The past year was not a simple one for Israeli Fintech company HoneyBook. It was a year that began with much uncertainty and concluded with a surge. In an interview with Calcalist, Oz Alon, the company’s CEO and one of its co-founders, talks about the new loan product it developed amid the Covid-19 crisis and the tumultuous year the company experienced. “It was a year that taught us how to take risks. As a startup, you are expected to take risks, but you fear harming growth. Covid-19 taught us otherwise,” he said.
Honeybook was founded in 2013 by Oz and Naama Alon, together with Dror Shimoni. To date, it has raised $72 million from investors such as Norwest Venture Partners, Citi Ventures, Aleph, and Vintage Investment Partners. The product the company developed includes financial and business management systems for small independent businesses, automating such things as workflow, contracts, and invoices.
“In March, we realized that something big was taking place. In the U.S., no one was talking about the coronavirus. The Americans fell asleep, while we prepared for possible scenarios. None of them, however, could adequately prepare us for what ended up playing out,” Alon recalled.
“Honeybook’s primary users are small businesses. When their incomes are harmed, I suffer immediately,” he said. “In the middle of March the directive came through that it was forbidden to hold events with more than 50 people and pretty quickly we saw how our clients in the event industry were beginning to hurt. We felt it strongly in April and were forced to quickly reduce our marketing expenses as well as our wages and those of our employees. We decided not to place our employees on unpaid leave because we knew our clients would need our services down the line.”
“We managed to absorb the April decline, but near the end of the month, we started feeling a shifting trend among our clients, many of them failed in one activity and transitioned to another. Photographers, for example, switched to shooting restaurant dishes to use in the business’ websites so they could sell them online. We started experiencing a surge in May and June,” he said.
“The surprising surge got us, together with the board, to rethink our company’s next steps. We had no great expectations and merely wanted to survive the crisis. That said, as entrepreneurs, we had an appetite for taking on risk. We decided to move on with a plan that I had been thinking of for years and opened up to new verticals that we hadn’t tried our hands at up to then, we altered our prices and suddenly fired up our engines,” Alon recalled.
“In April, the management and board sat down for a meeting and someone suggested that we temporarily lower our prices. The main thing was to ensure that the clearing would continue to be done through us,” Alon said. “The VPs tried it out for a day without alerting the staff and on that day we experienced our largest growth in history, twice as much as we had experienced on our best day prior. We realized that something huge was afoot. We reached heights we never dreamed of, managing to secure lots more clients at far lower costs.”
“Everything we are experiencing now is the result of the company and its people being willing to take risks as a startup,” Alon explained. “The discount we offered our clients was only for accessing our system and was not that critical for us. Our profits come from clearing, so it was vital for us to onboard new clients that would use us for their clearing needs. As a result of the steps we took, our income in April was twice as high as it was in the previous October.”
Most of HoneyBook’s users are creative entrepreneurs like photographers, graphic designers, interior designers, life coaches, and architects. Covid-19 made Alon change his perception of the company when it came to its business activity. “We started reaching out to various types of consultants, coaches, service providers to small businesses, marketing advisers, website designers, lawyers, bookkeepers, and more. Prior to that, we didn’t think HoneyBook would suit them, but they too underwent a shift, and Covid-19 brought with it a lot more openness to digital products,” he said.
Alon arrived at the realization that HoneyBook, in addition to offering clearing services, could also provide its clients with various types of loans, using a service called factoring: Our approach is that we will do anything we have a relative advantage in doing. We clear the money, examine a company’s future contracts, and even know when their payment will come in. No one else has that information.”
“Another product we developed was born out of the U.S. banking systems mode of operation, in which it takes three days for transfers to reach their destination. It turns out that time can be reduced if you are willing to pay a premium and since we can predict the money coming in, we are willing to provide it immediately, and as it turns out, people are willing to pay for that. From our vantage point it is a loan that the client pays 1% on for three days,” Alon said.
HoneyBook expects to undergo significant growth in its clearing activities in 2021 through collaborations with banks and other similar organizations: “We have partnerships with companies in the sector, we don’t have lines of credits with banks yet, but when we do, and it’s our next step, we will be able to substantially increase our profits,” Alon said.
Alon’s main takeaway from the past year and the message he has for other entrepreneurs is that “at a time such as this an entrepreneur must be able to take risks they hadn’t planned to. The risks we took this year will change the future of our company.”