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YC Backed, Millions Raised And A Surprise Pivot: One Startup's Wild Year In The On-Demand Economy

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This article is more than 8 years old.

Eden’s existential crisis as a startup came at the ripe age of six months.

Named for the biblical garden, Eden had enjoyed a charmed existence from the beginning. Founded in March 2015 by a Stanford MBA and his friend, a second-time entrepreneur, Eden scored acceptance to the prestigious Y Combinator program just one month after its founding. Its pitch as the “Uber for tech support” proved catchy with friends and industry peers alike when it soft-launched in May. When it opened up to the public a month later in June, Eden would rattle off nine straight weeks of more than 30% revenue growth while attending YC. Top investors quickly poured in a seed funding round of $3.3 million.

Based in San Francisco, Eden's model was to hire college students and part-time or semi-retired technicians to serve as its “wizards,” the name cofounders Joe Du Bey and Kyle Wilkinson, who'd previously cofounded InternMatch, coined for their tech support staff. On-duty wizards would show up at someone’s office or home and help them with a tech support problem, paid by the hour by Eden, which then billed the customer at a higher rate. Without its own warehouse, fleet of cars or uniforms and with a thorough vetting process for its wizards, Eden was confident it could avoid the costs and declining quality that had relegated early tech support pioneer Geek Squad to the bottom of customer satisfaction ranks.

“We were growing really fast. People liked the narrative and it was cool to think we were helping people to use technology, we were empowering," says CEO Joe Du Bey.

The business continued to spread through the Bay Area at a healthy rate. Then in October, Du Bey and Wilkinson found themselves telling their 30 seed investors that Eden was pivoting to a completely different customer base and business model. "Every startup is full of micro pivots," Du Bey says. This wasn't one of them.  Some investors wondered if their money had evaporated in weeks.

How'd Eden get to that moment of crisis so quickly? The answer, in large part, lies with the fool's gold offered to many startups in the on-demand economy, made popular by mega-hits such as Airbnb and Uber but home to even more startups that continue to lose money as investors pushed them to grow. Some startups, such as Thumbtack and Houzz, reached billion-dollar valuations by focusing on the marketplace side of the on-demand economy. Both those businesses connect consumers to professionals and take a small cut. They don't hire the experts themselves, and they're not on the hook to the same degree for the job getting done. Eden was more like on-demand startups Homejoy and Handy in the cleaning space, Sprig and SpoonRocket in food delivery and Luxe in parking. All those businesses have to grapple with the cost of acquiring new customers who may prove fickle, while remaining on the hook for the economics and brand reputation of every interaction. If something goes wrong, the startup foots the bill and faces losing a valuable customer.

Eden's service was popular, but individuals didn't expect to pay much for tech support. Worse, they'd do an uneven job explaining the problem they had in the first place, meaning wizards might show up and find the job was one they hadn't prepared for. Too often, Eden picked up the difference as its experts spent longer fixing a projector or setting up a phone. “It’s just really hard,” Du Bey says.

The numbers were working, Du Bey insists. The company had name-brand investors led by Canvas Ventures and including Redpoint Ventures, SV Angel and Bessemer Venture Partners to turn to for help. But Du Bey and Wilkinson saw the writing on the wall for their consumer on-demand business: "Maybe it was a $200 million business if it worked, but it wasn't ever going to be a $10 billion business."

So after just one summer of full operations, Eden got ready to tell its investors it was trying something completely different. Two companies had signed up for Eden's services for their offices. The work was more consistent, the pay better and steadier. Quietly, Du Bey and Wilkinson began testing a business-to-business model along those lines. After a month, they presented the data to their investors and explained they wanted out of the consumer game. “It was still a scary moment,” admits Du Bey. “We said, hey this thing you backed, we discovered it has okay economics, but this other you tangentially backed has way better.”

Investors had loved the idea of Uber for tech support. This was something else. At first, reception was mixed. But that early data gathered for a month kept investors from revolting, says Tim Young, founding general partner at Eniac Ventures. “It’s definitely more alarming to have an entrepreneur say, this is broken and I’m not sure what to do," Young says. Trying a second model while still running the first was a major risk. "You don’t want a team too scattered, so that they don’t nail even one thing well." But Eden put up numbers that "no one could argue with.”

After the pivot: the Eden team today. (Credit: Eden)

Eden shut down its consumer business the next month in November. That decision meant painful layoffs among its wizards, who were and continue to be a mix of part-time contractors and W2 employees based on whether they work for Eden full-time. They'd typically been signed up for a very different job than they'd now be facing, Du Bey says. But customer support staff at headquarters had to be let go, too. "Joe handled it pretty gracefully," his investor Young claims. Feedback from remaining employees gave the founders credit for not playing favorites and being willing to make tough choices, Du Bey says.

It's early to call Eden a success story, but initial results of the new model appear promising. In January, Eden reached a $1 million revenue run rate; in February, sales grew  by 70%. The startup employs about 75 wizards today, more than one quarter of them as full-time employees, alongside about ten corporate staff. Eden plans to expand outside the Bay Area to more regions and will likely raise a Series A funding round later in 2016 to help it grow faster.

If the momentum is so obvious, why didn't Eden simply work on the business-to-business market from the beginning? FORBES asked Du Bey that in multiple interviews. His best answer: that Eden, like so many startups today, focused on a problem it could relate to, not necessarily the one that would build the biggest business. Du Bey and Wilkinson were used to helping older friends and family with technology, as were their friends. And they didn't know much about the economics or needs of a corporate office.  “Most kids in their 20s don’t know how a company works or how to solve its problems,”  Du Bey says. “Business-to-consumer startups are sexier because you want to build something your friends will use.”

Now that Eden's learned that lesson, it's hopeful that the steadier recurring business of the corporate market will protect Eden as valuation pressures and concern about losses and customer acquisition costs hit the on-demand startup sector in 2016. Some on-demand startups will have to accept funding at rounds lower than their previous valuations or accept stiff conditions to take more funding, predicts Young, the Eniac investor who also founded several startups of his own including Socialcast. To avoid getting caught on the wrong side of a trend, Eden now closely tracks the news and performance of 30 on-demand and B2B peers to learn from their experiences.

Just months from the excitement of inception and Y Combinator, Eden's CEO Du Bey can now be found texting investors about business metrics at 4am on the heels of 14-hour workdays. It’s not as glamorous as Eden's early days. But building a lasting company seldom feels like paradise.

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