My home town of Portland was invaded by Uber this month. People seem pretty split on it, as am I. On one side you have a company seemingly run by jerks completely ignoring the law as it introduces a product that a lot of people love. On the other hand you have a city trying to enforce a set of laws ostensibly designed to protect citizens but which now seem pointless at best and corrupt at worst.
My old boss is an investor in Uber (Old in that he was my boss some time ago, not that he is particularly old.) We’re still Facebook friends and trade emails occasionally and as far as I can tell he is a tremendously nice person who cares about his family and his neighbors and the entrepreneurs he in whom he invests. The reason I mention this is to point out that the only person I know who is actually connected to Uber is a lovely human being and, as such, this is not going to be a screed about how Uber is run by jerks. I have no idea whether Uber is run by jerks, and my n of 1 suggests that it isn’t. Instead today I am going to wonder out loud why Uber the company and companies like it act like jerks, whether this is an entirely bad thing and, if so, if anything can be done about it.
I have been working in and around technology for a long time, briefly as an entrepreneur and then ever since as an investor. There are plenty of historic examples of the open-source, generous spirit of the internet. Probably the most widely shared example is Wikipedia, in which a few hundred (now a few thousand) obsessives built into a massive shared resource for no personal gain. The founder of Wikipedia, Jimmy Wales, once told me something like, “The single greatest decision I ever made was forming Wikipedia as a non-profit. And the single greatest mistake I ever made was forming Wikipedia as a non-profit.” By this he meant that volunteer editors would have been unlikely to make Wikipedia their life’s work had it been a for-profit entity. But at the same time, it meant that one of the highest traffic websites in the world had to (and still does) beg for donations to pay for bandwidth when similar-traffic sites throw up some ads and watch the money roll in. Despite that somewhat rueful statement, he seemed to appreciate that he navigated a complex web of stakeholders and that it was important to have a structure that preserved the value of their contributions. At the time, non-profit seemed like the better of two flawed options because it better represented the relationship he needed to have with his key stakeholders, Wikipedia’s volunteer editors.
For a while, I worked for Pierre Omidyar, the founder of eBay and someone who has some of the same libertarian tendencies as me (although he takes his much further than I) As he tells it, one of his key insights in founding eBay was that people are mostly good. (A related insight for later is that while people are basically good, organizations made up of good people often act like jerks) Online auction was not a novel idea in 1995, but people were tying themselves in knots trying to figure out how to stop people from defrauding each other. eBay started with the thought that, “Yes there may be some cheats in the system, but it will be a tiny fraction, and you don’t want to screw up the whole system building it to focus preventing a minor bug. Optimize it to have a lot of cool stuff for sale, and then fix fraud using all of the information you collect as you go.” Put another way, don't choke the life out of an ecosystem trying to stop the rare bad actor.
As a lay person, and a closeted part-libertarian, regulation around taxis and hotels looks like the counter-example to eBay's light touch. Governments appear to have created a Kafka-esque bureaucracy which places an unreasonable burden on operators and hurts consumers, all in the name of protecting those same consumers. A few other examples:
- The SEC has delayed allowing individuals to participate in private investments
- The IRS makes most community currencies illegal
- Many states prohibit car companies from selling direct to consumers
The list goes on and on. I know the issue of is more nuanced than that, but for the purposes of this post today, let’s just accept: If we’re going to make the leap to a more distributed economy many of these rules need to be broken.
But who deserves to break them?
The companies that break these rules are by nature aggressive. But in whose interest are they directing that aggression? The new generation of “sharing” companies - Uber, Lyft, AirBnB et al - took the opposite path from Wikipedia, not just forming as for-profits but as venture capital funded for-profits, the most for-profit-y for-profit there is. If you accept that there were only two choices, this was the clear best option. Hundreds of millions, now billions, in investment capital has flowed in, allowing them to extend services to more markets, faster than anyone thought possible. Even the granddaddy of them all, couchsurfers.org, took venture funding from the aforementioned Pierre Omidyar and rebranded as couchsurfers.com. However, these companies navigate a web of stakeholders more complex than anything Wikipedia ever faced, including:
So let’s be clear, these venture-funded C-Corporation “sharing” companies have selected an organizational structure that REQUIRES that they place the interest of investors above all those other stakeholders. Not only that, but they have taken capital from investors who want them to swing for the fences, move fast and break things (including laws). They are careening into new markets at a breakneck pace, ignoring the existing (stupid) rulebook and then turning to every other stakeholder, people whose active participation in their business is ESSENTIAL for their success and basically saying, “Hey, trust us.”
That sounds like something a jerk would do.
So where does that leave us?
I think the distributed economy (I’m going to stop ironically calling it “sharing” now) will create huge benefits for us as a society if implemented fairly. We have companies innovating at a speed at which it is unreasonable for regulators, who normally are responsible for protecting all the relevant stakeholders, to be able to catch up. So, I believe that some level of rule-bending or breaking is necessary, and I think we want the companies to stay innovative and aggressive. However, these companies are structured to prioritize investors’ needs over all other stakeholders. Companies need us to trust them, but have picked a structure that makes them inherently untrustworthy, regardless of whether they are run by seemingly nice people (Lyft) or assholes (Uber). Focusing on the individuals at the top ignores the basic structural issue.
These companies need to make binding, verifiable commitments to other stakeholders, commitments which will allow regulators to give them the leeway they need to keep aggressively innovating. And because it is the 21st century, we actually have some options for how to do this.
Bare minimum, these companies should all be B Corps, or another form of benefit corporation. The structure allows of them to make explicit commitments to other stakeholders. Etsy.com, which shares at least one investor with Uber, is a registered B Corp that has shown that you can incorporate values beyond just profit and still create value for VC investors. Kickstarter is another certified B Corp with happy VC investors. I don’t think anyone has ever tried to use B Corp status as a way of getting around regulation, so there would be some work to be done to get it right, but it would be a step in the right direction.
The answer could be to also be to think more creatively about ownership models: What about co-op models?. Imagine an Uber competitor that was 50% owned by its investors and 50% owned by its drivers. How would this company act differently? How would we respond to it differently? What if these companies were partially owned by the communities in which they operate?
The answer could also be to think more creatively about governance models: why couldn’t these companies fund and consult with third parties on acceptable business practices. The Center for Financial Sector Inclusion has played this role in payday lending. Now imagine a company saying, “We are going to agree ahead of time to adhere to the standards set by this third party, even if they negatively effect our bottom line.” Imagine a Fair Trade-certified Uber.
I don’t pretend to know what the exact answer is, but the problem is one of structure and incentives, not personalities. We now have the tools at our disposal to build companies that stay creative and aggressive while benefitting all stakeholders, but we need to move beyond the outdated for-profit/non-profit dichotomy of late 20th century capitalism. Entrepreneurs and investors need to show the same creativity and risk-taking with organizational structures that they have shown with these distributed business models. And customers and regulators should reward companies that get it right. It won’t be simple, but it’s more productive than guessing at the personalities of 20-something and 30-something entrepreneurs.
Patrick Maloney lives in Portland, OR where he helps nice people working on cool stuff. He tries to limit his blogging to things about which he knows something.