Sun. Aug 14th, 2022

On May 16, Butler Hospitality, an on-demand room service and amenities platform, sent an email to suppliers that might be seen as reassuring under other circumstances. “We are writing to inform you [that] room service and catering will continue as usual. All collateral is still functional,” the email read. “We appreciate your loyalty to stay with us through these times.”

The problem was that Butlers had laid off about 1,000 staff just days earlier. Most were even told the company had been wound up — according to interviews BestFitnessBands had with some former employees, and confirmed in a report last week by industry blog Restaurant Dive.

Butler’s demise is a cautionary tale about both the opportunities and the challenges that exist in the world of on-demand startups. There may be obvious gaps in the market for services that in theory resemble easy sailing. Yet they can inevitably be plagued by economic, social and, recently, extreme public health headwinds. And in the midst of all that, those who work there are the first to transfer.

Delivery on request

New York-based Butler was founded in 2016 as a “haunted kitchen” operator with a simple business model. Butler would rent a hotel kitchen on one property and use it to deliver meals to internal guests there and at other nearby hotels.

Butler founder and CEO Premtim Gjonbalic has experience in the hospitality industry. According to a Forbes profile, he opened his first restaurant in New York City at the age of 19 – located in a “big-box” hotel. Gjonbalic is also listed as an advisor to Fast Acquisition Corp., a special purpose acquisition company that unsuccessfully attempted to disclose Fertitta Entertainment, a restaurant, hospitality and gaming giant.

“We come in and show what the experience should be,” Gjonbalic told Crunchbase in a 2020 interview. “You don’t need a cart in the room or a $20 service charge to deliver food. Guests want good packaging, a good menu, price transparency and to be able to track their order. This should have happened a long time ago.”

Butler owned five different restaurant concepts, including Standard by Butler (a casual bar and grill), Prime by Butler (an American brasserie), and Super Franc (a Tuscan steakhouse). Hotels could choose which concepts they wanted to make available to their guests; Butler took care of the integration, experience, menu design and packaging. To customers, it promised to deliver orders — including “convenience” items on the side like chargers and shaving cream — in less than 30 minutes, straight to their hotel bill.

After a seed round and bootstrap funding from Gjonbalic, Butler went on to raise $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 to “north of” $50 million.

In a press release last October, Butler said it was looking to more than double its presence to 12 markets in the US, with plans to serve rooms in cities including Boston, Dallas, Houston, Los Angeles, Philadelphia and Pittsburgh (expanding its bases in New York, New Jersey, Chicago, Miami, Denver, San Francisco and Washington, DC). The company said Hilton, Hyatt, IHG and Marriott were among its more than 400 hospitality partners, which was a big win for the small operation.

But some ex-employees say there are problems brewing behind the scenes.

Signs of instability

Butler was undoubtedly dealt a blow as the pandemic sapped spending on service and hospitality. In April 2020, the company received a $600,000 loan through the Paycheck Protection Program. But Butler, eager to expand, continued to negotiate expensive new leases for hotel restaurants.

At one point, Butler offered $500 prepaid Visa cards to every hotel partner who was successfully referred to the hotel.

“Butler expanded its national footprint in 2021, hoping to capitalize on the travel recovery,” Gjonbalic told BestFitnessBands via email. However, the startup found that COVID-19 had both direct and indirect lasting effects, he added, including labor shortages and supply chains, closed international borders and ongoing business and group travel delays.

When travel recovered at the end of the first quarter of 2022, Butler’s challenges did not go away, with inflation, geopolitical issues (e.g., the war in Ukraine), interest rate hikes and the increased pressure on tech finance all creating a challenging fundraising environment for created the startup. This led to pledges falling “abruptly,” Gjonbalic said.

But Gjonbalic and the rest of the company’s senior leaders have not communicated the seriousness of the situation, according to ex-employees who spoke to BestFitnessBands on condition of anonymity. Just weeks before the mass layoffs, an ex-employee claimed they were told Butler had no cash flow problems and that “the next [financing] round came.” Another says they were confident that the company’s board of directors would give a six-month runway no matter how the next fundraiser went.

Some complaints were more public and open. Kelly Buerger, a former launch executive for Butler, filed a class action lawsuit against the company in June alleging Butler failed to adequately notify his employees of their termination. Under the New York WARN Act and the federal WARN Act, companies with 50 or more employees are generally required to provide mass layoffs several weeks in advance.

“From or about April 22, 2022 and within 90 days thereafter, [Butler] has laid off hundreds of its employees,” the lawsuit states. †[Butler] was required under the WARN Act to [Buerger] and alleged class members give at least 60 days notice in writing of their termination… [Butler also] not paid [Buerger] and each of the alleged class members their respective wages, salaries, commissions, bonuses, accrued vacation pay and accrued vacation for 60 days after their respective termination, along with other compensatory benefits accrued during the 60-day period.”

Some ex-Butler employees who had been promised health benefits until August received an email a week after the dissolution saying their plans would be terminated early.

start layoffs

Butler began to take extraordinary measures to preserve the remaining capital. An employee of one of Butler’s hotel customers said the company was beginning to discontinue services and introduce new rates without prior warning. For example, Butler started charging for supplies that were previously free.

At the start of the year, there was a round of layoffs at Butler – fewer than 20 people – that management described to employees as “a one-time thing”. A few weeks later, about 50 people were given leave in what Butler internally called a response to “challenges.”

“We are sorry to inform you that as a result of… circumstances in which [Butler] Due to 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,” reads a message received by a former Butler employee . “We are hopeful that [Butler’s] financial condition will improve and we hope to be able to recall you from temporary leave to resume your position with [Butler] no later than 9 November 2022.”

The large-scale layoffs began in May, shortly after Butler hired a new COO and Chief Revenue Officer. The company disbanded on May 13.

Gjonbalic claims that the board and Butler’s legal counsel at Cooley, a Palo Alto law firm, explored “various options” to save the company, but ultimately decided to close and dissolve the company on May 12.

“On May 13, Delaware counsel was hired to assist with the shutdown and liquidate the company’s assets, and the employees were laid off on May 13,” Gjonbalic told BestFitnessBands in an email. “Butler is not operational. The board agreed… to close the business, but this isn’t something that happens overnight, so several excess liability hubs were assigned or reverted to hotel ownership to help achieve this as quickly as possible.”

Employees laid off during the latest round, including operations staff at Butler leased restaurants, were briefed in a three-minute Google Meet call. An ex-employee told BestFitnessBands that the service ended abruptly after the company’s dissolution; hotel guests with a Butler contract suddenly couldn’t order room service.

Traces of the company remain. An ex-employee with knowledge of the matter said people previously employed by Butler were messaging directly the company’s Instagram account, which remains active, asking about missing payments. Much of Butler’s senior leadership 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 took most of [Butler’s] lease obligations, and luckily my father agreed to take over two of the company’s remaining lease obligations and debts,” said Gjonbalic [in an email to BestFitnessBands]† “There is an assignee in place and he will handle all matters after the dissolution.”

cautionary tale

While it’s an extreme example, Butler isn’t the only food delivery startup to have gone through some rough times of late. Instacart cut its valuation by nearly 40% last month and slowed hiring. The publicly traded DoorDash and Deliveroo have seen their share prices fluctuate wildly over the past year. Gorillas, Getir, Zapp, Jokr, and Gopuff include delivery startups that have let staff go in recent months despite fundraising. And some have been forced to close completely, such as Fridge No More, 1520 and Buyk.

Beyond food tech, stories like Butler’s are increasingly playing out as investors tighten their belts for fear of a downturn. As one ex-Butler staffer put it, VC financiers maintained an insatiable demand for growth, encouraging expansion that later proved reckless. Valuations were inflated, leading to unrealistic expectations and changes in direction – and initiatives.

“Butler is a great example of what’s happening in technology right now — except instead of just making 20% ​​layoffs, the entire company went under,” the executive said.

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