Analysis: The Rise and Fall of Honestbee
Honestbee was the kind of start-up many hoped to achieve. Launched on the 23rd of July 2015, it rose to meteoric heights. Based in Singapore, the company expanded quickly, moving to different countries across Asia. It almost looked like Honestbee was what the future is going to be. However, within a few months, everything crashed. The business fell apart, profits destroyed, and its reputation was in tatters.
What went wrong? How did it go so low? Can we learn from these mistakes and grow our own companies? Let’s analyze the rise and fall of Honestbee.
How it all began
Led by an innovative trio consisting of Isaac Tay, Joel Sng, and Jonathan Low, Honestbee had a massive launch in 2016. Honestbee originally started years before as a LinkedIn for service workers, called ‘Lifeopp’. However, it did not work out. The founders decided to pivot with the main focus at heart: a social mission of employing blue-collar workers.
They decided to move into the on-demand services, which at that time was a relatively new concept. The idea of using existing services and summoning them to anyone via an app was revolutionary at the time and only limited to ride-hailing.
Honestbee began with 500 freelance shoppers who were paid S$10 per hour to pick up items and deliver to households. At its outset, the goal was simple – to create an online platform that would provide on-demand, flexible job opportunities for workers and a convenient delivery network for shoppers.
Rapid Rise to the Top
To expand rapidly, the founders chose congested cities and created bases in these cities as soon as they could. Within the next two years of opening, Honestbee expanded to Hong Kong, Taiwan, Thailand, Indonesia, Malaysia, Bangkok, Philippines and Japan.
Honestbee in Japan (Source: Business Wire)
Their relentless expansion at the time could only be contributed to their asset-light model. Before we delve into the details, let us define this model for you.
Asset light model is a business model where a business owns relatively fewer capital assets compared to the value of its operations. It is popularly adopted by several startups because of its ability to get the company to higher skies when compared to traditional business models.
An asset-light model means Honestbee has scalability as it broadens its geographic reach. But the staff has to move fast. During the opening weeks, a marketing campaign succeeded too well – 400 orders within an hour. Success was almost too easy for Honestbee, and they dared to dream further. “We are going to be the biggest online-grocery chain store in the next 18 months across Asia–that’s on target, that’s on the plan. And I am going to hit that,” said Joel Sng in 2018.
Joel Sng (Source: Forbes)
Honestbee has taken a secretive line to finance. Most of the news coming out of Honestbee was mainly about money being raised. In its last offering, Honestbee raised US$15 million in a Series A round. In total, US$46 million was invested in the company since it’s incorporation.
The Beginning of the End
With a rapid rise, comes a rapid fall from grace. The company showed signs of trouble in 2018 when they were found to be losing cash quickly. Honestbee lost nearly $6.5 million, with around $2.5 million in net revenue for the month. GMV — the total amount of transactions on its platform before deductions to partners — reached nearly $12.5 million in December. Furthermore, costs on discounts to lure new customers and online marketing spend dragged the company down.
Having a business in the expensive Japanese, the Philippines and Taiwanese market destroyed whatever funding Honestbee received. Questions were raised about its financial model, and where the fundraising was coming from.
Habitat by Honestbee (Source: Seth Lui)
Honestbee’s next management decision raised even more questions. On Oct 2018, Honestbee announced its next big thing: Habitat by Honestbee. It was the world’s first tech-integrated multi-sensory grocery and dining experience of its kind.
Spanning 60,000 square feet, Habitat by Honestbee was a full supermarket, speciality fresh grocer, online fulfilment centre, retail innovation hub and an experiential dining destination. It offered two world firsts: a cashless checkout experience and a robotic collection point. Orders could be processed from start to end in under 5 minutes.
Although an innovational idea, Honestbee did not have proper financial funding to own a retail destination. With such a burn rate, and questionable decision making by its CEO, the company’s reputation declined rapidly.
The Domino Effect
The situation Honestbee left itself with was so dire that suppliers and partners have been paid late, or left unpaid entirely, in the Philippines and other markets. Honestbee takes payment for grocery deliveries, after which it was supposed to provide the transaction, minus its cut, to its supermarket partners.
In April 2019, Honestbee closed its Hong Kong and Thailand offices and cut its workforce across all markets. While Habitat has gotten attention for its forward-thinking, a physical retail store required significant capital and hence only increased the burn rate. Just a month later, the company fired Joel Sng. He is currently under investigation for questionable personal transactions, in which he used company resources.
What can we learn?
Through this debacle, there are definitely ideas and tips to absorb into the way we operate our businesses.
Controlled Expansion & Goals
When Honestbee first started, the company was backed heavily as its concept was relatively new and investors loved the idea of an asset-light model. However, with such an explosive expansion, Honestbee’s cash burn rate skyrocketed. The higher the burn rate, the least likely it will survive.
Pace yourself! Understand your priorities, short-term and long-term goals, and future opportunities. If Honestbee had only paced themselves and grown sustainably, perhaps all of us could be enjoying their services now.
Online can never be as great as Offline
It is easy to get delusions of grandeur in an online world. So many likes, so many fans, so many reviews, and you start to believe it is real. Then you move into the physical world and you find your fans are not as many nor as loyal nor as gushy as they are online. Real-life is messy.
The signs of an economic slowdown were all there. Investors at last year’s WiT Singapore had warned of a meltdown in the tech startup sector. Honestbee has proven that even unicorn status is no armour.