Andrew McConnell is an EO member in Atlanta and CEO of Rented.com, which ranked No. 389 on the 2019 Inc. 5000 list of America's fastest-growing privately held companies. Currently, 36 percent of US workers participate in the gig economy--a number expected to rise to 52 percent by 2023. We asked Andrew for his thoughts around how companies in the gig economy classify human resources and its potential impact. Here's what he shared:
Given this, the financially minded could perhaps be forgiven for believing that if "asset-light" businesses are good, then asset-light and employee-light businesses would be even better.
What is Asset Light?
"Asset light" describes an approach to business where the business itself owns relatively few capital assets compared with its operational value. A prime example would be Marriott Hotels, which split off Host Hotels as its real estate entity, leaving Marriott, the world's largest hotel company, as an asset-light hotel management firm. It's a popular business model in the hotel industry, as well as in airlines, shipping and other sectors with expensive heavy assets.
On the surface, an approach that strips out cost and complexity from a business while still allowing you to collect similar levels of revenue seems ideal. And for many businesses, what's more complex and costly than employees? If you can operate "asset-light," surely you can also operate "people-light," right?
Asset Light and People Light
Enter the gig economy. Companies including Lyft, Uber, Airbnb, DoorDash and Postmates have taken this concept to its (il)logical conclusion. None of these businesses own the cars that drive their customers around, the homes in which they sleep, or the restaurants where the food they deliver is prepared. In addition, the people driving those cars, owning those homes, and cooking and delivering the food don't work for the companies in question. It's a perfect business: all revenue, virtually none of the costs. Again, at least that's how it looks on a spreadsheet.
There's a cliché in business: People are our most valuable asset. While perhaps passé, it became a cliché for a good reason: What if people really are your most valuable asset? If true, could going "people light" actually strip the value from your business? This is more than merely a theoretical concern.
In each case mentioned above, the customer is not buying a physical item but rather a service. Even more than that--they're buying an experience. They're spending their vacation in an Airbnb. They're riding in a car from point A to point B. They're eating a meal in their own home cooked at restaurant A and delivered by company B.
The companies in question neither own any of the physical assets involved (cars, homes, beds, or restaurant kitchens) nor do they employ any of the people providing the service and experience. And yet--if anything goes wrong--who do you think the customer will blame? This scenario creates a serious potential risk for gig economy companies.
The case for valuing employees
There is plenty of scientific evidence that happy employees are more productive, and as a result earn higher profits for their employers. At the same time, unhappy employees cause a correspondingly negative impact for employers. According to Gallup, many determinants of whether employees are happy or unhappy depend on how valued they feel at work. Things like whether or not they feel their supervisor cares about them, or whether their opinions seem to count strongly influence how engaged and happy employees are, and thus dictate business performance.
Southwest Airlines gets this. Southwest is unapologetic in saying its employees--not its customers--come first. And you know what? By having the happiest employees, Southwest also ends up with the most satisfied passengers, winning flyers' favorite airline accolades year after year.
Are they employees or not?
The opposite of that winning strategy would seem to be to not value employees. Recently, however, we learned there is an even more extreme polar opposite: To tell the people who do all the work for your business that they are not employees at all.
If you value the people with whom your customers constantly interact so little that you refuse to label them or treat them as employees, how engaged and committed can you expect them to be? And if they are disengaged and uncommitted, what might be the longer-term impact on the service and experience of your customers?
The strategic reason to reclassify gig workers
To date, the coverage around employee/contractor classification and gig economy companies has focused on regulation and/or exploitation of the workers in question. The reality is that the reason to change shouldn't have anything to do with the law, or even with morality, but should instead be driven by businesses' own economic self-interest: More engaged employees lead to happier customers, which in turn leads to higher profits.
A spreadsheet is just a bunch of numbers. A business is composed of the people within that company, the culture they create, and how they successfully project that culture into the broader world.
Regardless of labels, the people who deliver the value of your business to the people who pay you money for that value are your people. Treat them well. If you do, they will treat your customers well. In turn, your customers will treat your business, your bottom line, and your investors well.
There are no short cuts to long-term success.