industry insider | Sep 16, 2019 |
Homepolish has collapsed. Its designers are reeling

Last month, Business of Home reported that online design service Homepolish was in the midst of a crisis. Since late June, the company had been operating with a skeleton crew, the majority of its staff on unpaid leave, and its office in New York’s Flatiron District abandoned while co-founder and CEO Noa Santos tried to secure a new round of funding.

During this tumultuous period, there had been no formal all-hands announcement to Homepolish’s designers, and many were in the dark about the company’s financial peril. On a conference call with over 200 designers on Wednesday, Santos finally broke the silence. The news was not good.

“While I still hope for the best for the company and all of us, we frankly don’t have the funding left to run the business on an ongoing basis,” Santos told the assembled designers on the call. “The company owes more money than it has now or it will have in the future. ... We’re not continuing operations going forward.”

Speaking to BOH, Santos confirmed that a deal with a white-knight investor had fallen through and that he had laid off his remaining staff by the end of August. In the meantime, a 2017 bank loan (“in the millions”) guaranteed by the company’s assets has come due, and Homepolish can’t make payments. According to Santos, the bank now has first claim to his company’s cash reserves and future income. Meaning: Homepolish’s designers will not be paid any of the money they’re currently owed—nor will they be paid for projects in the works.

Though Santos expressed hope that a new buyer could swoop in and breathe new life into the company, he was candid: “I have no confidence that it will happen.”

DESIGNERS LEFT IN THE LURCH
The news has many of the platform’s hundreds of designers reeling. Some are owed thousands of dollars—BOH spoke to designers who said the amounts they were due ranged from $640 to $13,000. Others are in the middle of Homepolish projects and face an agonizing choice: Keep working without a clear prospect of being paid, or abandon their clients.

“I want to keep good relationships with clients, so I’m looking into how I can finish the work,” says Crystal Sinclair, a New York–based Homepolish designer. “But this is completely unfair—the money has basically been stolen from us.” Sinclair estimates that she’s owed $3,600 by the company; she also has several active projects that she says will require 25 to 30 additional hours to complete—work that, Sinclair has now learned, will not be paid for by Homepolish.

For many designers, the anger at their financial predicament is stoked by a sense of betrayal. Many were assigned jobs during a period when Homepolish was in financial jeopardy and feel Santos was at best gambling with their livelihoods and reputations on the hope that new funding would come through, and at worst accepting payment for work after it was clear designers wouldn’t receive a cut.

One designer who communicated with BOH on the condition of anonymity provided screenshots indicating that they had been assigned a job in late August (at the time, Santos was in the process of laying off his remaining staff). The designer’s client subsequently paid Homepolish for a package of hours on September 6 (roughly the same time that the deal for new funding was falling apart). In other words, the platform was continuing to take on work and accept payments, even as a financial cliff loomed.

When pressed, Santos admitted that he was uncertain precisely as to when Homepolish had stopped matching designers with clients and accepting money, saying that the site’s system is based on multiple employees working independently and automated processes that can’t be easily turned on or off.

He says that Homepolish has currently stopped matching, and that to the best of his knowledge, the site is no longer accepting payment (though Santos admits it’s possible that in some instances, Homepolish is currently still accepting money due to the automated nature of the site’s tools).

Homepolish has collapsed. Its designers are reeling
Homepolish abandoned its Flatiron office in August. By the end of the month, all remaining employees were laid off.
Julia Robb

IN THE DARK
Many designers expressed frustration that they had been kept in the dark while Homepolish's future was at risk.

Santos did warn some designers about possible issues. Sinclair recalls that, after hearing rumors that the company was in trouble, she made an unannounced visit to Homepolish’s Manhattan office on July 24. To her shock, the normally bustling 12,000-square-foot office was abandoned except for Santos and a handful of employees.

Santos took her aside and advised her not to come back to the office, as it would soon be given up. He also advised her not to use Concierge—the company’s in-house product-buying team—and in response to a question about a client who was considering taking on a project using Homepolish, suggested she wait a couple of weeks before going ahead.

Speaking to BOH on Friday, Santos didn’t dispute Sinclair’s account of the meeting, though he says that he was addressing her concerns for her benefit. On Saturday, Sinclair discovered that she had been locked out of her Homepolish email account overnight. When pressed as to whether it was an act of retribution for speaking on the record with BOH, Santos said that many designers’ email accounts are being shut down over the next two weeks, and that over 100 accounts had already been turned off. (On Wednesday’s call, Santos had suggested to designers they had until October 1.)

In response to questions about his lack of communication around the financial risks for designers, Santos says that he had been confident the deal would come through, and that sending an all-hands warning to designers would have created panic at a time when he was trying to focus on saving the company. “When you have a deal that you’re almost certain is going to get done, … as a CEO, you need to stay as positive as possible,” he tells BOH. “It’s very difficult to send out some kind of mass email communication that says, ‘Hey, you may not get paid, there’s a small percent chance that something will happen.’ It’s like sending out an email saying, ‘Hey there’s a small percent chance that the world will end tomorrow.’”

Certainly, if a deal had gone through and the ship was righted, the choice to withhold information might, in retrospect, be accepted by designers. However, the lack of transparency meant they were blindsided by the news of the platform’s collapse when the deal fell through.

“Everything that’s been done has been so secretive and one-sided,” says Sinclair. “Goods that have been paid for in full to Homepolish by clients are being held due to a Homepolish credit card being declined. Designers in this scenario are bearing the brunt of their clients’ frustration and anger, not to mention [going unpaid for] the additional time being used to try and sort out each order.”

DELAYS AND CONFUSION
Whether the lack of transparency was prudent or problematic, one thing is clear: It caused problems for Homepolish designers, forcing awkward conversations with clients and hours spent dealing with hiccups. Many describe the summer as a disorienting period, with delayed orders, unreturned emails, late payments and a sense of confusion over internal events at the company.

A Homepolish designer who spoke to BOH on condition of anonymity says that a pregnant client in her third trimester couldn’t get nursery furniture delivered, even though she had paid Homepolish for it, because the platform’s credit card was declined. After unsuccessfully attempting to have the issue resolved by Homepolish, the designer reached an agreement with the vendor directly; the client disputed the charge and was able to get her furniture at a trade price. (BOH reviewed correspondence that supported the designer’s assessment of the situation.)

On June 11, Heather Caster, a designer who has worked through Homepolish for four and a half years, was told in a webinar that she would have to start buying through the company’s purchasing tools, or her scores would lower in an algorithmic system that would be awarding projects going forward. Though she had historically found little incentive to utilize Homepolish’s internal tools (the discounts through the platforms were frequently less than those offered via promotions to retail consumers), she wanted to be a team player and agreed.

On July 1, Caster began working on a project and dutifully submitted requests for quotes to the service. A day later, she’d heard nothing back. Two days passed, then three. Caster began copying a growing roster of Homepolish employees on her correspondence, urgently requesting that someone send along a quote to placate her increasingly impatient client. Three weeks later, she finally gave up and ordered the furniture herself.

What Caster couldn’t have known was that, by this point, Homepolish’s buying staff had been radically cut down. She had been pushed to use the service almost immediately before it had gone into limbo.

Caster says she’s now owed a few thousand dollars in unpaid fees, and that she’s trying to make things right with current clients. “Now I have to start figuring out alternate means to pay bills,” she says. “It’s just so wrong, the impact that [Santos] is having on all the designers and employees and clients.”

Homepolish has collapsed. Its designers are reeling
‘We're not continuing operations going forward,’ Homepolish CEO Noa Santos told designers on a conference call.
Julia Robb

MAKE GOODS
Santos says he’s planning to offer three make-good options for those who are owed money. The first: He says that if designers are willing to sign an agreement with Homepolish, they’ll be allowed to take clients off of the platform and receive full payment directly, without sharing a cut. The details of that contract have yet to be worked out, but Santos says that promising not to bring legal action against Homepolish would likely be a precondition.

How much money could be earned back this way? It’s complicated.

Though he declined to provide exact figures, Santos says that some of the platform’s designers would actually be able to earn more money in this fashion than they would have by working through Homepolish, especially if the client’s future value was taken into account; others would earn less or nothing at all.

Some designers pushed back on that logic, telling BOH that their clients had already paid in advance for packages of hours—money that was now in the hands of Homepolish’s bank—and that they would have to work for free to keep the client happy. Designers with clients who are paying on a flat-fee basis would be in a better position, as those projects are paid for in installments, meaning clients may not yet have paid in full.

Certainly, some designers do have flat-fee projects with money forthcoming. However, one who spoke on condition of anonymity said that earlier this year, Homepolish had pressured one of their flat-fee clients to pay the full price up front. BOH reviewed emails that confirmed the designer’s assessment: The client says they were urged to pay all four installments before significant work on the project had begun. In other words, the company had broken with its normal policy to bring in cash more quickly—thereby limiting the designer’s ability to recoup fees.

Another designer experienced a similar pattern: Earlier this year, Homepolish had asked the client to pay all installments quickly, before significant work had started. (At the time of payment, neither designer was informed of the rushed payments.) Santos says he was unaware of clients being pushed to pay for flat-fee projects in advance and such cases are the minority.

Of course, the make-good is based on a key assumption: that Homepolish’s contracts are still valid and that designers even need permission to take their current clients off the platform. Many seemed to take Wednesday’s conference call as a tacit admission that the company was out of business, and assumed that their contracts were voided. With the caveat that he wasn’t an attorney, Santos disagreed, saying it was his understanding that company’s contracts were still valid. That difference of opinion may lead to confusion and dispute in the days ahead.

Two other methods Santos suggested could act as make-goods for designers: passing on leads that continue to come through Homepolish’s website, and promoting designers’ work through the brand’s sizable social media following. Santos says that the site is currently bringing in roughly 300 leads per month, valued at anything from a few hundred to roughly five thousand dollars.

Some designers expressed hesitant interest in leads, but were skeptical about Homepolish’s ability to continue to bring in new clients, vet and match them while operating without a full staff. (Santos says the bank has allowed him to hire six contract workers to help maintain the site’s assets during this period.)

While the company’s Instagram reaches 1.9 million, several designers told BOH that they no longer wanted their company’s name associated with a troubled brand. At press time, Homepolish’s most recent Instagram post was flooded with negative comments. Santos says he is removing the more egregious notes.

“I’m not interested in make-goods,” says Sinclair. “I would rather tell the truth about what’s going on than get an Instagram post.”

LEGAL ACTION
Some designers are considering legal action against Homepolish. On Wednesday, Santos urged them not to, saying that lawsuits might curtail his ability to advocate for make-good efforts. “I am encouraging all of us to think intelligently to create the best outcome here for all of us, as opposed to jumping to legal action, which could work very much against all of us,” he said. “I truly believe that we have a chance to work together to resolve this as a group, I’m willing to continue to give my time for free to make that happen, but that can only happen if all of us are willing to work together as partners.”

He reiterated a version of that logic to BOH, arguing that his bank’s patience had a limit; if designers bring lawsuits, Homepolish’s new owners might simply decide to shut down the company entirely, thereby limiting his ability to leverage the platform to deliver make-goods. By that same logic, Santos argues, designers who speak to the press and generate negative buzz will only end up hurting the quality of leads coming into the site and the value of social media posts. He says he’s receiving notes of support from designers that encourage him to keep going.

“I am trying my best to give [designers] as much value as possible in this situation where it’s highly unlikely [they’ll] be able to ... legal action or no, collect any bit of money here,” he says. “Let me offer you—over whatever time frame—as much value as I can.”

It’s possible that Santos’s make-goods may represent designers’ best chance to recoup something from a dire situation. However, many find it galling to be asked to think as partners after being kept in the dark. Several designers interpreted Santos’s discussion of lawsuits as a threat.

WHAT’S NEXT
At the end of Wednesday’s all-hands call, Santos expressed hope that there was a way forward for the company. “Perhaps it’s the same delusional optimism that sparked a 23-year-old from the middle of nowhere to start Homepolish in the first place, but I truly don’t think that this is our last chapter together,” he said. However, speaking to BOH, Santos clarified that he acknowledges the site, in its present form, is likely over.

For many designers, a future without Homepolish comes with a sense of sadness; even the site’s most vocal critics acknowledge that it played a key role early in their career. Though, like many designers, he was upset by the lack of communication over the summer and is frustrated over the loss of fees he’s owed, New York–based Homepolish designer Gunnar Larson says he’s thankful for the practical experience the platform afforded him.

Bianca Seeley, a designer who has worked with Homepolish for nine months, expressed sympathy for Santos and regret over the platform’s demise. She acknowledged that the amount Homepolish owed her, $640, was relatively small, and that she might feel differently if she were owed more. However, as a designer entering the profession later in life, the service gave her a chance when others wouldn’t. “The amount they owe me is nothing in comparison to the opportunity Homepolish gave me,” she says.

For others, the issue was less emotionally charged and simply pragmatic. When the site was originally founded, designers were much more free to work with clients directly. However, after Santos took on venture capital funding in 2016, he faced increased pressure to scale rapidly and generate new sources of revenue, leading to changes that the site's designers didn't always welcome.

Many of those changes—a push for exclusivity to the platform, asking or requiring designers to buy product through Homepolish—were logical from a venture capital standpoint. However, many designers bristled at having to bring in outside clients to Homepolish's platform, and didn't find utility in the site's tools. Homepolish's profits failed to scale to expectation, making Santos more and more reliant on a new round of funding—one that never materialized.

“What does work, and what I think is missing from the marketplace, is the ‘CAA of interior design’—someone to bring in clients and let designers handle the projects,” says Gala Magriñá, a New York–based Homepolish designer. “I think that’s how Homepolish started—in our best interests. The changes they made were just not in line with that mission.”

As part of the winding down of Homepolish’s assets, Santos has canceled the site’s paid search advertising, meaning that when a user Googles the word “Homepolish,” the company’s ads don’t appear. However, another firm has stepped into the void. Now, when a user Googles the word “Homepolish” an ad appears: “Kathy Kuo Interior Design. Left hanging? Call us now.”

Header image: Homepolish co-founder Noa Santos | Julia Robb

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