When Managed by Q got started in 2014, no one wanted to hire employees.
Inspired by the success of Uber, TaskRabbit, and Airbnb, startups were pitching “assetless companies” that owned no inventory and hired no employees. Instead, these companies called themselves “technology platforms” and hired independent contractors to do the work, from cleaning homes to delivering meals. Because contractors don’t have to be provided benefits or paid a minimum wage, the model was thought to save these “gig” economy companies as much as 30% on labor costs.
That didn’t sit right with Dan Teran, who grew up in a middle-class American family. Teran started Managed by Q, a cleaning and office management company that goes by Q, on the gamble that traditionally low-end cleaning and service jobs could be turned into, well, good jobs. In the early days, New York-based Managed by Q hired its workers at a starting salary of $12.50 an hour. For full-time workers averaging 120 hours a month, it offered health care benefits and a 401(k) plan.
Nearly four years later, contractor-powered gig economy startups have fallen on hard times. Homejoy, a San Francisco-based cleaning services startup that raised $40 million, went bankrupt in December 2015. Washio, an on-demand laundry startup that raised $16 million, folded in August 2016. Postmates, a food delivery startup that’s raised $281 million and is valued at $750 million, has cut staff this year and repeatedly pushed its target for profitability.
Then there’s Managed by Q, which is still hiring workers as employees, still starting at $12.50 an hour. The company has raised $76 million to date—most recently $30 million in December 2016—from investors including GV, the corporate venture-capital arm of Google parent Alphabet. Q has grown into a digital marketplace, a sort of highly curated yellow pages for local service professionals. Its in-house office management unit, Q Services, makes up over half of the business and employs nearly 700 people, roughly half of them full-time.
Tomorrow, (Oct. 27), Managed by Q plans to announce that Q Services, the original focus of its business, is profitable.
Q Services and the broader Managed by Q marketplace operate in New York, San Francisco, Oakland, Los Angeles, and Chicago. The services unit generates revenue by charging hourly rates for jobs ranging from regular office cleanings to furniture assembly. Q Services, which was established as part of a reorganization in November 2016, became profitable in New York in May, and nationally this month.
That profitability calculation includes salaries and benefits for all Q Services employees; recruitment, training, and software costs; uniforms and other equipment; and a standard umbrella insurance policy and workers’ compensation. It leaves out equity grants, rent for Q’s Manhattan headquarters, and salaries and benefits for corporate employees who work outside the services unit, fairly standard in calculating operating profit. Managed by Q as a company is not yet profitable.
“It was a big bet that we made on our approach to employment, on employing people at all, as a technology company,” Teran told Quartz. “We would not have gotten to this point if we had not made the choice to not only employ people, but to go above and beyond in investing in their training and development, and make them a part of the business.”
The “good jobs strategy” was popularized by Zeynep Ton, a professor at MIT Sloan School of Management who researches the retail industry. Companies that subscribe to the good jobs strategy see their workers as people to be invested in, through training, accommodating schedules, and above-market wages. They empower employees to make decisions that could lead to better service at the company, and hire enough staff so that workers aren’t constantly rushing or putting in overtime to complete their tasks. They focus on doing a few things well rather than doing a lot of things at a lower standard.
Managed by Q checks each of these boxes. Aamir Sarwar, head of Q Services, says the company invests heavily in training its field managers, and now holds them responsible for the profitability of their accounts and quality of service their teams provide. Seventy percent of those field managers started at the company in entry-level roles. Q’s service-level employees, which it calls “operators,” can earn as much $45 an hour for certain handyman jobs and all of them can work toward full-time hours and benefits. Q tries to hire enough people so that operators don’t have to work overtime.
As the business grew, the company chose to roll back some of its in-house services offerings. For example, Q stopped having its maintenance team do electrical and appliance work that stretched their skill set, and found third-party partners to handle those jobs instead.
Last year, Managed by Q also decided to give its service-level employees a stake in the company. Teran said Q would distribute stock options worth 5% of company ownership to operators over the next five years. Anyone who worked a minimum of 780 hours over the last 12 months, or a bit more than 15 hours a week, was eligible. As of this month, Q had made over 300 grants to operators.
Teran talks a lot about the good jobs strategy, which he’s called “a pretty capitalistic decision.” The bet is that investing more upfront creates a happier workforce with lower turnover, which reduces hiring and training costs in the long term. The company has a way to go before reaching overall profitability. Q is investing in growth and technology for its marketplace and plans to expand to new markets in 2018. It’s also exploring tech and services offering for landlords and property managers. Teran jokes that Q Services isn’t “like Google profitable.” But it’s a start.
“Increasingly it’s been clear that it was really sort of up to us to prove that it could work in the service business,” he says. “The hope is that we can sort of be an example to people and that more companies will do right by their workers, and we can sort of de-risk it for them a little bit.”