Gig startups want you to believe they can replace your job — don’t fall for it

This article was originally published by Built In.

Don’t quit your day job just yet.

That’s the message that should be implied — if not explicitly stated — to every applicant of every gig and creator marketplace during the vetting process.

With the poorly named Great Resignation in full swing, talent is leaving the nest (prison?) of gainful full-time employment at record levels and sometimes seemingly on a whim. As a result, talent marketplace startups are popping up to backfill that labor with the promise of a full-time salary on a work-for-yourself basis.

As a 20-year entrepreneur who has dabbled in the service-for-hire world – and as a techie who grew up with the opportunity of gun-for-hire contract employment — I can tell you that a lot of those marketplace salary promises not only go unfulfilled, but they usually come crashing down on the marketplace startup like a strong breeze through a house of cards.

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If you lean into the gig or creator economies too hard, you’re going to get burned. It’s just a matter of when and how much income is at stake.

The great resignation is not pandemic-related

There’s a misconception going around that huge armies of employees are quitting their jobs after experiencing some kind of awakening during the pandemic lockdowns. From my perspective, the lockdowns didn’t cause the resignation movement; they just sure as hell accelerated it.

You could make the case that the Great Resignation is actually the natural outgrowth of the gig economy movement crashing head-on into the creator economy movement. That collision brought about a shift in opportunities for gig work and an expansion from “anybody-can-do-it” tasks like ride-sharing, food delivery, and dog-walking into areas that require more of a creative and experiential arsenal to get the “gig.”

Thus — from accounting to digital asset creation and even medical and legal industry roles — if you’ve got skill, you can get paid to wield that skill on your own time, in your own home and for only the customers and the jobs you want.

The promise goes even deeper than that. Marketplace startups are springing up to match companies to work for other companies, resulting in a new type of startup: the loosely defined gig-worker collective.

The end result is not too different from the original inspiration for the creation of the marketplace itself. Everyone gets a cut of a continually shrinking pie of revenue.

So again, as someone who was gigging before gigging was cool, I feel like I need to offer this warning: If you’re a marketplace startup, or a vendor in a marketplace startup, or a vendor’s vendor, or a vendor’s employee — if you lean too hard into the gig or creator economies as your primary source of income — you’re going to share in a continually shrinking pool of revenue.

Digital marketplaces are great. It’s the implied promises that don’t add up.

I’m actually a huge fan of digital marketplaces for second- and third-party products, services, expertise and even derivatives of those offerings. If anything, one of the great outcomes of the digital age is the democratization of the transaction. I don’t need a storefront, a cash register or even a bank account to produce and sell whatever it is I’m good at making.

But the more derivative those derivatives become, the more gaming of the system goes on to maximize those various middleman cuts in the transaction chain. That system eventually becomes an exercise in arbitrage for everyone involved — with everyone trying to replicate their fraction of the transaction into the equivalent of a full time salary.

We’ve seen this before. It’s dropshipping on Facebook; it’s MLM and referral recruiting. Hell, it’s even Uber and Lyft and the promise of being your own boss, working your own hours and taking only the jobs you want, from the customers you want, when you want them.

Don’t get me wrong. As a part-time gig, if you don’t care about the money, and you’re willing to play whatever incentive game the marketplace is experimenting with, you’re good. But when you get sucked into the possibility of building your business on the back of someone else’s business, you’re just helping them maximize their cut. And they know this.

Full-time jobs are more than just a full-time salary

That’s the primary lesson I learned when I built my service-for-hire startup some 15 years ago. I couldn’t survive just by matching my salary; I also had to pay for my benefits, my health care, my time off — and that was just the beginning.

The real killer is I had to pay for sustainability in my business. That’s the feast-and-famine nature of ‘gig work.’ And if I wanted to not have to work 80 hours a week, I had to pay for growth, the luxury of bringing on more resources (and their salaries, benefits and time off) to counter the inevitable shifts and changes in my customers’ needs and budgets.

Does Uber or Lyft tell you this when you sign up to be your own boss? No. And that’s the primary reason why there is so much action against the contract versus full-time nature of ride sharing in several states. They did it to themselves. They took a part-time marketplace proposition and implied the promise of a full time job, even ‘your own business,’ and they arguably glossed over a lot of the economic math I just did.

The full-time math isn’t hard, but it’s daunting

At Spiffy, where we do mobile, on-demand vehicle care and maintenance, every single technician we hire is a full-time, benefitted, time-off-available employee — not a contractor, not a part-timer, not a gig worker.

The margins required to be able to do this are not the kind of ‘everyone can take a cut’ margins that normally lure folks into starting or joining a digital marketplace. But I watch the 1099 model fail time after time — not just in our sector, but in almost every sector.

Why the gig economy doesn’t work for most people

• It gets gamified by people who figure out how to do the least to earn the most.
• There is no stake in the quality or consistency of what eventually goes to the customer.
• The ’employee’ expectations are almost always set too high, and when reality hits, they quit.
• Customer and ’employee’ churn make it impossible to scale.

The Creator Economy Adds the Promise of Fame

The issues I’ve exposed here are just related to gig-economy problems. When you move to the creator economy — and the implied promise of not only livable (and even ridiculous) income and the potential for 15 minutes in a spotlight — the problems get exacerbated even further.

Twitch, Clubhouse, YouTube: The list goes on and on of content companies trying (and often failing) to create talent pools of creators to feed a growing content-consuming, ad-revenue-leaking customer base.

The digital advertising that funds these programs provides even more cover for the math by adding in even more middlemen to take a cut. But in almost every case, the implied or explicit promises have not been matched by the results — outside of a top fraction of a percent who, in most cases, we’re spending money to make money.

Like any real business.