The Modern Workforce

The Modern Workforce

Posted 2015 — conversation on Hacker News

“You better start swimming or you’ll sink like a stone / For the times, they are a-changing” - Bob Dylan

Many of us work in tech and product, and aren’t aware of ongoing changes in the growing labor marketplace. I thought I’d objectively share a bit on what our team at OnboardIQ has learned from working with and building software for the modern workforce.

Labor is following the path of cloud computing.

34-36% of the American workforce now consists of freelancers, including temps, moonlighters and independent contractors, and expected to hit 40% by 2020 (McKinsey, Intuit).

Work is shifting towards decentralization and a model of inputs (worker acquisition cost minus worker churn) and outputs (unit economics of profitability dependent on underlying business model).

This is perhaps most apparent in San Francisco, a city caught amid the rapid rise of on-demand service startups co-existing with (and looking to disrupt) traditional counterparts - that being said, this is a global phenomenon. In this cross-section of old and new labor, there are several key trends:

Service providers have the power.

The workforce is now truly independent and company-agnostic. Reporters often like to disassociate service providers in the on-demand economy and traditional enterprises, speaking as if they were two distinct types of workers. The reality is far more complex and dynamic:

  • Labor is matching skillsets with services. Today, a worker not only drives for Uber, but also for competitors like Lyft, for noncompeting services with complementery skillsets and schedules like Caviar, and for traditional companies like the local coffeeshop or Pizza Hut.
  • Labor is expensive. Over $12 billion of funding has been poured into collaborative economy startups. These companies - startups and Fortune 500 alike - are competing for the same talent pool through limited sourcing channels (Craigslist, Indeed). As natural in supply and demand, this elastically corresponds to increasing costs of acquiring and retaining qualified talent.
  • Labor is floating. In the past, a contractor would work for one or two companies at a time. Now, with startups and enterprises competing for the same talent pool, the workforce is incentivized to shift between companies based on bait-and-switch packages, compensation, and matching skillsets.
  • Labor is indifferent. The fate of on-demand players like Uber and traditional giants are now intertwined. Standardizing best practices like legality of worker classification, salaries, shift scheduling, etc. is not an “new startup scaling” or “enterprise supply-side” problem anymore, it affects both in a huge way. Postmates will not replace McDonald’s. But Postmates has a lot to gain in working with McDonald’s, and vice versa — big and small companies are taking notice.

New challenges from the shifting labor marketplace.

These problems are not limited in scope to the on-demand economy affect all parties.

  • Volume and Efficiency - hiring for a operations workforce is different from hiring for corporate or engineering positions (obviously). Unlike hiring for a frontend developer where multiple recruiters are looking for the best possible talent over the course of several months using intangible requirements, companies hiring for their operational workforce want to push out as many qualified candidates who meet certain credentials as quickly as possible, using a small, nimble team.
  • Churn - workforce attrition at all levels of the funnel (1 week after starting, 4 weeks after first job, etc) is shooting through the roof. The American workforce now has a huge number of great companies to work for with similar jobs with increasing bait packages should they switch. There are two proven methods of beating churn, and one solution that isn’t quite obvious:
    1. Engagement (proven) — there are only four mediums (calls, emails, texts, push notifications) to progressively engage and retain workers on a mass scale. Companies have become smart about this, using certain language catered towards certain cohorts (i.e. "cleaners who haven’t worked a job in the past 10 days”). This is unsustainable, though, as eventually multichannel mass engagement still faces the problem of diminishing marginal returns. And so, companies begin to rely on…
    2. Increasing compensation (proven) — there are multiple ways to provide increased incentives for workers to stay at a company. Teams can provide packages unique to that company (Uber and Lyft both do this well), find ways to organize and simplify 1099 forms for contractors, or simply increase the base wage.
  • Business intelligence (unproductized) - this is the most powerful and most difficult way to retain a worker. Instead of actively focusing on retaining workers after they have been onboarded, companies should focus their time on predictively knowing right away from an application, thus saving money, team morale, and, most importantly, time.
  • Legal Liabilities - every company that is scaling their workforce of contractors across cities will be hit with a legal issue. Yes, every single one. It’s not a question of if a lawsuit may come, but when it comes. And when it does, how do these companies best prepare for that legal battle? The answer is in being proactive instead of retroactive through careful language and wording of contractor “onboarding” and “hiring” practices. 1099 laws are changing and shift from state to state, but the best practices are in being careful with and standardizing all company communications (whether from a GM or ops associate) used to communicate with contractors. For instance, legally-compliant operations teams never say they outright “hired” a contractor, or provided any “training” in any capacity.

A story of mismatched and outdated solutions

Companies currently either build an expensive solution in-house and maintain it, or be faced with hiring by hand. Imagine receiving hundreds of applications a week, having to manually send documents and background checks one-by-one, let alone scheduling interviews.

This is the key difference: operational workforces are hired by cohorts, corporate postiions are hired on an individual level. Operations teams aren’t built on an individual level, but rather in bulks at a time (i.e. seasonally, expanding to a new city, etc). What operations teams need to look for: scalability with growth, automation, integrations:

  • Traditional HR Software: Built for hiring on individual level, not built to support efficiency and automation. Often doesn’t support appropriate service provider integrations
  • Salesforce / Custom solutions: Very expensive (multiple iterations, often scrapped), difficult to maintain, inflexible and thus hard to scale
  • Outsourced / Manual solutions: Doesn’t scale. Unit economics don’t make sense. Operations should be in these businesses’ core competencies, and need flexible processes that scale with growth

Software is emerging to take on operations

A lot of ex-Uber/Lyft/on-demand startup employees go on to start their own companies in this space.

I had previously worked at Shyp (top-notch company + team), and noticed an industry-wide problem of inefficiencies in the applicant screening process. Qualified applicants should get their jobs quickly, and not be burdened by the turnaround time of backoffice operations, so Keith and I teamed up to build OnboardIQ. We now power most of the leading small to mid-tier on-demand startups, as well as a number of traditional companies’ back office processes, by automating and streamlining their hiring processes in a beautiful dashboard (so they can bring on people faster and smarter).

There is a lot of room for new players in this space. While HR SaaS is never sexy, what we are building genuinely touches thousands of lives every day. The better our software gets, the more companies are able to hire. Good, well-paying, well-placed jobs results in happy people. That’s pretty rewarding, if you ask me.

As unbiased as I can be (and in no particular order), this is the current on-demand / modern workforce landscape:

Sourcing

Screening

Management

*I am a co-founder

Reality:

  • Labor market is enormous and growing but still highly inefficient
  • New forces in labor market increase cost per hire
  • On-demand is not a trend and is here to stay. This is the future.
  • On-demand / Collaborative Economy is not inherently opposed to Traditional Enterprises, rather their existence is mutually beneficial
  • Service Provider Startups are still expensive to start and more expensive to scale (and often only “theoretically profitable”)
  • Processes around building and scaling workforces is difficult given current toolsets, but software is emerging that solves these problems

Disclosure: I am a co-founder at Fountain, a platform built for operations teams to screen and scale workforces

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