Local search innovators know that if they attract enough consumers, local service professionals are bound to follow. So, far from competing to offer the best compensation and benefits packages to attract the best independent contractors, startup founders are competing to entice the most consumers with maximum convenience, maximum security, and at minimal cost — even if they lose a few quality contractors in the process.
Race-to-the-bottom pricing is just one trend in the local on-demand industry which disincentivizes contractors, Another equally insidious startup tendency is to ensure brand loyalty by prohibiting contractors from marketing their services to the platform users that hire them. Even money-back guarantees encourage platform brand loyalty by making it hazardous for consumers to engage in trusting, loyal business relationships with local pros off-platform.
Ultimately, by perpetuating low pay and eroding independent repeat business for contractors, the local on-demand services industry can exacerbate the stagnant wages and economic insecurity plaguing our shrinking middle class, but not without cost. As innovators sacrifice worker interests on the altar of consumer satisfaction and gain market dominance, here are three growing vulnerabilities they should look out for.
The Consumer Conscience
The consumer conscience is a powerful force in the market; it has driven many to put their dollars where their values are, align themselves with workers against brands that appear to exploit them (like Walmart and McDonald’s), and fill the coffers of brands with a more socially responsible image (like Chipotle). As consumers pay more for brands that meet their ethical standards, money doesn’t just talk; it speaks for the voiceless: child-laborers, sweatshop workers and the working poor.
Furthermore, as consumers become more sophisticated in their understanding of the budding on-demand industry, the same conscientious impulse that inspired them to pressure brands to adopt better practices or support artisans and small businesses over chains like Walmart may similarly spark a movement against certain brands within the local search industry as well. Many consumers will choose inconvenience over complicity, supporting neighboring local professionals directly rather than paying low prices on platforms that tax their communities with high service fees.
The Ethical Disruptor
For every McDonald’s, there is a Chipotle, a service that positions itself as the ethical alternative, satisfying consumers’ needs while easing their conscience.
With my own business, TalkLocal, we’ve positioned ourselves as the ethical alternative to local on-demand as a whole. Our brand messaging highlights how making phone calls more efficient helps businesses and consumers build personal connections which inspire repeat business and customer loyalty, effectively making communities stronger. We similarly pride ourselves on charging businesses a small flat rate per conversation so that more of their profits stay in their communities and not in the hands of a national lead-generation agency. Startups that tread ethical boundaries will always remain vulnerable to disruption by a business model or even merely a brand image that attempts to quite literally corner the market on ethical business practices.
High contractor churn rates are currently endemic to the local on-demand industry. According to one Requests for Startups 2015 study, low pay (43%) and lack of enjoyment (37%) are the leading causes for turnover among independent contractors (1099s). Meanwhile, company-sponsored events and social interaction rank at the top for respondents’ most desirable benefits. Ironically, the very isolation that leaves 1099s dissatisfied (along with intolerably low pay) makes it exceedingly difficult for 1099s to associate with like-minded peers and unionize in any disruptive way.
For unions to be possible, a career has to be sustainable enough to attract a critical mass of workers who are happy enough to stay and fight to improve their institution rather than simply leave. It’s a sad commentary that worker conditions aren’t even good enough for the industry to face union problems.
Yet, the chronically high churn rates have had little influence on the development of local on-demand; the consumer demand side will always pull new local professionals to replace those that the industry loses. Of course, the disgruntled and their stories can influence consumers, sparking demand for that ethical alternative, even at higher cost. And, once an alternative gains traction and a consumer base, the disruptor will begin to attract the best and brightest local professionals, sparking a brain-drain among competitors and building its own capacity to deliver value at or above its higher cost.
There is a market — on the demand side as well as the human resources/supply side — for startups that seek to advance the interests of workers. After all, if the consumer conscience can feel the weight of empathy for people who don’t share their language, country, or species, then how much more will they empathize with their neighbors, people who live in their community, a few minutes’ drive from their zip code? Any innovator who underestimates the strength of the human heart, even as it pertains to commerce, will find themselves on the losing end of a major industry disruption.
Manpreet Singh is Founder and President of TalkLocal, a local startup with apps on iPhone and Android which help consumers find and speak to high-quality local professionals in minutes. Follow him @MSinghCFA.