

I don't want to follow this tangent further, but you're right about the headquartering of consultancies in the DMV area. Booz Allen is there too. Still:

Instead of spending that in the DC area why not just send a check for $10,000 to each and every household in the US.

Because that money is funding a decade-long war overseas and a series of tax cuts enacted several years ago that were recently extended.

Of course these numbers do not include the TARP cash that is deluging Wall St.

Almost all of the TARP money has been paid back. [0]

[0] https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#...

Since everybody else is pointing out how poor his employee compliance is and that he's picked a freaking hard row to hoe, I'll praise the guy. Awesome job! This is the internet equivalent of going door-to-door. In fact, I bet you could combine this with going door to door and see sales really take off :)

The scaling thing Edw brings up doesn't concern me right now: you are in the throes of kicking ass. Later on reality will sink in. But he's right -- you have some major changes to make if you really want to go long-term with this.

Patio has a more legal concern: that your cleaners are really workers. I'm not so sure. I'd see a lawyer about this pronto. If these folks were already doing some cleaning before you met them, and if you make it clear that there is no office, there is no work hours, they are free to take or not take work, and that their only obligation to you is completing each job they sign up for? I think you might be fine. It's certainly a lot less control that software contractors have over them, and they're contractors.

Instead of growing, I'd concentrate on making this thing hands-off. Hire a temp to do the office work, etc. Even if it eats into most of your income, once you are freed up then you'll be in a position to really expand. This "make the business a machine" is your next step. At least according to everybody I read.

I liked the post. We need reminding that a little bit of hussle and not over-thinking things can take you a long ways.

He has a "detaileddddddd" checklist of how he wants the work done and a training program. His lawyer is going to tell him that they're employees.

What's worse is, the better he does, the more clear-cut this issue gets. His key business metric is employee turnover, and anything he does to improve this increases the likelihood that his employees will be relying on him for most of their wages.

This is a "too good to be true" scenario. He's defined a fixed-price service with rigorous standards to be delivered across a major metro area with 8 known-good workers and is making $1000/month on it. To be compliant, some of that has to give: his business will have to look more like a placement or dispatch service, or he'll have to make way less money.

The IRS reclassification thing will be painful.

Thanks. I only read the initial post.

Yeah, you can't get into how to do the work. Also using anything called employee turnover is a dead stop.

But I still think it's salvageable, simply because there are so many independent cleaners out there already. This industry is heavily independent. I think he really needs to look at his structure, pronto.

I'll play devil's advocate just a bit more for the crowd. Many times startups skirt all sorts of rules and regulations when getting off the ground. I'm okay with that -- startups are always a bit subversive, and if you listen to your accountant and lawyer you'd never take any risk at all. But you can't go on like that for very long.

EDIT: Here's a possible setup: place the jobs on cards and put on the wall. Have the cleaners bid for the jobs. The checklist could just be the terms of contract completion, and you'd have to make sure the checklist was not a job description. Whether or not the contractors conspire to set the price or anything is none of your concern. You're simply a clearing house for very small cleaning contracts.

I think it's very doable. His business and income is really in chasing down people who need cleaning and people who can provide it. That doesn't have to have anything to do with employees. But it won't work as you've described it.

I was just blogging about this. Many times you find value and struggle with the model. http://news.ycombinator.com/item?id=3847651

This is not the good kind of subversive. This is the kind of subversive that screws people who are making close to subsistence wages over on taxes. He spends "an hour a day" on Maids In Black now and based on his pricing and the prevailing take-home for housekeepers is taking more than half the gross from the business. That doesn't seem particularly laudable (but maybe my math is fucked up).

I don't think it's going to be easy to provide the service he wants to provide (flat-rate book-online competitive-quality housecleaning on demand) profitably under a 1099 structure.

I'm unable to address this, as I'm not sure what you mean. I was simply saying that from his vantage point, hooking up customers and vendors who were already in the market can be a valid business model.

I believe you are talking about bringing new people into the market as vendors and then treating them poorly. Hopefully we can agree that folks that are already doing cleaning can continue doing it just using this guy's services to find customers. If not,if the point is that all cleaners should be w-2 employees, then yes, no matter what he does it will not satisfy somebody with that view. I do not believe all cleaners should be employees. It's perfectly fine with me if you feel otherwise, but I don't think that's the way the IRS sees things. (thankfully)

Someone is paying FICA taxes.

If the maids are 1099 employees, they're paying both halves of it. That's "self-employment tax". It's very expensive; around twice what employees pay.

The prevailing rate right now for "qualified" housekeepers in the DC metro area is $9.80/hr. Even if he's "generously" giving them $20/hr (if a 1bdr apartment takes 2 people 1 hour to clean, then according to his price list that means he's keeping about 60% of the gross), he's still shifting around $8000/yr to these workers just in FICA.

I'm taking exception to the idea of cheering on as "getting-stuff-done subversive" the business model that says "here, let me take a chunk of your taxes and stick it in my own pocket".

Again: I don't think "all maids should be employees".

Someone is paying FICA taxes.

I think you're arguing semantics here. Yes, everybody pays FICA, but for most people who are working their own business at a lower income FICA is offset such that no taxes are owed at the end of the year. So while you "pay it", it's not like that means much (insert long discussion here about complex tax systems)

Even if he's "generously" giving them

He doesn't have to give them anything.

I don't understand how you can separate "being subversive" from a discussion of the underlying business model. It looks to me like you're weaseling out, but that's fine. My point was that you must assume some kind of risk -- many times a bushel barrel of risk -- when you are poor and just getting started. It wasn't about labor laws. And whenever you assume risk, there's going to be a bunch of characters coming out of the woodwork telling you how stupid you are for taking on that risk.

As far as the model discussion, I think we've reached the point of diminishing returns. Although you've re-phrased yourself, it appears to me that you are describing some political argument and I am simply talking about business opportunities. I don't think you're ever going to be able to see this business model as anything but exploitative. I think once we mention the words "cleaner" or "lawn care" it sets off a pre-canned argument, probably involving immigrants and such, so this guy really never had much of a chance for positive feedback. Thanks for the chat! Seems like we always get hung up on self-employment, huh? Maybe one day I'll do a good enough job explaining myself that it will click.

Wait, what?

Someone is paying FICA taxes.

What is the FICA/SECA offset you're talking about here? It is not my impression that maid services don't pay FICA.

I understand your concerns here, but I'm also wondering about the 8k figure. Isn't it closer to 3k? (1.45% medicare and 6.2% SS?)

I'd be interested in more background on the industry. My experience is that, exempting cleaners hired by large offices, most cleaners are working under the table or for small firms. The small firms seem to be doing 1099s as well, I know a friend in that situation complaining specifically about the taxes.

So, I do wonder whether this guy is just doing business as usual. Well, actually, not as normal since he (claims to be) issuing tax paperwork (1099s).

If he's misclassified them, the onus will be on him to pay the taxes he didn't pay, and they will have a good case to sue for missed benefits.

Where people typically get screwed in the 1099 scenario is when they receive their first 1099. Most people are used to getting a tax return, not a bill. But, and here's where I have no insight, if he's being honest and up front with his workers, I don't see an issue. I've been on the receiving end of the 1099 conversation several times and never felt cheated, "So you understand, you are not an employee, you are responsible to paying all your own taxes, saving for tax time, your own benefits, etc."

Edit: I also want to state, I still think there are probably ethical/moral issues here. I just don't think that FICA is the issue. I think the reality is that most people vastly underestimate the value of benefits. Most people don't save up for the week or month or more that they are sick or injured and can't earn. They don't prioritize health insurance or save for retirement. People tend to associate these things with "having a job" and I don't know that many people are well-versed in the difference between employment and contracting. (At least from my middle class suburban upbringing.)

He's essentially figured out that cleaning is one of many services which would have lower barrier to entry if it were not regulated. He is, of course, right. I sincerely hope for his sake that he reinvests profits into bringing himself into compliance with e.g. employment taxes, workers comp, etc.

Also...

• he seems to be comparing his prior 'take-home' (after-tax) pay with his new venture 'profits' (monthly pre-tax).

• as another redditor points out, he may be in for a painful 1099-reclassified-as-employee showdown with the tax and employment authorities

And yet, good on him. He's found a niche and will now rapidly get to learn the tax & employment law details.

It was refreshing to see how receptive he was to that feedback, though. Based on his responses, it seems like he is going to take an active look at how he handles employment status.

It by no means signifies a guaranteed success, but it is definitely a good sign when an entrepreneur recognizes legitimate criticism about issues that could make or break his business and actively seeks to address them.

Becoming compliant isn't a paperwork task. It's going to be expensive. He hasn't been withholding any taxes; he could end up owing as much as $1000 for each prior month he failed to do that.

The city and state his business is headquartered in (he's in DC Metro so it could be any of a bunch) is also going to tear into him for unemployment taxes and fees. We had drama with this even though we don't even have independent contractors.

Are you saying you think it's illegal for the maids to be 1099 workers?

They're unambiguously employees - classifying them as independent contractors is illegal, and both the IRS and their state's labor board will take violent exception to it.

This isn't the only problem: the post would make a great issue spotter for an employment law class.

I haven't read every comment he's made yet, but skimmed many of them...

Why can't they be contractors? He said they're providing their own transportation and supplies. So he's just handing them clients and appointments, and a checklist of cleaning tasks to complete and a few limitations on the supplies used. Isn't that analogous to handing a contracted software developer a requirements document and a deadline?

You'd have to squint an awful lot for the evaluation to fall out that way. I'm a contracted software dev. I'm going to run down a list of questions from the IRS. Mentally score which ones sound like a cleaning laborer.

I have business cards, a personal website, and a professional reputation. My clients ask for me by name.

I do not submit applications. I do not respond to advertisements of employment.

I often have discretion to have work performed by subordinates selected and instructed by me, not my client.

I receive negligible training from customers.

My work is often evaluated by myself or not evaluated, because I am more competent as to the details than my clients are, this being why they hired me to do it. If there is a checklist, I wrote or had substantial input on the checklist.

I work at hours I pick or by mutual agreement. I routinely do not tell clients when I start or stop working.

If a problem arises with my work, I will ordinarily be the first person told about it.

The services I provide for my clients are largely not their main line of business. They do not invoice customers for my work directly. They generally have no employees who do substantially what I do, this being a major reason why they would hire me.

There is a written contract in place between me and each of my clients, often with contentious custom language in it.

I routinely incur expenses in the course of my business which are not reimbursed by clients.

I'd say the distuingishing factor is that you have multiple clients. A maid, who is only working for one "agency", looks fishy.

At least, that is the main argument here in Germany.

The Canadian appeals court has actually created precedent for an an economically 'dependent contractor'. That contractors may run their own business and meet many of the independence criteria, but still be working for a single firm or contract.

Summary of the case at: http://www.djmlaw.ca/downloads/Snapshot_April_2010.pdf

Fun fact: if you go out of your way to staff "new" contractors with experienced "old" contractors, that can be considered "training".

How does Mc Donalds and others run their franchisee and get away with these ? Franchisees do not have their own websites (its run by mcd). They have uniforms, clear checklists for employees of franchisees and most of the other points that is mentioned here.

Because the law for individuals and companies is different. In this case, the franchised companies are companies in their own right, and they have employees. Franchised companies usually (?) have a licensing contract with the mothership, not an ownership arrangement. MCD does not 'contract' the franchise employees - that would be trouble. In the redditor's case, that's exactly what he does, down to giving them uniforms.

It's possible if he does everything right. But the presumption by determining authorities seems to be in the 'employee' direction, so it's very easy to slip up.

Does he tell them when to work? Employee. How to do their work (a checklist)? Employee. Provide supplies? Employee. Do they wear a 'Maid In Black' uniform? Employee.

If he were a matching service, it might be easier. But, he's extending his brand/guarantee/monitoring over the service, so he may have to thread-a-needle to win any challenge that a regulator or (perhaps more likely) disgruntled contractor raises.

> the presumption by determining authorities seems to be in the 'employee' direction

Note that this is not done on a whim: these laws and interpretations were introduced because employers were systematically exploiting workers, hiring them as contractors just to work around their established rights.

And it works both ways, really: having a clearer set of rules reduces the risk for costly litigation when something happens.

> Note that this is not done on a whim: these laws and interpretations were introduced because employers were systematically exploiting workers, hiring them as contractors just to work around their established rights.

While this is the most common form of abuse, it is sometimes also used as a means of tax evasion by the employer, employee, or both.

This is interesting and surprising to me. I wonder how, for example, Comcast manages this.

Comcast has a huge independent contractor network that they use to subsidize their full-time on-site tech support. All of those contractors wear Comcast shirts, have Comcast written on their trucks, must meet customers at the times that Comcast schedules, and do receive at least a portion of their supplies from Comcast.

They're currently being sued for this.

Are you sure that they individual support people are self-employed? If they merely work for a contractor company, that would be okay (assuming they're employees of the contractor). Otherwise, it sounds odd.

I am not sure, but that would make sense.

I imagine initially both sides would be happy to treat the relationship as contractual. It's a great way to start when you are not sure of demand, and the cleaners you employ have other clients anyway (I'd say that makes them definitely not employees unless and until this is their main income). The ones who have now quit other jobs to work with him are of course de-facto employees, and he'll have to treat them as such long-term.

However He sounds like he would be happy to treat them as employees long-term anyway (if they agree to it of course), but then that's a good problem to have, and really starting with employees from day 1 would have made this far harder to get off the ground, so he's gone about it the right way, he just has a steep learning curve ahead.

Both sides are probably happy because the cleaning workers probably aren't paying taxes at all.

If they were, they would be extremely unhappy with this arrangement, because 1099 employees pay both halves of FICA ("self-employment tax").

One possible way this pans out: eventually, he ends up with a worker who gets a notice of imputed liability from the IRS; that notice threatens to put the worker into bankruptcy, and so he calls an IRS help-line or his state labor board or an attorney. The IRS reclassifies all his employees and now threatens him with bankruptcy.

I don't know about the US, but over here if you have to follow orders, work under constant supervision or on the clock, you can't be classified as a contractor anymore (in theory).

I understand that, but the maids are not working under constant supervision or on the clock.

They are working under the company's schedule, work guidelines and command. It's very subjective (for a layman), hopefully someone more versed in the area will clear this up.

A detailed checklist that the cleaners have to meet sounds like supervision to me.

Let's say they're getting $20/hr. Can they themselves hire someone else at $15/hr to deliver the service (or "assist them") and pocket the difference? No? Then they're probably an employee. Contractors are supposed to have profit/loss exposure.

An easy litmus test:

Would it be OK for the cleaner to subcontract the work?

If so, it could be legit. If not, they're employees. From the original thread, I don't get the impression he'd be OK with subcontracting, so he is probably non-compliant.

That said, I don't think its a huge deal. He'll get audited, he'll pay the owed taxes and penalties and move on with his life. I've been audited by the ESC, its really not that big of a deal.

He's also learned that his customers will pay a premium for good service, so if he has to raise the price, big deal. He'll be fine.

I'm not sure about America, but in most countries I'm familiar with, it is ultimately the decision of the tax authorities whether people who work for a company are employees or contractors. There's generally a well-specified test for this.

Certainly, in this country, the maids would be unambiguously employees.

The US regulations are terribly vague, depend heavily on facts-on-the-ground, and can turn on minutiea like who gets cake on their birthday (so not making that up). That said, even for a law which has more edge cases than a course on graph theory, this case is not a close call.

It largely comes down to whether or not you direct and control the manner with which these maids work, which he certainly does. He has his maids wear branded uniforms, gives them a set checklist to follow, and has them bring a bottle of wine to each first-time customer. The fact that his maids have their own clients and use their own cleaning supplies does work in his favor, but overall he's still on the wrong side of the divide.

I'm not an employment lawyer, but I have been through a state employment classification audit, and I am pretty confident his maids would be reclassified if he came under scrutiny.

The IRS has a 20 point "Independent Contractor vs Employee" checklist, and he falls on the wrong side of a number of these items: http://www.webster.edu/about/policy/independent_contractor_c...

I've been aware for a long time about the distinction between employees and contractors, and the basic idea is clear enough to me. However, the difference between contractors and vendors still baffles me.

I don't issue a 1099 to Staples for delivering office supplies (though I realize we dodged that bullet by a hair a couple years ago). However, I do issue one to a guy I find on CraigsList to redesign my web site. In that case the difference seems obvious. But where is the line?

Generally if a payment is made to a corporation or total payments are less than $600 for the year you don't have to issue a 1099.

http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

"It's not scalable."

"He's going to burn out."

"Let's see what he has to say in a year."

Am I on HN?

It's interesting that what used to be a site full of risk-takers and entrepreneurs is tearing every little detail of this guy down.

The gentleman tells you it's a fly-by-the-seat-of-his-pants learning experiment. He doesn't need you to tell him every little detail he's getting wrong. He's learning by actually doing it.

Further, it seems a lot of commenters aren't actually reading his posts and comments -- a lot of the criticisms are already documented and addressed on his posts. Even edw519 (who I love).

I was drawn to HN because of the risk-loving hackers who dared, not the naysayers who only feed my internal risk-adverse naysaying thoughts.

Edit: Since I posted this comment, a large discussion around 1099s has bloomed, and I'm not referring to this excellent discussion. I'm specifically referring to the knee-jerk naysaying.

You have a point. I think many of the criticisms you'll read here are coming from people who have "been there, done that" with their own businesses.

The 1099 vs W2 issue is very real but (imo) totally fixable in a few days with a decent accountant and a meeting with your staff and some paperwork.

He was probably fine for FY2011 to pay his maids on a 1099 for work done between when he started the business in November 3 and the end of the year. (He even stated that doesn't still work with all of them, some really were just temporary staff that didn't work out and weren't trained).

He definitely needs to convert them to employees for FY2012, but it's only April and these are relatively small amounts of money. I'm pretty sure he's not trying to stick his workers with a huge tax bill in 2012. People who are suggesting that this is his "business model" are way off base.

The most interesting part of this story, which nobody is talking about, is how he is using his website to allow clients to pick and choose these Godaddy-style addons (cleaning refrigerator and closets and so on). It totally makes sense for service-oriented business like cleaning and lawn care.

He could probably follow the Godaddy model and operate the rest of his business at small margin and make the bulk of his money off those addons that other cleaning businesses haven't yet thought to offer.

Some risks are bigger obstacles than others. HN has always been valuable to me for legitimate, honest feedback, including negative feedback.

He's not withholding. Chances are good his workers aren't paying taxes either.

According to the manual the IRS uses to train its worker classification auditors, the three most important factors are:

Instructions to workers: Your worker is probably an employee if you require him or her to follow instructions on when, where, and how work is to be done. This is a very important factor. However, if you tell your electrician you want blue switch plate covers instead of white, you are not exercising control to a degree that would make the person an employee.

Job training: If your company provides or arranges for training of any kind for the worker, this is a sign you expect work to be performed in a certain way; therefore, the worker is your employee. Training can be as informal as requiring the worker to attend meetings or work along with someone who's more experienced.

Worker's ability to make a profit or suffer a loss: An employee may be rewarded, disciplined, demoted, or fired depending on job performance, but only an independent contractor can realize a profit or incur a financial loss from his or her work. In other words, an employee will always get paid; an independent contractor, however, has a financial stake in his enterprise.

Also:

Importance of the worker's services: If a worker provides services that are integral to the success of your business, the worker is likely your employee.

Personal performance of services: An independent contractor should have the freedom to hire assistants or subcontract work to other workers or firms at his or her expense (this is where profit or loss could enter the picture). If you require the worker to perform the work personally, that's a sign of control and therefore indicative of employee status.

Ouch.

This scheme is going to work until he starts issuing 1099s and the government (maybe after months or years) notices them and goes after the workers for their (extremely expensive) self-employment taxes. Which, because they're probably making the prevailing rate for housekeepers (high teens per hour) is going to threaten to drive them into bankruptcy and thus cause a stink.

You are correct that the maids are employees, but since he only just started this business, it seems like a very fixable problem to convert them to employees.

I ran some numbers on a free paycheck calculator site (paycheckcity.com) and assuming the following: Washington DC, wage of $20/hr, 30 hrs/week, married (2 exemptions), the numbers come out to:

  Weekly Gross Pay      $600.00
  Federal Withholding   $29.81
  Social Security       $25.20
  Medicare              $8.70
  Washington DC (ouch)  $28.00
  ---
  Net Pay               $508.29

So, he might need to set aside $100/employee/week.. The taxes aren't necessarily a business-killer.

If his current employees are 1099, they're paying SECA, and the numbers are 2x this. If he switches to W2, he'll pay half of FICA, and the workers the other half... but now his job offer is significantly less attractive.

He also owes $187/yr for uninsurance per employee.

Dealbreaker? No idea. Obviously people do make a living running housekeeping services.

Hi i'm only in a few months, none of this is a deal breaker. I've made mistakes along the way, but I think everything is fixable, luckily I'm not in year 6 or something lol

"I wish you way more than luck."

I don't need it, but thanks.

You're forgetting workers' comp, which can be very expensive for this particular type of business. I'm in the industry, and can tell you from experience that it can cost between 20 - 25% of a workers' gross pay. There goes his profit margin.

How can it cost that much? I pay something like $500 a year for my own workers compensation insurance, because it is required by New Jersey. $10/week is peanuts.

Edit: I'm not calling you a liar, just genuinely curious.

The cost of workers comp is determined by the type of labor involved. Maids work with potentially hazardous chemicals, are doing physical labor all day long, and also drive a lot from job to job. This makes them substantially more expensive to cover, compared to a clerical employee.

Do you work for a cleaning service? Cleaning services pay anomalously high worker's comp insurance rates (though I too was surprised to hear that it might be 20%).

I did about 10 minutes of googling since it is my lunch break, and I'm now convinced that your risk rate will only be 20% if you are something like a logger or speedboat racer.

From '_sentient: Car accidents. If you get in a terrible accident on your way from one job to another, that's coverable, and exposes the worker's comp insurer to potentially unbounded liability. It makes more sense now.

First of all, congratulations to him! Amazing success for 4 months work.

However, the issue with this is, there is no incentive for the cleaners to stay with the company. My ex was with a company very similar to this one, she signed up, but after she knew the clients for a while, she realised she could cut out the middleman and increase her wages substantially. The company tried to hit her with a 900$ bill for lost profit, their reasoning was "how can we stay in business if our workers keep running of with the clients?" (what does that say about the business model?). She convinced her favourite clients to ditch the company, which allowed her to bring in more money and the clients had a cheaper rate. Further clients were found by word of mouth at that point. I think throwing up some ads in the local paper would be cheaper in the long run than lost money from going with a company like this.

Hmmm... that's an interesting (and scary) point. I wonder if it would make sense, from the business owner's perspective, to shuffle the employees around between clients to decrease the chances of this?

That seems like it would just delay the inevitable, he needs to find competent cleaners that are unwilling to strike out on their own. If he manages to keep the cleaners as contractors, then his future will be absolutedomestics.com.au. They have done incredibly well for themselves and have set themselves up exactly as this guy has.

I'm thinking it must be more profitable making a decent profit while losing clients and cleaners, than taking a smaller profit and retaining clients and cleaners.

> I'm thinking it must be more profitable making a decent profit while losing clients and cleaners, than taking a smaller profit and retaining clients and cleaners.

Can you explain the difference in profits? Why would there be smaller profits in retaining clients and cleaners? I'm missing something here...

Based on the situation my ex went through, to retain the clients and cleaners they would have to take a smaller cut from the hourly wage they charge the clients. I'm not sure if it applies in his case, it depends on what percentage he is taking. Reading back on my previous post, it doesn't make much sense haha.

Edit: I'm mainly talking about my experience with absolute domestics. They took something ridiculous like $5 an hour which is why they had these issues.

>competent cleaners that are unwilling to strike out on their own //

Or get his subcontractors (ie the cleaners themselves) to accept a non-compete, possibly with a specific figure attached should they jump ship.

I don't sign non-competes as a developer, much less would I expect those in the service industry to sign one. That would be taking away their livelihood.

Both of these suggestions sound like a form of slavery. Employees are free to come and go as they choose. What they should not be able to do is poach specific clients. It happens all the time, though, and what exactly is to be gained from suing someone making $15/hour?

>What they should not be able to do is poach specific clients. //

I find your indignation interesting as this is exactly what the non-compete would be preventing - the subcontractor from working directly for the client that you (the main contractor) introduced them to.

I was thinking more about the main thrust of non-competes I've come across, which is that you're not allowed to compete in the same industry. I read an article a couple of years ago about hairstylists and other service industry workers being out of a job for 12 months because they'd been forced to sign non-competes.

Not poaching clients is a common clause though, apparently. I haven't really run across that clause because I don't have to power to solicit clients for my employers anyway.

Or get the people who need their places cleaned to include a non-circumvention clause as part of their initial signing up.

Those aren't necessarily legal (and might be ill-received in a region that doesn't want more unemployment); on the other hand, making use of the whole rolodex after leaving might be regulated as well.

California employers cannot restrict the livelihood of their current or former employees.

The higher-profit-per-employee option might be more vulnerable to competition, by self-employed cleaners or by someone with a similar business model.

It's a nice personal achievement, but I can't help myself cringing at business models of this kind. It's plain old extraction of surplus-value, adding very little to the economy as a whole. The workers would be better off operating as a cooperative, I wish they had the education to know that from the outset, and the means to implement it.

Be careful about confusing what you want people to value with what they actually value because that's how you get Marxism.

I hired a cheap startup cleaning company (an internal startup within a larger organization). Flaky, unprofessional management; cleaners who sucked at their jobs... going by my and my friends' experiences, finding a good cleaner is pretty hard and (this is a big 'in general') the more expensive ones are more reliable. Information, quality assurance, and good management are all scarce--a lot scarcer than most people tend to assume--and cost money.

The other part is that the employers aren't "extracting as much surplus value" as you think from the sell side either. For instance, most programmers are content to work for the Man, losing significant amounts of "surplus-value". Independent contractors appreciate the freedom, the money, the flexibility, the power to say no, but it's not for everyone, because managing yourself is also a giant pain in the ass for a large number of reasons.

Finally, I think you're being down voted because all this is probably common knowledge on a forum for smart, startup-minded hackers. When you talk about "extracting surplus-value" there are prominent members of this community who do that for a living.

> that's how you get Marxism

Is it a disease? :)

Did you mean communism?

> Information, quality assurance, and good management are all scarce

I acknowledge that. Read my comment below - these skills are picked up on the go by startup founders, the same way those in a cooperative could. Professionalism is unrelated to having one head or twenty at the top.

> For instance, most programmers are content to work for the Man

Most workers in any field are "working for the Man*, not just programmers. The adoption of the agency model varies across the economy, but is less common as you go higher (think doctors, lawyers, architects, etc). We could get into a yearlong discussion about distribution (or concentration) of wealth, but I don't think this is the place and I'm not that qualified.

> I think you're being down voted because all this is probably common knowledge on a forum for smart, startup-minded hackers.

Isn't almost everything common knowledge in a community like this? I don't think that's the reason, downvoting for simply disagreeing is becoming increasingly common.

> When you talk about "extracting surplus-value" there are prominent members of this community who do that for a living.

So? I'm not picking a fight or attacking anyone, just musing on capitalism. Is it taboo? I'm sure they don't feel the need to justify what they do.

>> Information, quality assurance, and good management are all scarce

>I acknowledge that. Read my comment below

Well, your surplus-value is everyone else's value-added. There are probably more efficient ways to do things in the information age. I'd like to see a smart bunch of hackers disrupt the maid service industry. But I don't think the current method is unjustifiable and I don't think it's correct to question someone doing things the old way in a good way.

You might have missed the last line in that comment. I'll repeat: I'm not questioning the validity of the business (that would be me against the world), it's just wishful thinking.

> When you talk about "extracting surplus-value" there are prominent members of this community who do that for a living.

On the other hand, there are also prominent members of this community who focus on recognizing cases of surplus-value-extraction and thinking about how to disrupt/disintermediate those markets. :)

He's not playing golf all day: he did design and commission the scheduling system he now operates, and provides ongoing advertisement and management.

From what he says, it looks like he gets $40 to $60 per job, whereas cleaners get $15 to $30 per job -- they work in team, so it's $30 to $60 in total (it's all pre-tax, from what I understand). Not a terrible arrangement, to be honest, especially in the Land Of The Free From Socialism; apparently this is much more than what they used to make when a big company exploited them.

I do agree however that the IRS will kick the shit out of him if he doesn't switch to proper employment asap, and that's how it should be: it's all fun and games when things go well, but when hard times come (and they will come) the workers should get some protection.

I know, and I don't mean to put down his effort (as I said below, there is some value added). But they are just being exploited by a smaller company - it's the same.

edit: what is with downvotes lately? This is not a contest, feel free to join the discussion.

"Working for x" != "Exploited by x". In one of the comments he says his best team earn double when they did before.

Workers are not pointed a gun to do the job. Given the opportunities they have, they are choosing this specific opportunity. This means that this service is increasing their expected value from the job. I don't see how this can be bad.

Read comment below for my take on that. I'm not blaming anyone or saying it's morally wrong, just exploring a different arrangement.

What's the problem then? Having management? 'Stealing' profit from the workers?

You can't seem to understand that 1000 workers doing 'their' job may be hundrends of times less productive than doing the same job under the same company. Lots of things (machinery, know how, etc.) need a company and a capital.

Finally, I also don't understand discussing capitalism. Here we are discussing freedom for individuals to work and to create a start up. What would you rather do? Force everybody down the same principles? Not sure it's right.

Problem? None. I think you need to re-read the thread with a lighter head.

This is a sentiment that I see frequently on HN, and I'm not exactly sure why. I was a "questionably" contracted employee for awhile, and I never once felt exploited by the company, and I'm confident that they never felt that they were exploiting me.

Sure, being contractors might not be ideal for them at the moment, but they are the first 8 employees at the company. There are additional benefits to being in that situation.

In addition, we have no idea how much they do or do not understand their employment status. It is convenient for us to jump to the conclusion that the employees are ignorant about tax law, but that very well may not be the case. Just like in any other service industry, there are plenty of educated and informed workers in the mix, especially when you start looking at those that tend to excel in that particular field (he did say he now only hires top notch folk, after all).

I guess what I'm saying is, the discussion about W2 vs 1099 in this case is both valid and valuable, but let's not jump to any conclusions about who is exploiting whom.

I think you fell on the wrong comment tree. The "exploitation" in discussion has nothing to do with the employment laws discussed above.

After re-reading your comment and the one to which it replied, I see that you are correct. My reply was not in the wrong tree but rather based on an incorrect assumption.

Pardon my ignorance, but what "exploitation" is being discussed here?

right. You're one of those left-wing, the government should force "equality" people.

By this logic, all employers are exploiting their workers. Most employers make much more money on the work that their employees are completing.

However, they are going to this company by choice. They can choose to leave. They also agree to the wage. In addition to all of this, it's not easy being an independent worker. If anything, the small company is preventing them from getting exploited (they don't have to worry about chasing down a paycheck from each individual client, marketing, etc).

Finding clients is just as time consuming as the actual work itself. I know, I've done it myself as a freelancer.

I think this shows a confusion about what part of the problem he is solving: He is solving a MARKETING problem not a DELIVERY problem.

Yes the cleaners are probably not doing anything differently than they normally did. BUT:

-the cleaners had problems finding clients -clients had trouble finding good cleaners

If you've ever tried to find one of these folks, it's a total PIA. Basically it involves asking your friends or posting to craigslist and then wading through a bunch of crap. This is easy - find and pay online!

If you're against "extracting value" here, you should also be against grocery stores. Surely they are robbing the poor farmer by linking buyers and sellers?

Why is it a PIA to ask your friends? And why would you trust a web site more than your friends' recommendations?

I'm sure they realize at this point that they could be running the same model. The profits at this point probably aren't even enough to cover the salary for one person to be doing everything this guy is doing. The cleaners could do these things themselves, but they would still need to compensate themselves for their time. So, the profits would just go to more hours worked rather than going towards everyone getting a raise.

I imagine that as the profits do rise, then this guy will have to spend more money on fixing all the issues that the other comments mention. He is also on the hook for things like damage and theft. I'm guessing his workers would rather just do their jobs, get paid and leave the rest for someone else.

> The cleaners could do these things themselves

Why do you assume that? There are plenty of people doing those kind of jobs who can't read or can't handle basic arithmetic.

It's not a given that they'll be able to set themselves up as this guy has done.

Yeah it's not easy.

Our teams do certain things well:

Cleaning, organizing, and having a nice friendly presence that makes clients want to have them back in their home over and over again.

I do certain things fairly well:

Managing web design (I feel like i have a fairly good eye), writing web copy, client acquisition (adwords, twitter), finding ways to adopt high-tech practices into low tech industries (I think we're the first cleaning company with an actual affiliate program), SEO, branding, and a few extra things I can't think of now.

I'm not great at any of these things, but I feel like I'm at least competent at many of them.

I don't have the skills they have. They don't have the skills I have. We both realize this and figured we could work together and benefit each other.

I'm not sure I completely agree. The clients get vetted cleaners; and even a cleaner coop would need someone to manage/assure quality/market, and someone with those skills can earn more than a cleaner.

The cleaners are vetted/trained by one of themselves. Even if they have to hire a manager later on, he will be getting paid the worth of his contribution, not all of the profit.

I'm not so sure about it either, but I have a tendency to be a bit idealistic :)

Though the real world won't follow the text book example, we can argue that an ideal free market will arrive at the same rates, costs, and salaries whether a manager hires the maids or the maids hire a manager.

They don't have to take the surplus jobs he is finding them.

I'm not sure in what way your comment is a reply to mine. That is the "little" I think it's adding to the economy (matching demand/offer), yet it's just a misbalance of information and/or power that shouldn't need to exist.

It'd be interesting to figure out (though I'm not sure how to measure it) how important each of the factors are. For example, one factor is just a marketplace/organization kind of value, the same reason eBay skims n% off every sale, or TaskRabbit takes a percentage. On the other hand, I wonder if there are more structural reasons for why his employees wouldn't be able to cut out the middle-man. For example, is there a kind of class- or race-arbitrage going on, where people are more willing to deal with him because he's "like them", whereas the cleaners come from social groups that the typical clients are more scared of contacting directly, so it's easier for them to get work if he's their public face? If so, that's not his fault (he'd just be arbitraging an existing societal imbalance, which arguably actually mitigates it), but would be interesting to know about.

Well (perhaps I misread) but it seemed that you were implying that he is getting more money than his value is worth here, and that they should instead form their own collective. My counter was that the cleaners don't need to work for this guy, they choose to, and therefore they have by definition decided that his value proposition is worthwhile.

The workers may not be any good at marketing or any of the organization and running a business stuff, they are probably happy just to stick to the cleaning and get a constant stream of jobs given to them.

That's exactly what my last sentence is about. The extraction of surplus-value comes from having an economical/power/knowledge advantage: in my pretty ideal world the workers should have enough of those skills, or the ability to subcontract them.

If everyone was well educated and had the means to set up a business they wouldn't need someone else to seize the opportunity for them. The whole startup spirit is that of getting down to build a business, learning as you go, and I think the same applies to cooperatives. It's joining forces with your peers.

And this is just how most startups are born: two or more co-founders with a fair split, employees get equity etc. Why is this different?

I'm happy working a job right now too, just dreaming.

> The extraction of surplus-value comes from having an economical/power/knowledge advantage

Yes, this is called the division of labour. When not everybody has to know how to do everything, more things can be known and more things can be done.

Making a marketing plan and a website sounds easy to you, but why don't you argue that they are being exploited by the vacuum cleaner or detergent manufacturers' economic and knowledge advantage? Probably because designing and building a good vacuum cleaner or formulating an anti-allergenic organic cleaning detergent doesn't sound easy to you.

That's not what I meant. There is a gap in knowledge and economical power (and probably willpower/culture too) that "prevents" the workers from setting up their own business or marketing themselves more efficiently, it's not directly related to the division of labour.

btw I have a Communication Studies/Advertising degree and work as a front-end developer, so no, that doesn't sound easy to me ;)

Cleaning a one bedroom flat in one hour to a standard that people will pay well over $100 for is a specific skill set.

Building, marketing and running a company is a different specific skill set.

How is that not division of labour?

> so no, that doesn't sound easy to me ;)

Presumably a lot easier than building a vacuum cleaner.

The main difference between a standard business and a cooperative would be the sharing of profits - there's still the need for management/marketing/etc, which can either be done by one of the cooperatives or subcontracted, it doesn't disappear. That the maids don't have the skill set or the means to acquire it is exactly what I commented on originally. That is the gap. The extraction of surplus-value comes from having an economical/power/knowledge advantage.

If I had the means to build a vacuum cleaner (not that hard, you know software can be way more complex than that), but instead sold my project to Dyson, because they have the means to produce and market it, yes, I'm setting myself up to be exploited. It's an option. (drifting off-topic, but crowdfunding is changing that too)

Yes, I understand the principle. But deciding to form a coop, hiring a manager/marketer and being a partner in a company are all skills, and while valuable, they're just just as arbitrary to decide to teach in schools as knowing how to build a vacuum cleaner.

Also, where is the evidence of exploitation? Does this guy make more money than he would if there was profit-sharing? Paying a salary is profit sharing.

His point is that the owner shouldn't be getting any more than the workers. IE, they are all "equal".

This sounds strangely familiar...

I don't recall saying anything like that. Don't worry, I'm not going to eat your children.

This is way too idealistic for any adult to believe. Coops didn't even work in China[1]. In Brooklyn, NY there's a food coop [2](grocery store) run by people in the neighborhood. I believe the group has naturally separated in a minority of pushy organizers (i.e. managers) and the majority who put in their hours and go home. Coops could work if it didn't involve human beings.

[1] http://www.npr.org/blogs/money/2012/01/20/145360447/the-secr... [2] http://en.wikipedia.org/wiki/Park_Slope_Food_Coop

There are plenty of decades-old working cooperatives here. It's the standard business form for farmers in the countryside. It's just another business arrangement, nothing extraordinary. They get everyone's production and leverage their volume to get better deals than any individual producer could, then pay everyone a fair rate.

Upon reading the articles: that NY coop seems fairly successful, but the closest to that model around here is a just-opened Sam's Club :) You seem to have misunderstood the article on China: what made them successful and more productive was precisely working as a collective while being fairly compensated. Cooperatives have nothing to do with communism.

"in my pretty ideal world the workers should have enough of those skills, or the ability to subcontract them."

They are subcontracting those skills out to the person who is marketing and getting them the jobs.

At a very high cost (100% over their pay).

In this particular case, probably. But that's an issue because the workers don't quite have a 'i run my own company' mentality (even if it's not a company).

I saw a comment here months ago that said something like "I treat myself as an independent contractor, I just sub out all the work like getting clients/projects, taxes, billing, collections, hr and management to other people (my company) so I can focus on development". I've liked that mentality, and try to get others to think that way. Even if you don't adopt it, it's an interesting perspective.

It's plain old extraction of surplus-value, adding very little to the economy as a whole.

This guy took the risk of starting his own company and has literally created 8 jobs that did not previously exist in our economy. The 8 people that work for him are better off than they were before (otherwise they wouldn't be working for him).

However it sounds like the IRS will eventually come in and destroy those 8 jobs, all in the name of 'protecting the workers'.

Also, there are problems with coops. They tend to be inclusive, hoarding jobs for the few who get in. They tend to drive up prices for the work they do, destroying some amount of value across society as a whole. (basically the same problems as with unions).

This one man will be able to offer more jobs and provide better services to more customers than any coop could ever hope to provide. That is why he gets paid more than his workers.

> and has literally created 8 jobs that did not previously exist in our economy.

No he didn't, he's hired maids who would otherwise be maids for someone else.

> The 8 people that work for him are better off than they were before

Because he's not doing his taxes right and paying them more, he'll get caught and eventually have to pay them less.

> However it sounds like the IRS will eventually come in and destroy those 8 jobs, all in the name of 'protecting the workers'.

As they should. What's he's doing is unfair to other maids who work for legit companies and are paying taxes correctly. It's also unfair to his competition who plays by the rules he's ignoring. 1099'ing them is cheating, they are employees.

No he didn't, he's hired maids who would otherwise be maids for someone else.

But now the company they came from has to hire 8 new maids. If his business model is superior, he may eventually drive the old company out of business and employ at least as many maids as they did. Even if he only employed the same amount as the old company, he is providing more value to his customers, either through increased efficiency or lower costs. So even in the case of there being no new jobs created, creative destruction has again moved our economy forward.

Judging by how fast his first maid came to his company, I doubt he pays them less (I didn't see him mention this).

Of course he doesn't pay them less, he's cheating on taxes to pay them more by 1099'ing them wrongly, they are employees and he'll have to pay them less once he starts doing it right thus losing his current advantage in the market.

The value he is providing is a booking service, dealing with complaints, etc, no more, no less. Turns out lots of people value that quite a lot; almost as much as the cleaning itself.

I don't think you can really argue that this adds no value to the transactions - he is finding these cleaners more work than they would otherwise have had.

Value as I see it: Clients Book and pay online We show up on time We follow up after cleanings so clients rate the team We deliver wine with each cleaning We provide ridiculous customer service We have a 200% guarantee that we actually honor We simplify the price structure (cost is tied to number of bedrooms, that's it), no need to come out and do quotes

and more. It's a lot more than just, hey you make X, I'll charge X+$45 and we'll all be happy. I had to build entire systems around delivering top notch service to justify raising our pricing points and creating premium experiences for the client.

I didn't say it adds no value, but that's a lot of assumptions.

From a business standpoint this is absolutely brilliant. Everyone should be doing this, doesn't matter if you're a SaaS or selling real-world goods & services.

> 2) Having Extras at checkout. When we first started, you would checkout online and just order your home cleaning and pay. Then I had the brilliant idea (seems so basic now) to have other options for people to choose extra stuff at checkout like "cleaning inside the fridge", "cleaning inside the windows", "cleaning inside closets", it was just extra money that I was leaving on the table. It took my average profit from about $45 to closer to $60 per client.

As long as defaults are "honest" (i.e. not pre-selecting extras), sure. It's a balance though: it gets really tiring to go through pages and pages of upsell attempts whenever I buy a computer from certain vendors.

The real trick, I think, is to take some of the minor elements people would expect without really thinking about it, and turn them into explicit extras. It devalues the base price a little, but the gains are worth it in many cases (like here).

You also have to take into account the customer's psychology and not press them too hard. That is, they don't want to feel "nickel & dimed to death." Too many extras, and they may start to resent that these things weren't just included in the base package in the beginning. A load of extras thrown at them at the end can sometimes be declined (e.g. out of resentment, frustration, etc) when a higher price upfront that included those extras would've been happily paid.

There is no pre-selection.

The checkout takes place on one page.

The only elements that are extras are standard for the industry: inside the fridge, inside the oven, and inside the windows.

100%! You'll find a lot of the PSDtoHTML companies do this extensively.

Up-sells aren't exactly new, but it can definitely be creative.

An excellent example of a valuable product that was bootstrapped from the very beginning. It's really a shame that news like this is not more prevalent. We are so accustomed to seeing media highlights of highly glamorized "overnight successes" that we forget that there are plenty of other founders out there who are starting businesses and going through the same struggles and accomplishments.

More importantly, stories like this make it seem that success is within reach and not something achieved only by an elite few with well connected VCs in some well-known startup hub.

When someone suggests a business idea like this one I come back with this:

"It's a great business idea. It will provide you with the freedom to choose which 20 hours of the day you want to work, including weekends."

Here's the reality: He gets huge points for going out and "getting into the game". Who knows? This might be what he loves and ends-up thriving despite the hard work and long hours. There are lots of businesses like that. And, frankly, the fact that they don't scale matters not to a huge percentage of business owners.

The greatest thing about this is that you have a (presumably) young man learning about the realities of business. Succeed or fail, he will be better for it. And, should he choose to move on and do something else he'll be a million times better prepared to make the right decisions and do well. He will succeed, regardless of whether this first venture does or not.

Hi folks, OP from the reddit thread here. I'll answer questions. disclaimer: This is my first time posting here.

Disclaimer #2: I'm no expert.

Disclaimer #3: See Disclaimer #2 again. I just tried something and it took off. Will it work long term I have no idea. Where I am now is just the reality of where I am now. Have I made mistakes, you bet your life on that! Okay, I'll scroll through and try to respond to anything I can.

hi there. I dont even know your name, and reading thoroughly reddit, I couldnt find it anywhere either.

my impression is you are extremely business-smart person that is just learning business. You are not afraid of making mistakes knowing every mistake is an opportunity to learn new things, plus most mistakes can be fixed. please write a after-post about your financial situation after converting every emp into w2 as I think you are fully aware by now they would not pass "irs 20 questions to be 1099" rule.

btw: too bad you are not located in the New York City. I have been let go my work recently and thinking about doing something else than 8-5 w2. I read between the lines reading you and felt chemistry that we both could learn alot and accomplish alot business-wise (of course, I could be wrong...)

I would like to connect with you. would you please email me? (my address is in my HN profile).

btw #2: thanks for sharing your story. I sure learnt new stuff today.

Sory to hear about your work situation. Hope something pans out if you decide to go back, but yeah in the meanwhile, it may be a good time to start something.

Thanks for the kind words of encouragement. I tried to email you but didn't see the link to do it after I got to your profile (not sure if it's because I'm so new here or I'm just blind).

Please send me a message on the maid site and I'll respond right away.

I did send you an email last night to booking@... hope you got it!

This is scalable, I am not sure why people are saying it isn't. In its current form, no, but if he puts it into high gear and takes it to the next level, there is no reason he couldn't repeat this model, hire managers etc and be completely hands off. But, that is not what I would do necessarily, I would get my franchise papers in order ASAP, and start marketing this online, there are a lot of good keywords to go after (how to start a cleaning company etc). Get it to the point where he knows exactly how to repeat this in any city and make XX,XXX$/yr for the "owner". Figure out a franchising model, where the owner of the franchise can learn how to repeat your success, and you get part of the profits/or a franchise fee (hell you could "loan" them the money at interest). Nothing sells better than telling people that you can teach them how to leave their job, make 60,000$/yr, and actually be able to do it.

I can't help but think a lot of people find fault with this because they don't want to believe that it could be possible to start a business this way because they didn't think of it first. But you know full and well that whatever employment law and tax compliance requirements exist can be overcome and overcome fairly easily. Why look past the entire story to point out the few things that could fuck him up?

And to those talking about the lack of scalability, etc. I ask you: how many businesses have you started that employ people? How many businesses of this kind have you run? If the answer is <1 you are not qualified to make those assumptions.

Some of the best things of MIB -

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Organizing

We can organize your closet (in whatever way you would like), and thoroughly clean and organize the items in your kitchen, or even spend time restoring your china to their full glory.

Refrigerator / Freezer Cleaning We’ll dispose of expired items, & remove racks and compartments to deep clean them as well as the walls of the fridge.

Errand Services

Need a personal assistant for the day or just need someone to drop your car to the mechanic or to run to the mall for you? Name it and we’re there to take care of any errands you may have. $60 for first two hours ($35 per hour after).

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Clean is something people like. To people like me it gives peace of mind and freedom to think and work on other things. But cleaning is something a great many of these people don't like to deal with. A cleaning service has to be a moneymaker.

Has anyone tried to consider the numbers involved with this business?

About how long does it take for two maids to clean a house (or in other words, how many houses can two maids clean in one 8-10 hour day?)? Also, about how many maids do you have working for you?

In trying to come up with a ball-park figure: My guess would be that each pair of maids could bring in about $600-800 a day in revenue (cleaning 4-5 homes). Of this it would seem that about $400-500 goes to paying the maids (say , $200-250 per maid), with about $75 dollars going to daily expenses (gasoline, cleaning materials, etc), leaving whatever remains going to other major business expenses and profit. If his workers are busy 20 days a month, it would seem that a bunch of the so-called monthly costs of being an employer (say around $750 per month per employee) only comes out to be around $75 dollars a day (per pair of maids). I have no clue as to what this value actually is (or how much of it would be part of their hourly wage), I'm just guessing.

All in all though, I would guess that for each maid he has, on average it is costing him around $275-325 per day while bringing in around $300-400 per day. If their is any truth to the numbers above (which one number being off could dramatically mess everything up), it would appear that he is bringing in about $50-75 per maid. If he prices his service to keep that profit in mind (to make at lease $50 per maid per day), then having a staff of 10 maids could end up making around $100-150k a year. And I suppose the scaling would seem to work pretty linearly; if he doubles the number of mades or how much he brings in per maid, then his profit would double as such. Of course there are things like insurance and training (perhaps those costs total 10% of each maids daily wage and is included in that value)...

Based on these numbers though, having 10 maids would require having 25 homes to clean each day (or about 500 per month). I see that he has given out 2254 lunches so far (if I really wanted to make an accurate estimate of the business he is doing).

Anyhow, is there anything major that I'm missing in these numbers? I'm just trying to make an estimation..

It looks to me the idea may not be the best one and his success will not be easy to replicate (for those that are thinking to do the same in their cities), but the discussion the story generated is very interesting in two ways:

1)there are bits of localcasestudy's experience that can be used by other businesses irregardless of what sector they are

2)the moral of the story is that if you want to run your own business you can do it. And it doesn't necessarily have to be a tech startup looking to raise funds.

This is a really impressive story. Sure there are some obstacles and challenges - but this is the fun of very real life business.

The guy has taken a traditional business and applied all the buzz of the web (social media, lean, etc etc) to establish a profitable business in 4 months.

I would love to hear from others willing to share similar experiences of turning an idea into one business (cleaning), then repeating the process again (lawn services).

This kind of sharing is what makes these communities priceless.

Thanks, if I duplicate it that would be crazy! We'll see, I'm excited!

My mom started a cleaning business some time ago. I wanted to try Javascript and promote her business so I wrote a quote calculator that takes into account number of rooms, number of bathrooms, area size, etc...

(shameless plug) If you understand portuguese have a go at:

http://abelhinha.net/calculadora.html

Nice.

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