The true debate around worker classification in the Sharing Economy

The numerous law suits against companies like Uber and HomeJoy (which actually forced it to liquidate as a result last week) has spurred huge political debate around the sharing / on-demand economy, Employee classification and protection.

 

The arguments against companies operating in this space are mainly that they disguise employees as independent contractors therefore resulting in loss of protection for the workers and – more to the point – less tax income for the IRS.

 

I think this argument is very skewed and in fact hypocritical. Firstly, Tax income IS the real concern for the government NOT worker protection, yet subtly forgotten in the debate. Secondly, in an nation that’s thrived due to peoples appetite for risk with the inevitable loss of protection for the pursuit of upside it’s far too populist and goes against the grain of what made America great. Why do we celebrate and praise Entrepreneurs yet we pity the  ‘Solopreneur’ and want to protect them. Both choose to forego the perks of a secure job for the freedom to work for themselves, determining their own times and patterns of work and in many cases earning more.

 

On our site PeoplePerHour.com for example consistently over 80% of our 1m+ freelancers polled tell us that they would never go back to secure employment. Our top earners make north of $10k per month in net earnings which in most cases exceeds what they made or still make in their 9-5 job. Numerous conversations I’ve had with Uber drivers testify to the same, and I’ve recently met one person (of many others I’m sure) who made more money renting out his place on Airbnb that he quit his job and turned that into a business!

 

The real question that’s missed therefore is that of real ‘choice’. One in three people are now members of this freelance economy, a number backed by Mary Meeker’s latest report. Of those the vast majority choose to do so for some of the reasons mentioned above.

 

Yet, unquestionably, there are some edge-cases where companies force this ‘contractor’ engagement on Workers, whilst stripping them of the freedom to dictate their own work conditions. In these cases the argument that they are in essence employees in disguise stands correct. FedEx was one such example, losing a long standing suit instigated by its drivers which was settled in 2014 forcing it to reclassify their workers as employees.

 

The distinction needs to be understood though. There is a big difference between an Employer dictating when you turn up at work, what you wear (in this case a uniform), the hours you work and whom for, or how you perform your duties. These are the elements that define the level of control an organisation exerts on the worker. The litmus test is to ask ‘how different would it be had that person been an employee’. If the answer is ‘not materially different’ then its Employment in disguise.

 

The answer is different for most participants of the tech-powered on-demand economy today because of exactly that: technology empowers workers to make that choice theirs, and be truly independent. In the digital economy, in which we are participants, this holds absolutely true. Freelancers on PeoplePerHour or SuperTasker CAN AND DO choose when to work, for whom, the location from where to work, and they can choose to work as much or as little as they want and for what rate. In fact 95%+ of the work gets done remotely and the lack of physical dependency means that they can also be performing multiple jobs simultaneously (whilst a cleaner for HomeJoy or a FedEx driver cannot be at two places at the same time)

 

Uber arguably does dictate the ‘where’ by routing drivers to a specific location but we forget that the drivers choose when to toggle in and out of the network. They have that self-chosen freedom. De Blagio’s decision to drop the claim this week was therefore – in my opinion – correct.

 

So in short, I believe that some regulation is indeed needed to monitor and prevent these edge-cases from going mainstream and protecting workers’ rights (and Uncle Sam’s coffers), but they should not be misunderstood as being the norm, else we run the risk of over-regulating a growing and very promising market, destroying healthy businesses and limiting choice for the consumer.

 

The sharing economy is not a fad. It’s a truly revolutionary movement that unlocks waste in an economy, or ‘spare capacity’, be it people’s skills or time, their spare bedroom, their car sitting in the garage or their closet. Its putting idle resourced back to good use for the benefit of society. I often think of the sharing economy as ‘Recycling 2.0’. What recycling did for physical consumables is now – unbeknown to most – generating half a trillon dollars and touching everyone’s lives, plus making the world a better place. Out of what would have been just trash!

 

The sharing economy has the potential to do exactly the same for intangibles and physical assets. What machines did for trash, the internet and software is doing for almost everything that surrounds us. And that will certainly make the world a better place.

Of fools and unicorns

 

I caught up with a good friend of mine for brunch this weekend who is also building a tech company. We’ve both been at it for roughly the same amount of time and our businesses are roughly at similar stages.

 

We discussed the craziness that’s happening in today’s startup landscape with valuation off the roof and companies allegedly achieving hundreds of millions in run-rate revenues within 12 months. We’re both in it for the longer term, building long lasting, value adding businesses in growing markets, that deliver products and services people find useful (or useful enough to pay for!). Which in todays world makes us sound archaic!

 

Sure if you build a unicorn aka a disruptive rocketship that gets a billion dollar valuation within 12 months, that is ALSO delivering sustainable value, with scalable unit economics then it’s a great achievement. However entrepreneurs today mistakenly make that the goal neglecting two very important things in my view

 

  1. The   greater fool theory

 

You want to build a billion dollar business overnight? It’s easy. Go on the street and sell a dollar for 99cents. You will find there’s a lot of demand for that! In fact it’s guaranteed to go viral. You will have a big and growing hole in your pocket but all you need to do is convince a few nitwits that its temporary and very shortly you will build a ‘brand’ and become a destination. The ‘go to’ place to buy a dollar. Build some hype so that your stock gives return to batch1 of nitwits through a secondary sale to batch #2 nitwits and you’re now hot and trending!

 

It’s called the greater fool syndrome: who cares that you’re only making 99c to the dollar, so long as there’s a greater fool to the last one to buy your stock?! And in todays’ world one thing that seems to be in abundance is greater fools.

 

In more tech talk: its unit economics stupid! If you cant make a profit on your customer acquisition with a reasonable payback that you can fund (the deeper pockets you have the more you can push that out) then all you are doing is building a ponzie scheme. At best.

 

With the latest news on even the best, the most disruptive unicorns around us, such as Uber, allegedly losing over half a billion per annum, there’s many other seemingly amazing & disruptive (aka unicorns) that have questionable unit economics. Right now the ponzie scheme is funded by virtually zero interest rates. Capital is free and needs to be deployed. Even a 99c dollar business seems sexier, especially if gift-wrapped with some wishful thinking around it, than money sitting in the bank!

 

Rates will soon rise though, how soon we don’t know but they will. They cant go lower. The froth will start coming off the cappuccino. Capital dries up or shrinks,   there’s now less greater fools in supply ready to scoop up the stock and alas we have a crunch.

 

Next thing you know is your investors turns up at the next board meeting and goes “say, can you send me a slide on your unit economics? I think we should turn the business profitable” Bam. You’re toast.

 

  1. Building a unicorn is not a strategy

 

The above argument aside, some unicorns may have the right unit economics. However building one is not a strategy. It’s like playing roulette. To paraphrase Warren Buffet “its easier to ride the wave than trying to create it”. So, much like in surfing, preparing for and positioning yourself at the right place and the right time ready to ride the wave when it comes IS a strategy. Trying to create it is wishful thinking.

 

What we don’t see at the outset is that, aside of the fact that a lot of these seemingly super sexy disruptive businesses are essentially a 99c to dollar businesses, even the ones that aren’t were seldom if ever a concerted plan. They just happened. Uber was started as an app for Travis and his friends. Facebook and so many others were just apps that were hacked together by kids in a dorm room and caught fire. Whatsapp, Snapchat and Instagram arguably still aren’t businesses. They’re apps with a very loose idea of how to make money at best.

 

There’s nothing wrong with that if you have the time and capacity to play around enough till something catches fire, and so long as you can convince Zuck to buy it. But you have better chances if you just go to Vegas! Its not a strategy to building a business.

 

The only sensible strategy is to sit at that interjection between delivering customer value via products and services that are building for the future and keep innovating. Pick the right macro, build a great team and hang in there, surviving one day at a time. If you do you can’t lose. You may not get rich overnight but you will build a lasting business, and as Buffet showed will eventually make more money than those nitwits put together. By investing in long term value creation.

 

Fads come and go. Value stays.

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The unmaking of a making economy

Most people by now will have heard some buzz about the ‘sharing’ or ‘on demand’ economy. Few will realise how staggering it’s growth has been.

 

Consider this. There are now more Uber rides in NYC than in yellow cabs. There will soon be more Airbnb nights than the world largest hotel chains. And according to Mary Meeker’s recent report more than 1 in 3 of the US Workforce are freelancers, sharing their spare time on sites like PeoplePerHour, Upwork, Fiverr and others. And these are all companies that are less than a decade old!

 

We are going from a nation of ‘making’ things for consumption, to one of ‘sharing’ them. There is no question that whatever the underlying commodity is – transportation, food, accommodation, or your skills & time, – more of it will be shared than bought within the next few years.

 

Production, retail and traditional distribution as we know it will therefore shrink. The divide between a Producer and a Consumer is getting blurred and will only carry on doing so until it breaks down completely. Producers now compete not just with other Producers of the same or similar thing, but with Consumers who already own and share it. A cabbie competes with anyone who has a car and rides for Uber, Lyft etc; an in-house employee competes with the now estimated 54+ MM people who freelance in the US alone and are available to be hired on-demand; and hotels compete with your and my spare bedroom or vacation home.

 

In that evolution, power in the value chain has shifted dramatically, from the craftsmen & blacksmiths who possessed scarce skills of production; to corporations that commoditised those skills, powering mass production and driving craftsmen to virtual extinction; and now to consumers whose ‘cost of production’ is lower than both and in many cases  virtually zero.

I predict that the birth sharing economy will be cited 10 years from now as equally disruptive and revolutionary as the industrial revolution itself. By the end of the decade the consumption on such C2C (consumer to consumer) platforms will radically belittle that of the ‘making’ economy as we know it today.

 

Another trend that’s ‘in the ‘making’ will accelerate that as it becomes more economical for mass consumption (or production, however you want to viwe the glass) is 3D printing. Already this drivable car was printed in just 44 hours, and researchers are making 3D printed jet engines!

 

Moore’s law will prove right in 3D printers much like it did with personal computers, meaning that the power of 3D printers will double every two years and cost will halve. Eventually they will become mainstream – everyone will have one churn out stuff they need ‘on demand’ in their back yard. Even body organs!

 

This will have major implications for practically every industry, from medicine, food, fashion, the making economy at large and, yes, EVEN the sharing economy.

We may just find ourselves go from sharing things that companies make or build, to things we make entirely ourselves!

Why SuperTasker will disrupt digital work

SuperTasker’s mission is to disrupt digital work, by making it super easy, super fast and super reliable to get tasks done at a click.  Unlike traditional marketplaces where the two sides are left to their own devices to haggle a solution and a price for it (albeit with the help of online reputation systems, social integration, messaging, price comparisons, dispute mediation and a raft of other features that serve the purpose of building trust between the two parties), SuperTasker work as an intelligent ‘black box’ rendering all that unnecessary.  The black box is smart enough to allocate the work to the right person, at the right time, and for the right price. So you don’t have to! The below is some testament to that, qualitative and quantitativeST_key_info

If you don’t cannibalize your own business someone else will!

All entrepreneurs launch with the hope that their businesses will live forever — or at least survive the next hundred years. They develop long-term business plans, chart growth paths, and seek advice from veteran business owners. Those words of wisdom likely don’t advise them to find a way to “cannibalize” their own companies.

But even if your company hits the hundred-year mark, you should always be looking for ways to revolutionize your initial idea before someone else does. No cautionary tale better illustrates this point than Kodak.

Most people would be surprised to discover that Kodak invented the digital camera, but it didn’t commercialize it for fear of jeopardizing its film business. By the time Kodak realized its digital camera prototype was a game changer, it was too late. Read the full article here.

Startup Learnings

In this interview with IdeaMench i share some of my learnings along the journey of entrepreneurship (and what a journey it’s been!) Read the full article here 

 

Where did the idea for SuperTasker come from?

SuperTasker is an evolution of our parent product, PeoplePerHour, a classic two-sided community marketplace where users can post a job and get proposals from freelance talent that will complete the job remotely. Our edge is that we curate all the freelancers and have a big focus on only allowing the best to qualify for and stay in the marketplace. Small businesses use SuperTasker to outsource anything from a quick design job to managing big remote teams on an ongoing basis.

SuperTasker arose to serve a subset of jobs in which customers aren’t as worried about who does the work — they just want it done! This includes things like small design tweaks or one-hour fixes to templated sites, such as WordPress, Joomla, and Magento. The way we solve the problem here is through tight curation and definition of the deliverables up front, relieving the customer from the effort of finding someone and weighing him against other candidates. With SuperTasker, you literally complete a form, and we take it from there. The task usually gets picked up within three minutes, and most deliverables are returned within one hour.

What does your typical day look like, and how do you make it productive?

I start early because we run engineering out of Athens, which is seven hours ahead of Eastern time. I tend to have early cross-Atlantic calls with the teams in Athens and London while it’s still daytime for them. I normally take a break at lunchtime to have a quick workout, and that sort of resets my day. My U.S. day begins around 2 p.m.

How do you bring ideas to life?

We have a culture where we encourage the flow of ideas and a lot of discussion. Great ideas take time to mature and need a lot of conversation, so we allow everyone to chip in ideas about a problem we’re trying to solve, then get around the table (or on Skype or Google Hangouts) and hash them out. You can’t structure that process too much; otherwise, you kill creativity. It’s about having short but frequent conversations — with research and analysis to validate assumptions in between.

What’s one trend that really excites you?

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We’re getting SKUed !

 

The reason I’m so excited about our latest product SuperTasker is not just because it’s a cool product (and looks pretty according to my unbiased opinion of course !;) that solves a real need in a novel way. More importantly its driving a new macro trend which is way overdue : the introduction of SKUs for services.

 

SKUs (Supplier Keeping Units) are now second nature in the world of physical products.  They are the classification of all things made and sold. The worlds all encompassing ‘product catalogue’. Each SKU is tied in with specific product specs. So buying the same SKU anywhere in the world, through any site or retail store means the same thing pops out of the box. In other words: standardisation.

 

We take this for granted now but SKUs have marked a fundamental shift from a nation of blacksmiths to mass production and standardisation. Before the industrial revolution buying a table, or a bottle of ketchup meant going to a craftsman, blacksmith or the local farmers market. What you got that day would differ to what you’d get the next.  In a nice ironic turn of events that serendipitous discovery in the purchasing process is now finding its way back spurring new hot businesses like Birchbox and Plated amongst many others. Too much standardisation can get boring. But we wouldn’t have come this far if we weren’t able to standardise production to feed a nation en masse.  No doubt our standard of living has massively improved since then. You can buy mass produced items for a fraction of what a craftsman could afford to charge you however hard you bartered.  In economic terms:  we reaped ‘economies of scale’.

 

Yet in intangibles we are STILL a nation of blacksmiths. Try getting a simple logo done on 5 different platforms. The cost will vary drastically as will the quality, and other service elements bundled in the purchase such as number of revisions or the ‘return’ policy.  It’s a hit and miss experience, much like buying goods was before mass production.

 

Some argue that one of the reasons is that you can’t commoditise creative work.  Well. I’m sure that’s exactly what the blacksmith or craftsman in the case above would have said before Henry Ford put them out of business.  There is creativity in virtually EVERY production process. Whether you’re making a table, a pair of shoe laces, a home made ketchup recipe or a logo. There is no reason for them to differ.

 

That’s what we are fundamentally doing at SuperTasker. We are the world’s first catalogue of SKUs in digital services. And we aim to eventually expand to more. But for now we ‘stick to the knitting’ as they say. A design edit, a WordPress fix, an Infographic or creative banner production, to name just a few, are all SKUed. In other words we define what the cost should be, the delivery time, the penalty on lateness, the quality standard (all the ‘producers’ are curated and trained to that standard), and those other service elements like number of revisions per purchase and refund policy. We leave no guesswork to the ‘craftsman’ or the customer. It’s SKUed.

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Rethinking the definition of ‘Entrepreneur’

I recently wrote this article for Forbes as i feel that the nature, context and value that entrepreneurship brings to the world is evolving fast, and hence is its definition.  Read the full piece here: Rethinking the definition of ‘Entrepreneur’ 

Entrepreneurs are integral to the success of the U.S. economy. According to figures from Forbes, over 50% of the working population is at a small business, equating to over 120 million people. That’s a lot of competition.

Calling yourself an entrepreneur is to define yourself as many things: You are declaring yourself an innovator and a risk taker, and may find yourself pigeonholed with assumptions and stereotypes. However, an entrepreneur cannot be defined by a group of characteristics.

As the traditional route of finding employment has become increasingly challenging, the aspiration to become an entrepreneur has risen, making the original definition of entrepreneur problematic. Forty-three percent of Americans believe there are good opportunities for entrepreneurship, up by more than 20% since 2011. These days, you can be an entrepreneur if you’re a mother making wedding cakes during the school day, or a young horseback rider setting up a business introducing buyers to sellers of the finest dressage horses. You don’t need a flashy office or lots of space; 69% of new businesses in the U.S. start at home, and 59% of established businesses are home-based. So then the term entrepreneur — what does it actually mean?

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Rise in second jobs makes UK a nation of grafters

PeoplePerHour in the Financial Times today on the rise of second jobs.

Read the full articles here:

Rise in second jobs makes UK a nation of grafters – FT

Case study_ Factory worker makes jewellery in spare time – FT

The UK is becoming a nation of grafters. With living standards at their lowest in a decade and real-term wages falling 8 per cent since the financial crisis, more people are cramming extra work into evenings, weekends and even their lunch hours to supplement their main incomes.

Officially, the average number of hours Britons work each week has increased from 31.4 to 32.2 since 2011 after years of decline. There are now about 1.2m with two jobs, up from about 1.05m in 2007. The number of workers combining their main job with a second self-employed role has increased 40 per cent since 2006 to 450,000.

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