By 2020 an estimated 40% of American workers, 60 million people, will be independent contractors. Here’s how Chattanooga companies and workers are cashing in on the trend.
By Laura Childers
It’s 6 a.m. and Kimberly Carrizoza is getting ready to take her kids to school. A single mom of three, she’ll drop them off before heading to Publix to start shopping her first order of the day for Shipt, the on-demand grocery delivery now taking the country by storm. From there, she’ll work in hourly windows – 8 to 9, 9 to 10, 10 to 11, and so on – until 3 p.m. when it’s time to pick them up from school. But if one of her kids gets sick and needs her to come take them home? No problem. She’ll decline the next few shifts and another Shipt worker can cover the job.
Carrizoza loves her new job, not just for the freedom it gives her as a caretaker, but also for the flexibility it gives her to manage her income level – and she’s not alone. She is one of thousands of local workers who are now looking outside traditional jobs for an additional source of income. Economists say it’s all part of a larger shift to a so-called “gig economy,” where temporary positions (“gigs”) are common and organizations contract with independent workers for short term engagements.
What is a ‘Gig Economy’ company?
In an effort to define the sector, the Commerce Department recently proposed a four-part definition for what it calls “digital matching firms.” These businesses, they said, use technology, often mobile apps, to facilitate transactions, and rely on a user-based rating system for quality control. Employees have flexibility in deciding their typical hours, and must rely on their own tools or assets when providing a service.
A recent study conducted by Harvard’s Lawrence Katz and Princeton’s Alan Krueger found that all of the net employment growth in the U.S. between 2005 and the end of last year could be attributed to alternative work, defined as “temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers.” Additionally, a recent survey by Intuit showed that by 2020, an estimated 40% of American workers, 60 million people, will be independent contractors.
Alternative work is nothing new. Freelancers and independent contractors have always been part of our varied workforce. But now, as the digital revolution has made it easier to connect point A to point B, working on your own terms is having its moment. Mobile applications and internet platforms are creating flexible jobs – and opening new paths for companies to deliver goods and services to their customers by tapping into the power of an independent workforce.
Uber and Airbnb Come to Chattanooga
Uber and Airbnb, the poster children of the “gig economy,” now rival, or even surpass, some of the world’s largest businesses in transportation and hospitality – and both have exploded onto the scene in Chattanooga with their revolutionary business models.
Room-rental powerhouse Airbnb, which connects people needing rooms with homeowners, is now valued at $30 billion. The company, which hails itself as “the easiest way for people to monetize their extra space and showcase it to an audience of millions,” is available in more than 34,000 cities and 191 countries worldwide. In 2011, a mere two properties in the Chattanooga area were listed on Airbnb. This number has since grown to a whopping 338 properties in just five years. In Chattanooga, the average private room listed on Airbnb will generate $5,922 annually. The average entire home listed will generate $26,955.
Uber, which came to the Chattanooga market in November 2014, is also valued around $30 billion. The ride-sharing app is available in more than 40 counties and 400 cities worldwide, and the company completed its two billionth trip in June 2016. Hundreds of thousands of drivers who love the ability to manage when, where, and how long they drive sign up each month. The average Uber driver in Chattanooga who works 20-28 hours per week has yearly income estimated around $39,748.
These two game-changers weren’t always called “gig economy” companies, though. In fact, when they first began to expand rapidly in 2013-2014, simultaneously disrupting the taxi and hotel industries, they more often came under the label “sharing economy.” The conversation shifted to a question: If you could turn a spare bedroom into a business with Airbnb, or your car into a business with Uber, why not market your lawnmower or drill? The U.S. was moving toward an economy where everyone would begin to share their assets for profit, and it was going to change everything.
“People were like, ‘If Airbnb and Uber can do this, surely there will be thousands of companies who disrupt total industries by implementing a similar model,’” says Cameron Doody, co-founder and president of Bellhops. “Companies where technology eliminates the middle man between two parties and you could rent anything from a car to a drill to a lawnmower to a bike.”
The perceived trend incited a flurry of startups marketing themselves as “the Uber of X” or the “Airbnb of X,” and the investing world waited to see which ones would catch. And waited. And waited.
“Most either flamed out or didn’t actually share a similar model to Uber or Airbnb. So, the ‘sharing economy’ phrase, at least among venture capitalists, phased out,” says Doody. “The sharing economy didn’t end up being this massive movement. Instead, Airbnb and Uber turned out to be two total outliers in the ‘sharing space.’”
The Rise of the Gig Economy
What has happened, however, is that several companies have emerged who, like Uber and Airbnb, utilize technology to broker matches between consumers and service providers. Harnessing the power of technology to mobilize a workforce of independent contractors, they are able to offer a new and improved brand of customer experience, and do so at much lower costs than the alternative.
Bellhops is one of these companies who has successfully used an Uber-like platform to offer easy access to a high quality service at a low cost. Launched in 2011, it marshals college students to offer moving services within a 15-mile to 20-mile radius of their campuses. Bellhops now has thousands of contracted workers in 85 cities across the nation, including hundreds here locally in the company’s hometown.
It’s a moving company unlike any other, and it’s only possible through their high-tech software platform, which is designed to match customers with the perfect Bellhops for their needs. Users go to the site and say how many Bellhops they need for how many hours, and the Bellhops in any given city show up at the appointed time ready to move.
Doody says Bellhops is transforming the industry, making full-service moving experiences accessible for everyone – including price conscious “do-it-yourselfers” and those living in smaller residences. Like Uber, the company uses an app to facilitate all communication, payment, and operations. Without having to pay for brick and mortar shops or an organizational structure of local managers, the company can operate at much lower costs. “It allows us to provide full-service moving experiences for small moves at a significantly lower cost, without any hidden fees or variable pricing,” says Doody.
“These gig economy businesses are in fact very small,” says Dr. Frank Butler, associate professor of management at the UTC College of Business. “You create an app, you create an infrastructure, but you don’t have to navigate the bureaucracy and hierarchy that comes with older established businesses, which means the costs are favorable for consumers. And I think that’s the big sell.”
Bellhops is a great example of how a company can round up practitioners of the gig economy, says Mike Bradshaw, executive director at CO.LAB. “To me, it’s all about information technology’s ability to match market needs with talent. I think information technology has allowed that marriage to happen in a different way than was possible even 15 years ago, and I think we’re just at the beginning of it.”
A Top Notch Supply
The difference between a successful gig economy company and an unsuccessful one is its ability to tap into a valuable supply. For example, one of Bellhops’ selling points is that they don’t just hire anyone. Their movers are young, physically able college students with “a great attitude and a smartphone.” “When someone getting ready to move opens the front door and sees two local rugby players from UTC wearing green headbands who are eager to help, they practically melt with gratitude,” says Doody.
Similarly, the success of local startup MyManny relies on its ability to use technology to connect families to highly qualified, experienced male caregivers, i.e., “Mannies.” Launched in January 2015, the company operates in Chattanooga, Nashville, New York City, and Los Angeles, and it has its eyes on 10 more cities by the end of 2016.
CEO John Brandon says MyManny is only a valuable service to the degree that it effectively vets any guy who applies to be a Manny, no matter where in the country he resides. First, a potential candidate must go through a lengthy application process, which includes listing three references and creating a profile for himself using the company’s software. Second, he is invited to run a background check on himself through the help of partner gig economy company Checkr. Only then is he allowed to apply for a job interview with a family – that is, if he’s made it through a family’s “preference” filters, whether that be the ability to play soccer, tutor math, speak Spanish, or perform CPR.
“All of this is only possible by using technology – various filters and algorithms – to make sure we’re providing families with, not only the safest, but the best possible caregivers,” says Brandon. “It’s really exciting that we can use technology from Chattanooga to reach caregivers anywhere in the U.S.”
A Flexible Model
Another key to the success of a gig economy company is the user-friendliness and capabilities of its software platform. With a strong infrastructure in place, equipped to handle the load, a gig economy company can scale at an unprecedented pace, even launching in hundreds of cities in as little as a year.
“Considering you don’t have to find offices and real estate, and you are using independent contractors, the sky is the limit once you’ve got your tech infrastructure,” says Dr. Butler. “The consequence is that these companies become a huge challenge to someone who is established in those industries, because they crop up seemingly out of nowhere.”
MyManny, which now has three software developers working to improve the company’s technology and equations, is on the cusp of a sizeable scale onto the national scene. Brandon says he hopes the company will be in 10 cities by the end of the year and between 50 to 100 by the end of 2017. “Once we’ve fine-tuned our infrastructure, we have no problem saying, ‘Let’s plan on being in 100 or 150’ cities by X date,” says Brandon.
On-demand grocery delivery company Shipt, which came to Chattanooga in late 2015, has expanded from its hometown of Birmingham, Alabama, to delivering in 28 cities across the nation in less than two years. Locally, the company employs hundreds of “Shipt Shoppers” like Carrizoza, who make an average of $15 to $25 an hour delivering groceries.
Company spokesperson Allison Lavender says the independent contractor model allows Shipt to target their expansion to cities where they know their services are already wanted. “We get requests all the time on social media from people who say, ‘Oh, come to my city!’ One of the benefits of using this model is that we’re able to respond to so many more of those requests,” she says.
Motivated and Satisfied Employees
By the very nature of their model, gig economy companies are well-positioned to offer a high quality service. Employees who function as independent contractors are instinctively motivated to go the extra mile, which makes the business successful. For example, Uber drivers who want to up their pay scale are notorious for providing added perks to ensure a five-star review. “They all want to be your favorite Uber driver in order to get better fares. And that’s a good thing, because the company wants to achieve a high level of customer satisfaction,” says Dr. Butler.
Carrizoza, who is a 4.9 star shopper with Shipt, transitioned from part-time to full-time work after learning just how much she could make if she put in more time. “I love that if you’re good at your job and your customers stay happy and you keep your rating up, you’re guaranteed money and work,” she says.
She is so invested in her work now that she’s even taken on advertising for the company herself. In fact, just last month, she and 10 to 15 other Shipt shoppers took it upon themselves to put custom signs out around town advertising Shipt’s services.
Secondly, gig economy companies are well-positioned to have high employee satisfaction. Offering the ultimate in flexibility and autonomy – employees dictate when and where they make money, as well as how much money they would like to make in a particular week, month, or year – they set the stage for workers to love what they do.
“Often, our Bellhops say, you know I never planned on working while in school, but this is such a great way to make money and network,” says Doody. “The pay is really good – our Bellhops make on average $24 per hour on the platform. Up until now, it’s been hard to find any job where you could make a lot of money in a short amount of time – guaranteed.”
Perhaps one of the most exciting aspects of the rise in gig economy companies is their potential to both inspire first-time entrepreneurs and birth new forms of entrepreneurship. Bradshaw says many people who start out as purveyors of services may grow to be companies in their own right. “You’ll notice that the very edges of these networks will begin to sprout new networks. So this thing is just going to keep growing,” he says.
For example, with the rise of home-sharing companies like Airbnb, demand for novelty, or boutique, lodging has grown and launched a whole new market for “glamping” experiences. Enoch Elwell and Andrew Alms, co-founders of Chattanooga’s Treetop Hideaways, have used Airbnb to capitalize on this new market trend. Their company Treetop Hideaways, which is listed both on Airbnb and its own website, gives guests a chance to sleep in a tree, but with the amenities of modern life at their fingertips. Funded through an initial $34,000 Kickstarter campaign, Treetop Hideaways had virtually no overhead costs. Now, with the subsequent success of the treehouse, the business partners are considering ramping up the enterprise.
The sheer number of tools and platforms at our fingertips make this an incredible time to dabble in self-employment, says Elwell, who is also founder and director of CO.STARTERS. “You can choose exactly how much you want to shift from a regular job to entrepreneurial activity, and you can do it precisely the way it fits your lifestyle. Failure is negligible, but the chance for it to inspire you is high. You could make a full income replacement out of gig economy work, but it could also get you excited about the idea of starting something of your own.”