Butler shows hundreds of employees the door after raising $50M for room service delivery

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

The trouble was, Butler’s roughly-1,000-person workforce had been laid off just days earlier. In fact, most were told that the company had been dissolved — according to interviews ProWellTech 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 both of the opportunities and challenges that exist in the world of on-demand startups. There may be clear gaps in the market for services that appear in theory like easy sailing. Yet they can inevitably be buffeted by economic, social, and in recent times, extreme public health headwinds. And amidst all that, those working there are the first to go over.

On-demand delivery

New York-based Butler was founded in 2016 as a “ghost kitchen” operator with a simple business model. Butler would lease a hotel kitchen on one property and use it to provide meal delivery services to in-house guests there and in other, nearby hotels.

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 inside a “big-box” hotel. Gjonbalic is also listed as an advisor to Fast Acquisition Corp., a special-purpose acquisition company that unsuccessfully attempted to take Fertitta Entertainment, a dining, hospitality, and gaming giant, public.

“We are coming in and showing 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 been happening a long time ago.”

Butler owned five different restaurant concepts that it staffed, 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 to have available to their guests; Butler handled the integration, experience, menu design, and packaging. To customers, it pledged to deliver orders — including “convenience” items on the side, like chargers and shaving cream — in under 30 minutes, charged directly to their hotel bill.

After a seed round and bootstrapped 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 subsequently 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 issued last October, Butler said that it wanted to more than double its presence to 12 markets in the U.S. 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 that Hilton, Hyatt, IHG, and Marriott were among its over 400 hospitality partners, which were big gets for the small operation.

But some ex-employees say trouble was brewing behind the scenes.

Signs of instability

Butler no doubt took a hit as the pandemic depressed service and hospitality spending. In April 2020, the company received a $600,000 loan through the Paycheck Protection Program. But Butler, intent on expansion, continued to take on expensive new hotel restaurant leases.

At one point, Butler was offering $500 prepaid Visa cards for every hotel partner successfully referred to it.

“Butler expanded its national footprint in 2021, hoping to capitalize on the travel recovery,” Gjonbalic told ProWellTech via email. However, the startup found COVID-19 having both direct and indirect lasting effects, he added, among them labor and supply chain shortages, closed international borders, and continued delays of corporate and group travel.

As travel recovered in late Q1 2022, Butler’s challenges didn’t go away, with inflation, geopolitical issues (i.e., the war in Ukraine), interest rate hikes, and the bigger pressure on tech finance all creating a challenging fundraising environment for the startup. This led to commitments falling through “abruptly,” Gjonbalic said.

But Gjonbalic and the rest of the company’s senior leaders failed to communicate the severity of the situation, according to ex-staffers who spoke with ProWellTech on the condition of anonymity. Just weeks prior to the mass firings, one ex-employee claims they were told Butler had no cash flow issues and that “the next [financing] round was coming.” Another says they were assured that the company’s board of directors would give six months of runway regardless of how the next fundraise went.

Some of the complaints have been more public and open. Kelly Buerger, a former launch manager for Butler, filed a class action lawsuit against the company in June alleging that Butler failed to give employees sufficient notice of their termination. Under the New York WARN Act and the federal WARN Act, companies employing 50 or more employees are generally required to give several weeks’ advance notice of mass layoffs.

“Beginning on or about April 22, 2022, and within 90 days therefrom, [Butler] terminated hundreds of its employees,” the lawsuit alleges. “[Butler] was required by the WARN Act to give [Bruger] and putative class members at least 60 days advance written notice of their termination … [Butler also] failed to pay [Brueger] and each of the putative class members their respective wages, salaries, commissions, bonuses, accrued holiday pay and accrued vacation for 60 days following their respective terminations, along with other vested compensation perks during the 60-day period.”

Some ex-Butler employees who were promised health benefits through August received an email a week after the dissolution indicating their plans would been terminated early.

Layoffs begin

Butler began taking extraordinary measures to preserve its remaining capital. An employee at one of Butler’s hotel customers said the company began discontinuing services and introducing new fees without advanced warning. For example, Butler began charging for deliveries that previously had been free.

Early in 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 furloughed in what Butler internally called a response to “challenges.”

“We regret to inform you that due to … circumstances faced by [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 a temporary furlough,” a notice received by one ex-Butler employee reads. “We are hopeful that [Butler’s] financial condition will improve, and we hope to recall you from temporary furlough to resume your position with [Butler] by no later than November 9, 2022.”

The larger-scale layoffs started in May, shortly after Butler hired a new COO and chief revenue officer. The company dissolved on May 13.

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

“On May 13, Delaware counsel was retained to assist with the shutdown and to liquidate the business assets and the employees were terminated on May 13,” Gjonbalic told ProWellTech in an email. “Butler is not operational. The board agreed … to shut down the company, but this is not something that happens overnight, so several excess liability hubs were assigned or transitioned back to hotel ownership to assist with accomplishing this as quickly as possible.”

Employees laid off during the final round, which included operational staff working at Butler-leased restaurants, were informed in a three-minute Google Meet call. An ex-employee told ProWellTech that services stopped abruptly after the company’s dissolution; guests at one hotel with a Butler contract were suddenly unable to order room service.

Vestiges of the company remain. An ex-employee with knowledge of the matter said that people formerly employed by Butler were direct-messaging the company’s Instagram account, which remains active, to ask about missing payments. Much of Butler’s senior leadership haven’t 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 over most of [Butler’s] lease obligations, and fortunately my dad agreed to assume two of the remaining lease obligations and debts off the company’s hands,” Gjonbalic said [in an email to ProWellTech]. “An assignee is in place and he is handling all post-dissolution matters.”

Cautionary tale

While an extreme example, Butler is hardly the only food delivery startup to have fallen on hard times recently. Instacart last month slashed its valuation by almost 40% and slowed hiring. Publicly traded DoorDash and Deliveroo have seen their stock prices fluctuate wildly over the past year. Gorillas, Getir, Zapp, Jokr, and Gopuff are among other delivery startups that have let go staff in recent months, despite fundraising. And some have been forced to shut down entirely, like Fridge No More, 1520 and Buyk.

Beyond foodtech, stories like Butler’s are playing out with increasing frequency as investors tighten their belts, fearing a downturn. As one ex-Butler staffer put it, VC backers maintained an insatiable demand for growth, encouraging expansion that later proved to be foolhardy. Valuations became inflated, which caused unrealistic expectations and changes in direction — and initiatives.

“Butler is a prime example of what’s happening in tech right now — except instead of just 20% layoffs, the whole company went under,” the staffer said.