Virtual Assistant Platform Zirtual Suddenly Suspends Operations – Buyer Beware

SciQuest

The virtual assistant company Zirtual suspended operations without warning Monday, freezing all accounts and leaving both clients and their assistants effectively “locked out.” The company, headquartered in Las Vegas, sent an apologetic email in the early morning indicating it would be “pausing all operations.” The email explained further that “due to a combination of market circumstances and financial constraints we must re-organize our current structure.”

Spend Matters came to know about this early today, because we were a happy customer of Zirtual phoned up by our Zirtual assistant, who gave us the news.

Zirtual, founded in 2011, had a business model of arranging service engagements between business clients and remote virtual assistants, based on a flat fee for packages of a certain number of hours, daily, weekly or annually. Beyond the package purchase, clients were not committed to continue the service relationship.

According to a press release issued by Zirtual in April 2015, the company had reached 400 virtual assistants and explained that it hired these assistants as employees in the US, not independent contractors. As employees, assistants were paid hourly, were eligible for bonuses and were eligible for employee benefits and 401(k). Assistants were all carefully vetted and extensively trained before serving clients.

With its US-based, full-time employed workforce, Zirtual competed with similar companies that used offshore labor, often in the Philippines, and/or independent contractors, giving such competitors lower labor costs. We might only speculate that this cost-structure differential may been a part of Zirtual’s difficulties.

Zirtual’s capital structure may also point to some difficulties. After receiving a seed round of equity financing of $2 million in 2013, the company received only debt financing – $250,000 in October 2014, $2.6 million in June 2015 and $650,000 in late July 2015. It would appear that apart from infusions of large amounts of additional funding over a very short period of time, investors use of debt instruments suggest a financially troubled company being put on a short leash.

The Zirtual shutdown comes at a time of controversy about the new online work platform economy’s use of independent contractors instead of employees. Almost all of these companies – most notably Uber – have engaged workers as independent contractors. Quite recently companies like Instacart and Shyp have decided to convert their contractors to employees; the results remain to be seen. But one company, Homejoy, decided to cease operations rather than move in this direction. These facts and now the shutdown of Zirtual, an employee-based company, should give us pause to wonder if platform business models that use employees rather than independent contractors can operate viable business models. Time will tell.

For customers of these new platform-based work intermediaries, Zirtual provides a cautionary tale. While the benefits of convenience, flexibility and cost are alluring, the risks are also real. These new fast-growing businesses and untested business models can encounter unforeseen difficulties and discontinuities. The highly digital structures of many of these business can pose similar risks, along with potential data security issues. While Spend Matters sees these kinds of businesses as a significant new source of labor services, incidents like these demonstrate that maturation time will be needed for this supply sector, and a procurement learning curve will be necessary to ensure the development of appropriate supplier management practices. In the meantime, buyer beware.

Voices (4)

  1. Andrew Karpie:

    Yes, agree. The concept of a virtual assistant is a great one and can be realized with a sound business model and management. I am quite sure this segment will continue to grow–though there may be a bit of turbulence from classification issues. That said, it appears the issues at Zirtual went way beyond the classification of workers as employees.

  2. Belinda Stringer:

    There are a lot of good virtual assistant companies out there with a base of independent contractors like our site, and while I recognize that you are only saying that about employee-based virtual assistant services, I just don’t want other people to get the wrong idea about hiring an independent virtual assistant.

  3. Kimberly Fox:

    The question of business model viability is a real one. Zirtual competitor Red Butler put out a statement today. Worth noting they’ve been in this biz category since 2005 and are still “lights on, biz as usual” — so there are important differences in how these players operate.

    1. Andrew Karpie:

      Yes, agree 100%.

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