Allan Erickson had just begun a new job, working the overnight shift for an office-cleaning start-up called Managed by Q, when his supervisor pulled him aside and pointed out a young guy who was working nearby, down on his knees, cleaning the underside of a desk.
“You know who that is?” the supervisor said. “That’s Dan. He’s the guy who signs the checks. He’s the owner of the company.”
Dan Teran, the CEO of Managed by Q, was twenty-six years old at the time. Erickson, ten years his senior, was so impressed that he put down his rag and went over and shook Teran’s hand and introduced himself. “Why is he out here cleaning? I mean, he’s the owner of the company,” Erickson recalls. “You’re not going to find the CEO of Uber out driving a car, or the CEO of McDonald’s out flipping burgers.”
At the New York–based Managed by Q, however, they have a policy: “Everybody cleans,” Teran says. No matter what your title is, when you first get hired, you go out for a shift as a cleaner.
“Cleaning offices is really hard. I want people who are in corporate roles to have a very visceral understanding of how hard our people in the field are working,” Teran says. Also, he says, “You really get to know what someone is made of when you see them scrubbing toilets.” I don’t think any of my former bosses would ever have done janitorial work, but thinking about it gives me tremendous pleasure, at least with some of them.
Teran, now twenty-nine, is not your typical start-up CEO. And his company, which he and everyone else just call Q—the name comes from the James Bond character Q, who develops the gizmos and gadgets for secret agents—is not the typical gig-economy start-up.
The biggest difference has to do with how Q treats its workers. Unlike almost every other gig-economy company, Q categorizes workers as W-2 employees. The company provides health insurance, a 401(k) plan, and stock options. Starting pay is $12.50 per hour, and there’s a generous paid-time-off policy. Most important, Q promotes from within, offering people who start out as cleaners the chance to get roles inside the corporate offices.
Conventional wisdom among Silicon Valley venture capitalists has been that gig-economy companies can’t survive unless they categorize workers as 1099 contractors. That’s how Uber categorizes its drivers, for example. By some estimates, using the 1099 model cuts labor costs by 30 percent.
Teran is making a contrarian bet that the VCs are wrong. Being cheap on labor might help in the short term, but to Teran, it would be a costly and even fatal mistake in the long run. It might seem paradoxical, but he believes spending more on labor will end up boosting his bottom line. Customer satisfaction will go up, and employee turnover will go down. Lower turnover means Q won’t have to spend as much time recruiting, hiring, and training new workers to replace the ones who have left. “People think they have to choose between having a good business and being a good employer, but that’s a false choice,” Teran says.
Q affords this by keeping other costs low. Q leases office space on the eleventh floor of a building in New York’s Soho neighborhood. A lot of tech start-ups spend a fortune building lavish offices, but at Q the decor is nothing fancy: wood floors, white walls, lots of big windows. People work side by side at long tables in a big open loft. A set of rolling bleachers can be moved around and assembled for meetings. There’s a little kitchen at one side of the room. Teran works out of a small office with a couch, a few chairs, a big TV, and a couple of whiteboards. It’s nothing fancy. “Frugality is a value of ours,” Teran says.
Same goes in his personal life. Teran lives in a low-income co-op in Brooklyn that he bought when he was first out of college. “I don’t need to live in a nice place,” he says. “I’m characteristically very low maintenance. My father was a carpenter. He told me the number one way to accumulate wealth is to live within your means.”
Another big influence on Teran’s business philosophy was Zeynep Ton, a professor at MIT’s Sloan School of Management and author of The Good Jobs Strategy, who argues that companies like Starbucks and Costco have succeeded because they provide better pay and benefits for workers. Building a reputation as a great place to work makes it easier to recruit new workers. It can even help companies attract new customers. “Part of the bet is that we will be able to service demand better by building a brand that’s about being a great place to work,” Teran says.
So far the bet seems to be paying off. Q’s customer retention and employee retention are higher than the industry average. After four years, Q has nearly eight hundred employees—six hundred who work in the field and two hundred office workers. The company operates in five cities—New York, Los Angeles, Chicago, Boston, and the San Francisco Bay Area—and has 1,300 clients. Sales are on track to nearly double in 2018.
For Teran, this is just the start. His vision goes way beyond just running a cleaning business. In fact he says someday the cleaning business may represent only a fraction of Q’s business.
Social Justice Meets Scaling Up
Teran studied international relations and urban public policy at Johns Hopkins University. “I literally never took a business course in college,” he says. During his undergraduate years he worked as a community organizer in Baltimore and interned at a law firm in New York with Erin Brockovich on environmental cases.
In high school he volunteered for Habitat for Humanity and worked on a Navajo reservation in New Mexico and at an orphanage near Tijuana, Mexico. He was part of a youth group at his Catholic church that was active in social issues. “I got interested early on in social justice,” he says. He thought about working in politics or the law, but then saw that “a business is an opportunity to have an impact, and the bigger the scale, the bigger the impact.”
In 2014 he founded Q with a partner, Saman Rahmanian, who is no longer involved. For the first year, the company didn’t have enough cleaners, so Teran had to kick in. “I was working all day in the office and then cleaning at night,” he says.
Soon, Teran expanded into providing other services. Today, in addition to cleaners, Q provides companies with people who do maintenance and repair, and provide IT services; Q even provides office temps and receptionists.
Teran wanted to offer more, things like painting, plumbing, moving, and HVAC work. To do that, he launched Q Marketplace, which acts as a middleman, connecting customers to service providers. A customer in Chicago with a broken sink can do a search on the Q Marketplace website and find a local plumber who can come right away. It’s not quite the same as services like TaskRabbit, where you can hire someone to run any kind of errands. The Q Marketplace vets all the service providers, and they’re only dealing with people or companies that provide office services.
To distinguish between its two businesses, Q labels its original cleaning business Q Services. That group—the cleaning business—still generates 95 percent of Q’s revenues, but eventually Teran thinks Q Marketplace could become the larger part of the business.
Teran’s ultimate goal is to handle every aspect of managing a physical space. He uses Amazon Web Services as a model. Instead of building and managing their own data centers, today most companies just fill out a few forms and rent computer power from Amazon Web Services. They might have no idea what kind of computers are being used, or who is running the servers. In the ultimate version of this, a law firm or ad agency could rent new offices, call Q, and never worry about the physical space again. Q would do everything and send you a single bill every month. Some chores, like cleaning, would be done by Q employees. Other things, like installing air-conditioning systems, would be done by contractors hired by Q. But the customer would not have to think about any of this. They could get everything they need just by clicking a few menus in an app.
One day, Teran hopes, Q will scale this out around the world, providing a global supply and demand platform for office services. “That sounds like science fiction, but it’s going to happen,” Teran says.
That’s the audacious vision that Teran sold to venture capitalists. Billing itself as “the operating system for offices,” Q has raised $70 million in venture capital funding. Some VCs passed on Q because Teran insisted on treating cleaners as W-2 employees. Investors who got hung up on that issue were not seeing Teran’s much more ambitious “operating system for offices” vision, one that will take a decade or even longer to build out. “There were people who didn’t understand the bet we were making,” he says.
Teran has assembled a management team of industry veterans whose résumés include MBAs and stints in management consulting firms and companies like Amazon, Huffington Post, and Github. In 2017, Q acquired Hivy, a tiny start-up developing office-management software that complements the software that Q Services has developed.
Mind the Gap
One challenge of gig-economy companies is managing two different workforces—in Q’s case, blue-collar people on the cleaning crews and white-collar start-up kids at headquarters. “There’s a huge gulf,” says Maria Dunn, director of people and culture. “I’m trying to teach the managers here how to talk to the field operators. It’s two different worlds, but we’re ferociously trying to bridge that gap. I think it will be critical to our success.”
Dunn grew up in a blue-collar town north of Albany, New York, with a single mom who worked as a nurse. She waitressed to put herself through university and after graduation worked in HR for companies with blue-collar workforces before finding her way into the Manhattan tech start-up world. She was drawn to Q because of its pro-worker policies. “I think if you invest in people and make them a part of something, it’s a better business model in the long term,” she says.
Dunn joined Q toward the end of 2016 and found that while Q was offering great benefits to workers, the cleaning crews often didn’t know about them. “People would say, ‘Wait, you guys have a 401(k) plan? Oh my God, I didn’t realize that.’” Some “operators”—that’s what Q calls people who work on cleaning crews—knew that the company offered benefits but didn’t dare bring it up. “You hire new engineers and they come in and say, ‘Okay, what’s your stock plan, what’s your 401(k) plan’—but hourly rate workers can be hesitant, or even afraid to ask about them,” Dunn says.
The company built a team to reach out to workers by organizing “squad assemblies” at the office to walk people through what’s available. “We’re basically waving the flag, telling people what the offerings are here, that there are additional forms of compensation in addition to the hourly wage,” Dunn says.
Everyone who works thirty hours a week or more qualifies for health insurance. A base-level plan comes at no charge to the employee, but only covers that person. Other health plans require a contribution. Also, Q offers a 401(k) plan with a 50 percent match, and an employee stock purchase program.
Some blue-collar workers are almost suspicious when they get pitched on a 401(k) plan. “We’re telling them, ‘Look, the company is setting up a savings plan for you, and you can contribute 6 percent but you’ll get 9 percent,’ and they’re like, ‘Wait, what’s the catch?’” Dunn says.
For many of Q’s workers the biggest motivator isn’t the benefits. In a company survey, the biggest motivator of all turned out to be career growth—the chance to get promotions, to move up and make more money.
“For operators, the idea that they might come in here as a cleaner but end up working someplace with a desk and a laptop, that’s very attractive to them,” Dunn says. “People are looking for ways to grow, to move up.”
Greg Brech joined Q as a cleaner, but from the beginning he was aiming higher. He was twenty-eight, living in San Francisco, and waiting tables when he saw an ad for a job at Q. “I brought up the page with the benefits and I thought it must be a scam. I figured it was too good to be true,” he says.
The biggest draw was the health insurance benefits, but “the promise of moving up inside the company was important, and I knew I had the drive to do that.” Brech had worked in an office before, and had started college but dropped out.
For over a year Brech worked as a cleaner. During that time he got promoted to become a mentor, a role that involves training new hires. He also moved back to New York, where he grew up, and was able to keep his job. When a recruiting job opened up, Q invited him to apply for the position, and he got it.
He sifts through hundreds of résumés a week, brings in ten to fifteen people for in-person interviews, and hires three or four. He tells the new hires how he began as a cleaner and got promoted to an office job. “If you do the right thing, you will move up,” he tells them. “It’s not something we just say to entice people.”
Brech was one of the first people to make the leap from working in the field to a job at the head office, and he credits the company’s welcoming environment for making a leap like that possible. “It feels like a family,” he says.
That “family feeling” comes up a lot when you talk to Q employees. Tianna Green-Munroe started out as a cleaner but now works as an office coordinator at Q’s main office in New York. “This is my home away from home. It’s my second family,” she says.
After about a year in the field, Green-Munroe got promoted to a job as a receptionist in the main office. Less than a year later she got promoted to office coordinator. In her late twenties, Green-Munroe is married and has an infant son. Insurance covered her during her pregnancy and delivery, and Q provided twelve weeks of paid maternity leave.
More important, she says, was the support she got from co-workers who sent flowers to the hospital and called every day during her leave to see how she was doing. They made a Q onesie for the baby and go crazy when she brings him to the office. All this might be hokey and old-fashioned, but it’s hard to overestimate how much it means to people. “This job has really been life-changing for me,” Green-Munroe says.
Same goes for Allan Erickson, the guy who was so taken aback when he saw Teran out working with a cleaning crew, crawling underneath desks. Erickson lives in the Bronx, and his work history includes a job as a baggage handler at JFK Airport and gigs at Baskin-Robbins and McDonald’s. In two and a half years at Q he’s had five promotions, and now he’s a supervisor, managing thirty operators.
The one thing that seems to mean even more to Erickson than the promotions is that when he runs into Teran at the office, the boss takes a minute to chat with him. Teran asks about Erickson’s son and even remembers the kid’s nickname. “I damn near cried the first time he asked me that,” Erickson says. “His plate is full, he’s doing so much, but he’s taking time to ask me how I’m doing, how my son is doing, to call my son by his nickname.”
How can such a small gesture mean so much? Remembering the name of someone’s kid, or sending someone flowers when they have a baby—these are common courtesies, and they take little effort or expense. Yet people are moved by these gestures, and I suspect it’s because a lot of workers, especially the lower-income workers who toil in the front lines of many organizations, go through most of their work life feeling invisible. When a boss takes the time to actually see them, it blows them away. In terms of bang for the buck, these small gestures might represent one of the most powerful management techniques in the world.
Tom Peters saw a version of this practice in action at Hewlett-Packard in the late 1970s. In his legendary management book, In Search of Excellence, Peters gave the practice a name—MBWA, or “management by wandering around.” He has been pounding the table about it ever since. The phrase is so well known that it even has its own Wikipedia page. Yet few managers do it, especially at new economy companies.
When I worked in the marketing department of a start-up, our chief marketing officer rarely talked to any of us. If you wanted to speak to him, you had to get on his calendar. But to do that you had to go through his assistant, and she kept him walled off. Instead, the CMO signed up for a service called TinyPulse, which spammed us with automated surveys that were intended to measure our level of engagement. To me the exercise seemed not just futile but actually counterproductive. It was insulting enough that our boss wouldn’t talk to us and had offloaded that chore to a spambot. Worse was that the spambot asked us questions like this: “Do you feel valued at work?” For the record, I did not.
New research from Great Place to Work suggests that companies where front-line workers feel connected to the top brass produce three times as much revenue growth as do companies where the brass and the front-line people don’t know each other.
Chris Nassetta, CEO of Hilton Hotels and Resorts, requires all top executives to spend a week working in the field as housekeepers, dishwashers, and bellhops. Nassetta worked with maintenance crews. At the end of his week the crew gave him a golden plunger as a send-off present.
Hilton also has empowered front-line workers and gives them more autonomy. Frauenheim tells the story of a Hilton housekeeper who, while cleaning a room, noticed that the guests were celebrating their anniversary. She recommended the hotel send up a free bottle of wine with a note. “She created an incredible experience, and she gets to experience the joy of doing someone that favor,” he says.
Another gap-closing company is Marriott. When the hotel chain opened its first properties in India, locals insisted the company should provide separate dining rooms for executives, so they would not have to eat alongside the maids and maintenance workers in the cafeteria. Marriott insisted that everyone eat together. “It was a way to break down barriers, and to generate better ideas, just by having executives talking to the front-line folks more,” Frauenheim says.
Companies that close the gap also report better productivity. Their employees express higher intent to stay with the company and are more likely to be “brand ambassadors,” who talk up the company to people they meet.
Building bridges between top executives and front-line workers isn’t exactly rocket science. It’s kind of common sense. What’s more, it’s not even difficult to do. Yet the payoff can be huge.
Selling a Lot Without Selling Out
Teran’s heroes include CEOs like Howard Schultz of Starbucks and James Sinegal of Costco, who stuck to genuine principles about elevating the lives of their workers while also managing to build huge, successful, global companies. It’s easy enough to run a small company that feels like a family and treats employees well. But it’s tough to hang on to worker-friendly values when a start-up grows up and becomes a big corporation. Yet that’s what Teran hopes to do. He wants to build a global corporation that can impact the lives of thousands of employees and “become big enough that our ideas really matter,” he says. Schultz and Sinegal are two rare examples of CEOs who have managed to pull this off.
Teran could make his life easier and might even increase his chances of success if he followed the playbook that Uber and most other gig-economy companies use: screw the workers, grow as fast as you can, operate at a loss, and cash out in an IPO. When he was first raising venture funding in 2013, it was “right as the Uber unicorn hype was reaching a fever pitch,” Teran says, and “literally dozens of investors suggested that we were thinking about the business the wrong way.” Teran wasn’t swayed. Instead, “It served as a filter for the investors who we ultimately decided to work with and who shared our values.”
Teran’s decision early on to make all his cleaning crew workers W-2 employees is starting to look somewhat prescient. In the last few years, some gig-economy companies have been sued by workers demanding employee status. The lawsuits damage a company’s reputation and drain its bank account. They can even be fatal. When Homejoy, a start-up that provided home-cleaning services, shut down in 2015, its co-founders cited the cost of fighting four lawsuits brought by workers as a reason for going out of business.
Handy, another home-cleaning company, and one that often gets compared to Q, also was hit with a lawsuit by its contractor workers. The company remains in business, but the lawsuit led to bad publicity, including a blog post with the following headline: “Handy Sued for Being a Hellscape of Labor Code Violations.”
Handy’s legal problems prompted Slate, an online magazine, to publish a six-thousand-word exposé, which examined the company’s shabby treatment of workers but also dug up dirt on other problems, including bad morale, lousy customer service, and a heavy-drinking frat boy culture that had gone off the rails. Slate revealed that the bros at Handy had invented a game called Wheel of Fellatio, “a makeshift Wheel of Fortune with sex acts instead of dollar amounts.” A neighboring company had complained about a whiteboard at Handy that “managed to fit slurs toward women, black people and gay people into just five words.”
Hoping to avoid lawsuits and reputational damage, some gig-economy companies, like Luxe and Instacart, have started shifting workers to the W-2 model preemptively. Meanwhile, VCs who were once crazy about funding gig-economy start-ups seem to have lost some enthusiasm for the space.
For now Q seems to be doing well. Its sales grew 71 percent in 2017, and Teran expects to nearly double in 2018. The Q Services division, which employs the cleaners, actually turns a profit, though the overall company still loses money. Q Marketplace remains a tiny part of the business, but will more than triple its revenues in 2018.
In the past two chapters I’ve shown you two companies that have created positive, human-centric cultures. But what about investors? You can’t build companies without them. But most venture capitalists seem to view employees as their adversaries. In their mind, every dollar spent on labor reduces the return they will get on their investment.
But in the next chapter I’m going to introduce you to a pair of investors who are using their investment dollars to build companies that focus from the beginning on treating workers well.