Butler shows hundreds of employees the door after raising $50 million for room service delivery – TechCrunch
May 16, Butler Hospitality, an on-demand platform for room service and amenities, emailed vendors that might have been considered reassuring in other circumstances. “We are writing to inform you [that] Room service and restaurant services will continue as is. All warranties are still functional,” the email read. “We appreciate your continued loyalty to stay with us during these times.”
The problem was that Butler’s workforce of around 1,000 had been laid off days earlier. In fact, most have learned that the company has been dissolved – according to interviews TechCrunch has had with a number of former employees, and corroborated in a report last week by industry blog Restaurant Dive.
Butler’s downfall is a cautionary tale of both the opportunities and challenges that exist in the world of on-demand startups. There may be obvious gaps in the service market that appear in theory to be easy to navigate. Yet they can inevitably be buffeted by economic, social and, lately, extreme public health headwinds. And in the middle of it all, those who work there are the first to pass.
Delivery on demand
New York-based Butler was founded in 2016 as a “ghost kitchen” operator with a simple business model. Butler would rent a hotel kitchen on a property and use it to provide meal delivery services to hotel guests and other nearby hotels.
Gjonbalic has experience in the hospitality industry. According to a Forbes profile, he opened his first restaurant in New York when he was 19, located in a “big box” hotel. Gjonbalic is also listed as an adviser to Fast Acquisition Corp., a special-purpose acquisition company that unsuccessfully attempted to take public restaurant, hospitality and gaming giant Fertitta Entertainment.
“We come in and show what the experience should be like,” Gjonbalic told Crunchbase in a 2020 interview. the food. Customers want good packaging, a good menu, price transparency and being able to track their order. This should have happened a long time ago.
Butler had five different restaurant concepts available to him, including Standard by Butler (a casual bar and grill), Prime by Butler (an American brasserie), and Super Franc (a Tuscan steakhouse). Hotels could choose the concepts to offer to their customers; Butler handled the onboarding, experience, menu design and packaging. To customers, he pledged to deliver orders — including side-swept “convenience” items like chargers and shaving cream — in less than 30 minutes, billed directly to their hotel bill.
After a seed round and seed funding from Gjonbalic, Butler then raised $15 million in Series A contributions from The Kraft Group, &vest, Scopus Ventures and Mousse Partners. The company then raised $30 million from backers including Shamrock Holdings, Maywic Select Investments and Platform Ventures, bringing Butler’s total raised to “north” of $50 million.
In a press release last October, Butler said it wanted to more than double its presence in 12 markets in the United States with plans to service rooms in cities including Boston, Dallas, Houston, Los Angeles, Philadelphia and Pittsburgh (expanding from its bases in New York, New Jersey, Chicago, Miami, Denver, San Francisco and Washington, D.C.) The company said Hilton, Hyatt, IHG and Marriott are among its more than 400 hotel partners , which was a big win for the small operation .
But some former employees say trouble was brewing behind the scenes.
Signs of instability
Butler has undoubtedly taken a hit as the pandemic has driven down service and hospitality expenses. In April 2020, the company received a $600,000 loan under the Paycheck Protection Program. But Butler, eager to expand, continued to accept expensive new leases for hotel restaurants.
At one point, Butler offered $500 prepaid Visa cards for each successfully referred hotel partner.
“Butler has expanded its domestic footprint in 2021, hoping to capitalize on the travel recovery,” Gjonbalic told TechCrunch via email. However, the startup found that COVID-19 had direct and indirect lasting effects, he added, including labor and supply chain shortages, international border closures and continued delays in business and group travel.
While travel recovered at the end of Q1 2022, Butler’s challenges have not gone away, with inflation, geopolitical issues (i.e. war in Ukraine), price hikes interest rates and increased pressure on tech funding, all creating a difficult fundraising environment for the startup. . This led to commitments dropping “suddenly”, Gjonbalic said.
But Gjonbalic and the rest of the company’s top executives have not communicated the seriousness of the situation, according to former employees who spoke to TechCrunch on condition of anonymity. Just weeks before the mass layoffs, a former employee says he was told Butler had no cash flow problems and that “the next [financing] the turn was coming. Another said they had been assured that the company’s board would give six months of lead regardless of how the next fundraiser turned out.
Some of the complaints have been more public and open. Kelly Buerger, a former Butler launch manager, filed a class action lawsuit against the company in June, alleging Butler failed to give employees adequate notice of their layoffs. Under New York’s WARN law and the federal WARN law, companies with 50 or more employees are generally required to give several weeks’ notice of mass layoffs.
“Effective on or about April 22, 2022, and within 90 days thereafter, [Butler] fired hundreds of its employees,” the lawsuit alleges. “[Butler] was required by WARN law to give [Bruger] and putative group members at least 60 days notice in writing of their termination… [Butler also] did not pay [Brueger] and each of the putative class members their respective salaries, wages, commissions, bonuses, accrued vacation pay and accrued vacation for 60 days after their respective terminations, and other compensation benefits that accrued during the 60-day period.
Some former Butler employees who had been promised health benefits through August received an email a week after the disbandment saying their plans would be terminated early.
The layoffs begin
Butler began to take extraordinary measures to preserve his remaining capital. An employee of one of Butler’s hotel guests said the company began discontinuing services and introducing new charges without notice. For example, Butler started charging for deliveries that were previously free.
At the start of the year, there was a series of layoffs at Butler – less than 20 people – which management described to employees as “a one-time thing”. A few weeks later, around 50 people were furloughed in what Butler internally called a response to “challenges”.
“We regret to inform you that due to the circumstances facing [Butler] resulting from the COVID-19 pandemic, including the critical need to conserve our cash resources, we have made the very difficult decision to place you on temporary leave,” read a notice received by a former Butler employee. “We are hopeful that [Butler’s] the financial situation will improve and we hope to remind you of your temporary leave to return to your position with [Butler] no later than November 9, 2022.”
The larger-scale layoffs began in May, shortly after Butler hired a new chief operating officer and chief revenue officer. The company was dissolved on May 13.
Gjonbalic says Butler’s board and legal counsel at Cooley, a Palo Alto-based law firm, explored “several options” to try to salvage the company, but ultimately decided to shut down and dissolve company on May 12.
“On May 13, a Delaware attorney was retained to assist with the closing and to liquidate the company’s assets and the employees were terminated on May 13,” Gjonbalic told TechCrunch in an email. “Butler is not operational. The board has agreed… to close the business, but it’s not something that happens overnight, so several excess responsibility centers have been assigned or transferred to hotel ownership to help to accomplish this as quickly as possible.
Employees laid off in the final round, which included operational staff working at Butler-leased restaurants, were notified in a three-minute Google Meet call. A former employee told TechCrunch that services stopped abruptly after the company dissolved; hotel guests with a butler contract were suddenly unable to order room service.
Remnants of the company remain. A former employee with knowledge of the matter said people formerly employed by Butler were sending direct messages to the company’s Instagram account, which remains active, to ask about the missing payments. Much of Butler’s senior management has not updated their profiles on LinkedIn to reflect the shutdown, and Butler’s website makes no mention of it.
“Hotel owners and hotel management companies have taken over most of the [Butler’s] lease obligations, and luckily my father agreed to take on two of the company’s remaining lease obligations and debts,” Gjonbalic said. [in an email to TechCrunch]. “An assignee is in place and is handling all post-dissolution matters.”
While this is an extreme example, Butler isn’t the only food delivery startup to have fallen on hard times recently. Last month, Instacart slashed its valuation by nearly 40% and slowed hiring. Publicly-listed DoorDash and Deliveroo have seen their stock prices fluctuate wildly over the past year. Gorillas, Getir, Zapp, Jokr and Gopuff are among delivery startups that have laid off staff in recent months, despite fundraising. And some have been forced to close completely, like Fridge No More, 1520 and Buyk.
Beyond food tech, stories like Butler’s are playing out with increasing frequency as investors tighten their belts, fearing a downturn. As a former Butler staffer put it, venture capitalists maintained an insatiable demand for growth, encouraging expansion that later proved foolhardy. Valuations have become inflated, causing unrealistic expectations and shifts in direction – and initiatives.
“Butler is a great example of what’s going on in tech right now – except instead of just 20% layoffs, the whole company went bankrupt,” the staffer said.