During my tenure as an Operations executive in various mid-to-small-size gig working companies, such as Landing (hellolanding.com) and HelloTech, a key realization emerged. Whether dealing with Landing, an Airbnb competitor providing mid-duration dwelling solutions for nomads, or HelloTech, a Geek Squad rival offering services like TV mounting and thermostat installations nationwide, a consistent challenge surfaced. The primary pain for any mid-to-small-size non-virtual gig working company is the inability to generate revenue in remote, small, and rural cities. Cities like Burlington, VT, or Bullhead City, AZ, often become loss leaders rather than profit centers, primarily due to limited market potential.
The underlying issue stems from the market size effect, wherein the size of the market for gig workers influences the quantity traded and the associated pricing. This effect inevitably results in higher prices for gig workers, making it challenging for companies to operate profitably in smaller cities.
Consider Burlington, VT, for instance—a beautiful yet cold and remote area where residents typically have established small businesses. When companies like Landing or HelloTech attempt to extend their services to such a town, with a population of 45,000 and a modest weekly demand of 4 tech jobs or 2 Landing stays, specific challenges arise. For tech jobs, companies need to hire technicians, while for Landing stays, cleaners are essential. The key is (1) to strategically hire just enough personnel to clean houses, (2) Do the impossible feat of coordinating all the services around the same exact time at the end of the month when moves are common, and (3) ensure that these hires view the company as a viable income option.
The fallacy becomes apparent when attempting to hire a sufficient number of people while simultaneously keeping them content. The limited pool of available individuals is well aware of the scarcity issue and, consequently, demands higher prices for their services. However, companies like Landing and HelloTech operate with fixed prices per type of service, posing a challenge in accommodating the demands of a tight-margin business. This challenge extends beyond mere pricing strategy; it is a necessity driven by the nature of pricing.
Real-life examples, such as Landing offering dwellings in places like Bentonville, AK, or Lincoln, NE, and HelloTech providing services in locations like Parkville, MO, illustrate the dilemma. Despite the companies’ efforts, the order volume in these cities remains modest, typically ranging from 10 to 30 orders per month, sometimes even less. The 80/20 distribution among gig workers in small cities means that a small group of individuals, usually 3-4, handle the majority (80%) of the jobs.
Consider the potential disruptions in this scenario—what if one person is sick, another on vacation, or there’s a sudden surge in demand due to a unique event like a town conference or a holiday weekend? These situations pose significant challenges for companies relying on a limited workforce. To provide a visual representation, two straightforward graphs are included below to illustrate these points.
The top graph depicts a “normal” size market where a change of 1 unit in demand has minimal impact on the equilibrium. Conversely, the bottom graph illustrates a small size market, where a change of 1 in supply results in a significant shift in the equilibrium price.
Contrary to a simplistic “hire and fire” approach, the challenge lies in the limited pool of individuals willing to engage in gig work for companies like HelloTech or Landing. Such gig work often offers modest pay and involves demanding tasks, making it challenging to attract and retain workers. In Nebraska or North Dakota cities, where quality gig workers are scarce, the focus shifts to retaining the few reliable resources available. However, the inherent problem remains—there aren’t enough jobs to sustain a larger workforce, and no negotiation strategy can fully address this issue.
Moreover, the issue of quality becomes prominent. In major cities like NYC, LA, or Chicago, these companies have the luxury of choosing from hundreds or thousands of gig workers, ensuring a certain level of quality. However, in smaller cities like Burlington or Bentonville, the scarcity of available gig workers means companies can’t be as selective, introducing additional challenges. From my operational experience in gig work, one key lesson stands out:
IF THERE IS GAMING OF SYSTEM TO BE DONE, IT WILL BE DONE
This holds true universally, across all gig companies and industries—a system, if susceptible to manipulation, will inevitably be exploited. In the context of gig work, gaming the system translates to delivering a lower quality service, whether it’s an apartment that’s not thoroughly cleaned or a slightly crooked TV hanging on the wall. The challenge lies in the limited control these companies have over gig workers, as they lack the ability to hire and fire at will, unlike platforms such as Uber or Doordash.
Exploring the subreddits of Uber or Doordash reveals numerous tips on gaming the system, a practice that can lead to a decline in service quality. Unlike Doordash and Uber, Landing and HelloTech lack the flexibility to swiftly address these issues through hiring and firing mechanisms. Consequently, these companies often incur losses in smaller cities, compelling them to double their efforts. They resort to incentivizing gig workers at significantly higher rates—sometimes reaching 200% or 300% of regular rates—and forming partnerships with external entities, even high-priced ones like Geek Squad or Molly Maid. These measures become necessary to make ends meet and ensure the successful completion of jobs in these challenging markets.
AND THESE COMPANIES WILL LOSE EVERY SINGLE TIME
The apparent solution to this predicament might seem straightforward—avoid offering services in remote areas and concentrate on the top 300 cities in the country. However, it’s not as simple as it sounds, as both HelloTech and Landing face unique challenges that prevent such a selective approach.
HelloTech has binding agreements with prominent companies like Target, Walmart and Comcast, obliging them to provide services everywhere, or in other words, they have to offer services EVERYWHERE, and if they can’t offer service in “NOWHERE” they won’t be allowed to offer them ANYWHERE. Despite the thin margins associated with these agreements, they constitute a substantial portion of the company’s business, making it imperative for HelloTech to maintain a broad geographical presence.
On the other hand, Landing, engaged in fierce competition with Zeus, Sonder, and BlueGround, has positioned itself as a provider of dwelling solutions for avid travelers, spanning cities like Tampa and Tempe, Renton and Benton. Their differentiation strategy hinges on being available everywhere, in contrast to competitors with a more limited city footprint. While Landing has the flexibility to choose its service locations, it opts for ubiquity, possibly driven by a form of hubris.
Although I can’t confirm if similar challenges are faced by rideshare platforms like Uber, Lyft, and Doordash in smaller cities with sporadically busy weekends or seasonal peaks, it’s plausible due to mathematical constraints. While the problem might not be as critical as Landing’s, which deals with it on a smaller scale, the persistence of such challenges in gig economy platforms is a testament to the inherent complexities of managing logistics and supply in various urban settings.
And If you’ve ever experienced a prolonged 90 minute wait for food delivery or a 45 minute wait for your Uber, you can appreciate the intricacies involved in addressing these logistical challenges.
The key lies in making gig work more widely accessible and consolidating it across various locations. Transforming “small” markets into “medium” markets and upgrading “medium” markets to “large” markets is crucial. For instance, someone skilled in both cleaning and mounting a TV can significantly expand their range of opportunities by offering their services on both platforms. This applies to not just two services, but when combined with platforms like Rover.com, Wag, Bellhops, Green Pal, Field Agent, and others, it creates a substantial market. This not only helps address the supply volatility issue but also establishes a safety net for gig workers. While it may lead to competition among aggregated companies during peak times, the upside is that they will have a pool of individuals to bid on, which is far better than having no available workforce at all.