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Can a Startup Be Good?

Startups often have to choose between being profitable and being humane.

Spencer Platt/Getty

The sharing economy is predicated on the idea of worldwide adoption, leading to staggering profits and outrageous wealth for founders and early investors in just a few years. The idea is that by growing as fast as possible, and keeping overhead costs as low as possible, startups can one day become unassailable behemoths, dominating entire markets, and actually deliver the type of profits wildly optimistic investors dream about. Or at least that’s the hope. No one’s really pulled this off just yet—major companies like Uber and AirBnB have yet to go public and pay out big for their investors. In the lead-up to going public however, valuations and investment dictate almost all company policy, and startups often have to screw over their workers as much as possible to sustain growth. Just this week, grocery-delivery startup Instacart fired its drivers in Minneapolis. The reason? Declining profitability estimates for the much-hyped company, which currently has a $2 billion valuation.

The sharing economy has placed an emphasis on its ease-of-entry for workers, who simply need to have access to a car or an apartment to get down to work. But 2016 has been a rough year for workers in the sharing economy. Both Uber and Lyft cut their rates in January, trying to keep revenue up while they continue to drum up investment. “They’re competing with other companies, so they want to reduce rates for us. They told us we were ‘partners’ with them when we signed up, but we’re the ones that have to pay,” Uber driver Tenzin Wangchuk told me at a protest against the rate cuts in January. “We’re already driving like crazy.” When these startups ruthlessly compete to be as attractive to investors as possible, it’s the workers who end up making the largest sacrifices.

A few years ago I participated in a weeklong startup “accelerator” hosted by my college, and saw for myself exactly why this dynamic exists. (Granted: The companies involved were much less ambitious.) The program was intended to help alumni ventures develop business plans, court investment, and eventually compete against one another in a Shark Tank-style pitch session in front of real live venture capitalists. As one of the few participants with an actual, living business—an online literary magazine, but still, it made a profit—I believed that my group had a fairly decent shot at some prize money or investment. We had already proved there was a market for our product, and we knew the costs of keeping the business growing. But I wasn’t remotely prepared for the horrors that awaited me that week.

Within hours of the program’s start, I had come to believe that not only were startups destined to betray any ideal other than profit, but that the very people who propped up the startup economy, the investors, had designed a system where nothing but profit could ever have value. Venture capitalists told us that everything could be outsourced and that all companies should be incorporated in Delaware for lower taxes. A literary magazine like mine was met with confusion—why would we not try to make as much money as possible? My group was relentlessly instructed to lie about growth, for example. Soon, according to the projections we were prompted to make, we would be the largest literary website in the country. Quite a coup for a bunch of English majors! But that was simply never going to happen. (And it still hasn’t.)

Over a matter of days, I saw altruistic business ideas—to encourage people to provide healthy meals to low-income communities, for example, to recycle better or to help high school athletes connect with other players—altered drastically to emphasize profit to generate as much investment as possible. Ideas were quickly divorced from whatever benevolent sentiment spawned them, and instead tailored to garner insane and inaccurate valuations. I watched as one startup projected a billion dollar revenue in a few years time, even though they were just two guys with a laptop. (That startup won the competition. They’re still in business, but are well short of their billion-dollar goal.) The administrator who organized the accelerator was aghast, and wondered aloud why a seemingly harmless initiative meant to develop nascent businesses had devolved into an exercise about who could make the steepest and most daring revenue projections. But we should have seen it coming.

At the accelerator, the investors would characterize the idea of a “social good” as noble but unrealistic; even if they bought into the idea, other investors probably wouldn’t, leaving them taking on all of the risk. One after another, they told us our model just wouldn’t make financial sense. Every dollar spent on overhead (living wages, health care, paid time off, etc.), they claimed, is a dollar the more ruthless competition isn’t spending. In short, if you wanted to get investors, you had to treat other people like shit. For a company like Uber, ruthless to the end, this strategy has worked. Its valuation is actually insane: at $68 billion it’s valued higher than GM, Ford, and Honda. But the cracks are beginning to show. Leading companies in the sharing economy have been saddled with countless misclassification lawsuits and unrest from the independent contractors that make up their workforce. On the path to profits, they’ve found liability. And liability is bad for investment.

For companies that are trying to enter the already cramped sharing economy, these liabilities might be too much to overcome. Last year, Homejoy, a home-cleaning company, shut down amid numerous misclassification lawsuits that scared off investors. Only months before, the California Labor Commission found that an Uber driver was an employee, setting up a legal battle over workers that could go all the way to the Supreme Court. “A lot of this is unfortunate timing. The Uber decision … was only a single claim, but it was blown out of proportion,” CEO Adora Cheung told Re/code at the time. Because Homejoy could no longer be as ruthless as investors wanted it to be, they declined to fund it. The misclassification wars had their first major casualty.

But what if having a heart is worth something after all? Managed By Q, the subject of a glowing profile in The New York Times a few weeks back, is an example of one startup that’s trying to do right, trying to temper growth with its ability to pay its workers a decent wage. An office cleaning and management company that relies on a digital interface to meet office needs, Managed By Q has relied on its employees, many of whom have previous experience in the service industry and lack advanced degrees, to become its most valued team members and spokespeople. Instead of liabilities, like Uber’s drivers and Handy’s cleaners, the employees at Managed By Q—who, as with Handy’s and Uber’s service workers, are heavily minority—are of value to the company. And as each employee is added and the level of service rises accordingly, so too does the company’s valuation. It just isn’t happening overnight.

“Nobody wants to work in substandard conditions. We all want the same things in life, and building an economy that works for everyone is a key part of the Good Work Code,” Palak Shah, the Social Innovations Director at the National Domestic Workers Alliance, told me earlier this winter. Last November, Shah helped launch Good Work Code to “promote the creation of good work in the online economy.” The initiative aims to popularize the idea of the sharing economy being equally beneficial for its workers, and not just exploitative.

Shah believes that by directing service workers toward new companies that want to create stable jobs in the online economy, those same workers can help shape the future of employment without waiting on court decisions or bemoaning woefully inadequate federal labor laws. The power in the relationship will still reside with the companies themselves, as they ultimately decide what the rates and salaries will be, but the idea is to get companies to publicly commit to providing well-paid labor. Companies that sign on to Shah’s service agree to adhere to a code of values, eight guidelines for worker treatment—safety, stability, and a livable wage all covered. Managed By Q was one of the first companies to do so.

“Whether or not you’re an employee, or whether or not you’re a contractor, personally, I see that as a bit of a distraction,” Shah told me. “We believe that no matter what you do, as a company, you need to be creating good work. It doesn’t matter if the workers have been excluded historically, workers are workers, and you should have the types of policies and practices that make their work actually good.”

It remains to be seen whether the same investors that have forced previous startups to dispatch with “sentimental” things like good wages and worker protections will warm up to companies that hold these things central to their mission. But a consensus appears to be building that treating your workers terribly is not necessarily a sign of success or realism. It’s just bad business.