One of the trends of high-tech startups is to build a product around two things: an app and independent workers. These new business models are all the rage in Silicon Valley and eminently fundable because they open up new business models that do old things in new, more efficient ways. That was the basis behind Uber; use an app to hail your personal driver that would arrive in a few minutes and take you to your destination with no money changing hands. The other requirement for this model to work was charging less for the ride to take business away from taxis and even rental cars. Never mind that on close examination, the company was losing billions and the drivers were barely scraping by. And it’s a business that doesn’t improve as it scales; instead, it gets worse as ridership increases as seen in their recent quarterly results.
But optimism reigns supreme in Silicon Valley and the Uber just kicked the can down the road. They promised they would migrate to self-driving cars that would make them profitable, and their investors poured in more billions. But that promise never made much sense. First, self-driving cars are years away and, without a driver bringing their own car, Uber would need to buy tons of expensive cars to create their own fleet. It’s actually much more expensive to use self-driving cars.
This business model works by duping the public and the stock market, with the early investors taking advantage of the increased valuation and exiting before the company needs to prove its long term viability. Few critically examine the model closely, other than perhaps a few astute analysts such as Scott Galloway. who cuts right through the scam.
You can hear him each Friday is his 30 minute podcast, Pivot, with Kara Swisher where they seem to find a scam each week to talk about. Last week he dissected the upcoming IPO of WeWorks in which the founder has already become a billionaire by pulling money out of the company for personal enrichment- before the IPO.
This week we learned of another broken business model that’s raised millions by deception and, in this case, theft from its employees. Door Dash, the food delivery company has been keeping the tips its customers have given to its employees that deliver restaurant take-out food. The drivers saw none of the tips; they all went to the company.
In response to outcries from both its customers and drivers, their CEO Tony Xu said the company would change its policy. But a month later, according to an article in Recode, the company continues to pocket all of the tips.
According to Recode, “At the time, CEO Tony Xu announced in a series of tweets that DoorDash would institute a new model to ensure workers’ earnings would “increase by the exact amount a customer tips on every order.” Xu promised to provide “specific details in the coming days.” The next day, Xu sent out a note to DoorDash workers, broadly outlining changes and letting them know “what to expect in the days ahead.”
“But 27 days later, current DoorDash workers tell Recode that the company’s pay and tipping policies have stayed the same. The company has not made any public statements about its worker pay and how it plans to institute the changes, nor has it offered a specific date when it will fulfill its promise. A spokesperson declined to comment about the company’s plans to change its tipping policy.”
Their drivers take these jobs usually out of hardship and the need to choose their own hours to take care of their family. They’re not in a position to fight back or to unionize to fight for their wages. Many earn an average of $8 per hour and rely on tips to earn a minimum wage. And that’s before the wear and tear on their car.
“The company really tries not to pay us as much as possible,” one driver noted. Some of the drivers have gotten smart. They now ask their customers to tip in cash. Some drivers are handing out flyers to his customers explaining the controversy and why workers prefer for people not to tip through the app.
DoorDash appears to be just another one of these scam companies whose business model only works if they exploit their workers.
It’s a sad commentary today that these new CEOs show such a lack of empathy for their workers and continue to exploit them to keep their investors happy on their path to an IPO. No longer does the definition of a successful company also mean success for its employees or at least a living wage.
DoorDash recently announced a new $400 million round of financing that valued the company at $7.1 billion. All built around an app, a driver, and exploitation. What a business model!