Part I: Why we’re closing Walnut: reflections on consumers and ourselves

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This is an excerpt from an article that was originally published on Medium. To read it in it’s entirety, please visit medium.com/@nickbkim.

My co-founder and I started Walnut to solve the biggest pain points in household moving. We outlined our approach on Medium in May, but it boils down to this: moving is a consumer service, so companies should aim to deliver hospitality to their customers.

Support for hospitality-inspired moving exceeded our expectations. Through ten weeks of operations we served forty customers (including from WG19, thanks!), earned $28,000, and moved clients from Pennsylvania to New Hampshire. Some days we were up to twelve times oversubscribed. All of our customers indicated they would recommend us to friends (Net Promoter Score 100), and our service earned exclusively five-star reviews. In short, we found product-market fit.

Despite our early successes, we’ve decided to shut down operations. This story explains what went wrong, and sets up why we made the decision to close our company (for Part II). There are lessons about strategy, positioning, the moving industry, and consumers.

People strategy

Establishing product-market fit was a great starting point, but delivering the experience long-term would require a scalable people strategy. We used a research-based model that works well in retail, but found it didn’t apply as well to the moving industry.

Poor treatment of movers presented an opportunity to be different

Drivers navigate the unforgiving streets of New York City and dodge parking tickets daily. Foremen tackle unique geometry challenges on every move, all while holding heavy furniture and graciously comforting anxious customers.

Despite the importance of skilled movers, nearly every person we interviewed had been cheated at some point by the moving industry. Moving companies fight with employees over their hours, deny them legally mandated overtime, and pay low base wages. They offer bad jobs.

Knowing this, our hypothesis was that if we offered better jobs, we would attract better talent. Our people are our product, and we believed investing in better employees would solve many of the biggest issues with the experience.

Our challenge: how might we hire the best in the industry in a profitable way?

Drawing inspiration from The Good Jobs Strategy

We thought we found an answer in The Good Jobs Strategy by MIT professor Zeynep Ton. Ton illustrates how some exceptional companies—like Southwest Airlines and Trader Joe’s — drive greater profits margins despite offering higher wages to their employees and the lowest prices to their customers.

Ton shows how scheduling steady hours, offering benefits, and investing in training can lead to operational efficiencies that more than cover the added employee costs. She highlights QuikTrip, a convenience store operator:

“QuikTrip employees can calculate your change in their heads. So if your coffee costs 89 cents, the employee at the register can see you and have the 11 cents ready before you can even pull that dollar bill out of your pocket.” (Zeynep Ton, The Good Jobs Strategy)

Inspired by Ton’s work, we set out to find great people and offer them good jobs. Replicating this strategy would help us deliver a differentiated moving experience with better employees and greater operational efficiency.

We found the people, but we also ran into new issues as we attempted to translate the Good Jobs Strategy into the moving industry.

Retailers play offense, but movers play defense

QuikTrip stores are controlled spaces that look and feel the same every day. The company can make changes to almost every aspect of the environment. Investing in speed pays off because employees can attack problems — they can play offense — within an environment that remains consistent over time.

Moving is out in the wild, in people’s homes. Every piece of furniture is different. Every bedroom, hallway, elevator, and street is different. We did pre-games and post-games for every move, but no matter how much planning we invested in, our movers were constantly adapting to new environments. Movers play defense.

We certainly had room for improvement. But over time it became harder to believe that the efficiency benefits from implementing the Good Jobs Strategy would justify the additional costs. High levels of uncertainty are simply part of moving. Whereas in a fixed environment you can focus on shaving seconds, in a constantly changing environment you’re more focused on reacting and avoiding mistakes.

Industry seasonality and the Good Jobs Strategy are at odds

In 2015, 61.2% of moves were completed in the five months from May to September. Knowing this, we had to balance our good jobs strategy with the reality that demand will fall during the next seven months of the year.

Traditional moving companies have managed seasonality in two ways. To meet immediate spikes in demand, they outsource labor by subcontracting moves entirely to other companies or by hiring unskilled temps. Alternatively, they fire their movers when things slow down. Either way, these tactics leave customers with unengaged, untrained, disheartened movers in their homes.

To offer good jobs—and to be the type of employers we aspire to be—we can’t manage seasonality this way. So is it possible to offer good jobs at all?

The competitive landscape

With operational efficiency and seasonality putting upward pressure on costs, we started to question whether we could achieve quick wins with low-cost changes to the existing business model. We found that some of our experience improvements significantly affected the unit economics.

Our no tipping policy made us less competitive, not more

When we implemented a policy to charge for tips upfront and decline all tips on moving day, we believed it was objectively a better experience for both customers and employees. Our research confirmed it time and time again.

We later learned that this policy relied on a false assumption that customers would evaluate the sticker prices of their moves with Walnut against the total costs of moves with our competitors. We found that they didn’t, and that tips on moving day might even be considered a completely different expense.

Creating this better experience for customers and employees wasn’t sustainable. We were paying our employees higher base wages than competitors, and customers were evaluating our all-in price as more expensive than the pre-tip quotes that they received elsewhere.

Read more about how tipping changed our unit economics here.

Competitors made higher margins in ways we wouldn’t

We’ve also heard countless stories of moving companies cheating their employees to improve their margins. For example, some companies only pay movers through the drop-off. For long-distance moves, only the driver gets paid for the hours spent on the ride home (“The job is over, so why should I pay my guys to be on Facebook?”)

In the most incredible cases, we’ve heard that some employers won’t pay their movers for actual time worked. For example, knowing a job would take eight hours, companies budget only six hours in wages and then reprimand movers for taking too long. (“You were intentionally going slow, so we’re only going to pay you for the six hours this was supposed to take.”)

We reject these practices on principle. We don’t want to run a company that treats employees this way. Refusing to follow the traditional movers’ playbook, is it possible to run a profitable business by charging more for a better experience? Can Walnut reflect our core values and make money at the same time?

In Part II for the Wharton Journal, we’ll explain the key learning that helped us answer these questions, and what motivated us to shut the company down. (Or you can see this post in its entirety on medium.com/@nickbkim)

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