Here’s a story about how Uber sold the false dream of riches to its contract drivers. Back in 2015, I gave over 500 rides on Uber to thoroughly understand the platform.
The sun was just starting to peek over the mountains so I pulled over to stretch my legs. It was 6 am.
I had only been driving for about an hour, but I had never come to this part of the Bay Area before. Right over the Golden Gate Bridge and down towards Stinson Beach I had dropped off a passenger.
Perhaps it was his “ride of shame” after a late night of partying? Or maybe he was going to some secret yoga studio retreat before the stock market opened at 6:30 am.
As an Uber driver, what my passengers did at unusual hours was always left up to the imagination.
How Uber Sold The Dream
In 2015, I was unemployed, childless and had a lot of time on my hands. After spending 13 years waking up by 5 am working in finance, I often found myself twiddling my thumbs for several hours before my wife woke up.
She was the night owl and I was the morning lark. To fill my time, I would write on Financial Samurai just as I still do today.
But as I read more and more about people’s experiences making extra money driving for Uber, I just had to try it myself. After all, I was based in San Francico and Uber was founded in San Francisco.
Uber touted that I would be my own boss, drive whenever I wanted, and make a lot of money. Further, they offered me a $500 sign up bonus. Sounded good to me!
Everything counted towards my laser focus of building enough passive income so that both my wife and I could avoid full-time work forever. Besides, I knew there would be stories to write from my experience.
In the beginning, I was excited about my new hustle. My two public park tennis teammates were making about $30-$40/hour driving.
I figured if I could make $90 – $120 by the time my wife woke up, I could make enough for the day to at least pay for food and entertainment for the both of us.
Further, I’m always encouraging readers to start a side hustle. It was only logical to try driving for Uber myself and report back my findings to help others make an informed choice.
Until this day, I still clearly remember my very first Uber passenger. She had flown in from Denver and I dropped her off at a random warehouse somewhere south of the city. She hinted at meeting up after she was done, but I politely declined.
As Uber kept touting the benefits of driving on their platform and as I got savvier as a driver, the more hooked I became. Instead of giving just one ride as some do as a PR stunt, I wanted to give at least 100 rides to make my experience statistically significant.
I learned various strategies to sometimes boost my hourly rate to $45-$50. Then I realized I could make even more if I referred drivers to sign up using my online platform. I even signed up my wife and drove as her to get the $500 bonus!
With experience, I started getting overconfident about how much I could make.
The Beginning Of The Decline
After about six months of driving, I began to notice my hourly rate had started to decline. No matter how strategic I was in terms of driving during maximum surge pricing, sometime in early 2016 it became rare for me to breach the $30/hour earnings threshold. Uber sold the dream of good income, but it didn’t last.
It was like deja vu all over again, where the better I performed while working in finance, the less I got paid. All anybody really wants is a correlation with effort and reward. It was clear after so many price cuts, driving for Uber became less profitable.
Then I noticed that driver referral payouts were starting to decline as well. Instead of making $500 – $1,000 per referral for drivers who completed 25 rides on the platform, the payouts decreased to $50 – $100 per referral and qualification eligibility increased to 50 – 100 rides.
My dreams of making six figures on my driving and referral side hustle started to fade. What Uber sold didn’t pan out.
But what irked me most was not the declining payouts, given the market is rational and nobody forced me to do anything for Uber. What irked me more was some of the people I met at Uber corporate.
Lured Drivers In To Dig For Info
Four fellow drivers and I were invited to Uber headquarters as a “reward” for being such great drivers and referrers.
I went because I was curious to visit their offices and to get free food. I was also actually hoping they’d be awarding us with some type of incentive or monetary bonus for being such great “partners” as they called us.
What a disappointment. The free food turned out to be water and cold pizza. I felt like prey lured into a trap by hunters. Their real purpose was to pick our brains and try to learn how Uber could replicate our success across its driving platform.
One guy just came in for 20 minutes and rudely left after he got what he wanted from us. I felt used. We were used.
Here we drivers were, a Black guy, a couple Hispanic guys, and an Asian guy talking to six White women, two White guys, and an Asian guy, who all went to private schools. The contrast was stark as only I went to college, and a public one at that. They continuously peppered us with questions about how to be better drivers.
And do you know why they peppered us with so many questions?
Corporate Employees Have No Experience
Because none of them had ever driven before! You would think that one of the best ways to improve your driving platform is to actually experience for yourself what it’s like to be a driver. It’s not as though they were making some product that required a PhD in chemistry.
When I asked them why they didn’t just spend some of their work hours driving themselves, none of them responded. One might have even snickered.
It was as if they were too rich or too privileged to do the very job that was going to make them rich.
I’m not a fan of people who think they are better than others or too good for some type of work just because of their fancy backgrounds.
This experience was the beginning of the end for my enthusiasm for Uber.
When I then saw Uber roll out its predatory car leasing program to keep drivers enslaved, I finally deleted my driver app for good. Uber sold a false dream and I was sick of them.
Uber Culture Is Rough
From my one meeting at its headquarters, I’m not going to generalize all Uber corporate employees as rich clueless people who take advantage of others. That would be unfair as I’ve met several fine Uber corporate employees as well.
But what I will say is that if you’ve never gotten your hands dirty by working a close to minimum wage job, especially in the service sector, you have no idea how hard it is to make a living in such professions. You will likely take for granted how good you have it too.
By the time I stopped driving in mid-2016, my hourly wage after taxes and expenses was only around $15. During the process of giving over 500 rides, my car had been barfed in and nicked up.
I had also encountered several incredibly snooty passengers once Uber Pool was introduced. It seems as if people who spend the least on a product are often the worst behaved.
A firm’s culture starts at the top. And it was clear from Uber’s sexual harassment lawsuit and multiple complaints that Uber had a culture problem. It had grown accustomed to treating people poorly in general, not just its contractors, due to its growth.
Below is a recent example of Uber’s culture from a guy who led some of Uber’s rider growth teams from 2015-2018. He’s now a VC at Andreessen Horowitz.
Instead of calling the people who helped make you rich “underclass,” it’s probably better to simply say “thank you.”
Let’s try to humble ourselves as soon as we start believing we’re hot stuff. It’s very easy to confuse our success with our own abilities, rather than being fortunate to hop on a train that was going somewhere.
Uber Millions And Billions
At the end of the day, Uber has improved the quality of lives for millions of consumers, which is why the company is able to raise billions in an IPO and value itself at close to $80 billion.
None of us ever want to go back to paying 3X more for a taxi that never comes. Having the ability to get a variety of food using Uber Eats is great too.
It is also true that driving and delivery for Uber are choices. Nobody is forcing people to work for close to minimum wage or less while simultaneously risking a situation where one accident can wipe out a month’s worth of profits.
Even if Uber continues to lose $1.8 billion a year as it did in 2018, its IPO will fund them for at least another five years.
I just ask the thousands of Uber and Lyft employees who are now millionaires and billionaires to not forget about the people you used to help make you rich.
If you aren’t at least thankful, you might one day find yourself stuck in a pickle with nobody willing to pick you up.
Final Takeaways From Uber
1) To get rich, you must sell people the dream to work for you while giving them little-to-no equity. Work on your selling skills. Work on building your own equity.
2) While trying to convince your underpaid contractors that you are doing them a favor, work on new innovation like self-driving cars so that when your contractors finally revolt, you’ve got your bases covered.
3) Excess profits are always eventually competed away. Therefore, to make the most money, you must be an early adopter. Drivers in 2013 made way more money than drivers today. Of course, the same goes for Uber’s corporate employees. Practice recognizing opportunity.
4) Don’t be too proud to get rich. Do what you must to provide for your family. I don’t care if people make fun of me for only making $1,100/month as an assistant high school tennis coach or when I gave hundreds of rides one year. It is because of these experiences that I’ve continued to grow and appreciate what I have.
5) No matter how successful you become, try to stay grounded. If you don’t, you will eventually be eaten alive.
6) Even better than grinding away at Uber corporate is being an early investor. Make your capital work hard for you so you don’t have to.
As of 2021, Uber is trading around $50/share, 25% above its IPO price. There is still also a battle over the classification of whether its drivers are employees or contractors. It’s hard to see Uber continue to grow and innovate in this environment.
Related: The Largest Shareholders In Uber Post IPO
Readers, any of you work for Uber or know people who work at Uber? How was/is the experience? What will you be doing with your financial windfall? Any new side hustles we should be aware of? As of 4Q2019, Uber is under its IPO price and under where investors invested in the company in 2015. Uber sold the dream is a FS original post.
Uber is just a way for drivers to trade their car equity for cash. It seems very few actually take into consideration the long term costs (car depreciation, more frequent maintenance, increased insurance, increased risk), only short term (fuel). I’m happy to use Uber occasionally as a rider though.
I found out the Uber Culture was pretty f***ed up 1 year before Uber’s sexual harassment lawsuit started. I was volunteering in a tech interview meetup in the bay area, CA, and met a few Uber engineers. They were good friends with the hosts. One host worked in Google, but apparently dripping to get into Uber and look up to them. The Uber engineers always block the teacher to answer other students’ questions by saying they’re too easy – Arrogant and destroy – b/c they were there to hang out with the host afterwards.
I observed that some females got creeped out by the Uber engineers b/c of their aggressive provocative words and behaviors. Once a girl even ran out after a Uber engineer said something and got so excited that he acted like he just j****ed off. After meetups, I hanged out with them, but the only things the Uber engineers talked about was putting women down and they were teaching the host working in Google how to f* over women. Of course, I was belittled as I was the only woman there, and later was called names by the Uber engineers in class. I talked to the hosts, but they felt it was caused by the stressful work in Uber. Would you agree it’s an acceptable excuse?
DuringAfter we hanged out with a few Uber engineers after
Tiago Silva says
i`m talking about it here in Brazil but no one gets it.
Thanks lad for showing me that i`m not alone.
Mr. M says
Uber did do a good job marketing the jobs. They paid well early as you described, but the business could not survive on those numbers forever. They created the image of a good paying side job. Luckily for Uber lots of media covered it and reinforced this image. Then they hooked the people who can’t do math to drive for them. Come to think of it it’s sort of like a pyramid scheme or do they now call it a reverse funnel system?
I was thinking the same thing, is the new gig economy the new MLM. There is even incentive to “recruit a downline” to an extent.
I recall another cash burning VC and tech media darling that was going to revolutionize the traditional grocery industry…drum roll please…Webvan! No doubt there are myriad reasons seasoned Millenial investors who have never seen a complete economic cycle will use to refute any analogous relationship between Webvan and Uber/Lyft or point out Facebook’s initial post IPO trading history, but I will remain skeptical nonetheless.
The Alchemist says
This post immediately made me think of Charles Murray’s book “Coming Apart” (highly recommended) and his famous “bubble quiz” (easy to find online). The Twitter post from that Uber numbskull illustrates perfectly the tone-deafness of the “elites” who have never done any real hard, physical labor, or ever worried about stretching a paycheck.
As Murray hypothesizes, we really are “Coming Apart” as a nation not just economically but culturally, in how we think about our fellow citizens if they don’t share our class or upbringing. Doesn’t bode well. :\
I totally agree that companies who don’t engage their employees in what they do or produce have a significant cultural problem. I have always admired McDonald’s, for example, for their “Founder’s Day,” one day a year where every exec works in a store. While some people won’t take anything away from that, even if it makes some connections, it’s a worthwhile gesture to your workforce and customers. I also think about Toyota’s reaction to the “stuck accelerator” crisis, which included sending product engineers from Japan to a customer to directly work with her and her high heels, which allegedly got stuck on the accelerator. There is huge opportunity for both connection to people important to your business (even just as representative samples) and direct observation, which beats any second-hand account.
In Uber’s case, I can also see a conflict of interest in that a subset of the employees are specifically working to put drivers out of business, by introducing autonomous vehicles. This reminds me of Netflix as it made the turn from disc rentals to streaming–there is a class of “expendable” employees, where the long-term company outlook (and in Uber’s case, the only shot at profitability) is to eventually do away with them. It must be a very difficult ethical challenge to walk through in an organization.
I’ll go against the grain here. Uber is a business and they are here to make money for themselves and their investors. I used to hate riding Taxis before but didn’t have a choice. UBER made it so much easier to use and is much cheaper too. I understand it’s at the cost of driver wages and that is why I tip them 20% of the fare everytime. It’s like forcing Darden restaurants to increase their waiter pay so that we can tip less. I wish Dara can come out and say this out loud, “if you are worried about the driver pay, tip them well” but that would be a PR disaster. Put your money where your mouth is people!
Your tip won’t make up for the multitudes of riders who are too cheap and ignorant to tip. Uber will go down despite putting ALL operating costs on cash poor drivers, they are losing billions. Employee status is acomin’ so get ready to take a taxi. Their rates – which seem so high – provide a livable income.
Little Seeds of Wealth says
This is why the next downturn might begin in tech. So much money chasing a massively unprofitable business, and people will eventually revolt. I got approached by an Uber recruiter too but after learning about the salary ranges, I wonder how they manage to acquire talent other than by having the Uber name. Folks who made multi-million and above in this IPO are probably already wealthy and highly compensated, most would make some but not like anything to write home about esp in the Bay Area.
Luis del Valle says
Hello from Afghanistan!
Sam, thank you for the effort you put forth on your in providing this information to your readers and the public.
We share a few similarities as I’m first generation and built my own passive income stream. However, being the child of parents who had to flee communism or face possible execution, I wanted to serve in the military of our great country.
I went to military college and then served five years in the Marine Corps and loved it. Afterwards, I went to work for GE as field engineer and then graduated from B-school and started on my path climbing the corporate ladder. However, I stayed in the Reserves as I enjoyed being with fellow Marines.
Then, being in the energy sector, we took a big hit due to Enron and the Argentine devaluation. I experienced my first lay off. I notice what dearth of leadership there was in the corporate sector. By the time of my this layoff, I was on my way to building my passive income.
Fast forward to the present, I’ve been promoted multiple times, three combat tours, responsible for training foreign militaries, selected for Command and advanced military schooling. As for the corporate sector, I was essentially stuck as a manager and experienced another three layoffs. After my fourth, I had long achieved FI and moved to Montana with my wonderful wife(I married very late) and five adorable little monsters, under the age of eight.
Looking back, I saw such lack of leadership in the corporate sector and the outsized pay packages for the executives regardless of company performance. In contrast, in the Marine Corps, I was on a combat patrol in Afghanistan in armored vehicles and one the vehicles struck and IED and we received incoming fire. And unlike his counterparts in the civilian sector, in one of the vehicles, was the Commanding General of the Division sharing the danger with his fellow Marines. Another experience I had, and I would say, privilege of serving for another outstanding general who in Iraq had a ricochet hit him in the jaw causing a ghastly and painful wound and he still managed to fly his helicopter back to safety. He spent many months in military hospital in severe pain. What type of pain do CEOs experience when they lead their companies to ruin?
Ironic that the military in general and the Marine Corps in specific is viewed as an organization in which the gulf between general and private, officer and enlisted is wide. My experiences have been that the Marine Corps is far more egalitarian than the corporate sector. For example a four-star general’s (essentially a CEO of a Fortune 500 company) base pay is $19,228/month while that of a private is $1,681/month – a difference of 11.4x.
From a leadership point of view, Uber will be interesting to observe. Your experiences, may in hindsight, reveal the seeds of Uber’s decline as a company.
Due to my experiences in the corporate sector, when I return from this deployment, I’m going to enter the field of either investment advisor or financial planner so I can help veterans attain financial independence. And in helping my fellow veteran, I will recommend your website as I assist them in their journey to obtain and maintain FI.
Thanks again for this great information.
Thank you for your service Luis! I truly appreciate what you do for the citizens of this great country.
Luis del Valle says
Thank you for your kind words of support.
Just sent you an email with my response, but loved coming here to see the comments.
I’m a young Asian female in my late 20’s and I was a driver. I drove for Lyft because the values of the company and riders I read were kinder.. It proved somewhat true.
A Bit about me: I entered the ride-share industry to learn how the business operations is run. My background is in recruiting, sales, marketing, and operations for Google and project management with the government. I had down time as I started my consulting/yoga business and drove for fun.
As a driver: I was hit on quite a bit. I had some good conversations with some riders. Over time, I kept quiet and just drove the passengers from A to B.
As an investor: I would never invest in Uber- terrible ethics, values and their model is declining as we speak.
From friends who worked in the corporate world at Uber and Lyft: Uber is nasty and cut throat. One of the tougher companies to survive in because of the lack of ethics in upper management.
Something I learned while driving: I live right next to the Tesla plant in Fremont. I drove a couple of Hispanic and Caucasian workers to their night shift where they told me they once worked an 80 hour week and got paid minimum wage with no breaks in between. This was back in 2017. The pride in their voices while they told me how hard-working and lucky they were to be working for “Tesla” was astounding.
Drinking the wage slave corporate kool-aide. :(
And people wonder why anyone would ever want to escape that hamster wheel ASAP. *sigh*
Mr. M says
“worked and 80 hour week for minimum wage” I call BS on that.
People are full of it and if someone is willing to work a true 80 hours a week they can get paid more than minimum wage anywhere for the simple reason they are reliable. People LOVE to exaggerate about themselves.
Don’t believe everything you hear
Sam, I’m s-o pleased to see your thoughts on this subject. I read your driving experiences with great interest. It truly has been a race to the bottom for the drivers and you have had the experience to back up every word you’ve written. I’m tired of these “elite” to spend their days opining about the great unwashed masses. Their blind pride and arrogance is astounding.
When I was a little girl my father would drive a cab owned by a colleague on the weekends. My dad had a good, solid business but like you, he was steaming toward increased financial independence and looked to solidify his gains any way possible. He never dismissed an opportunity. His route in Chicago was simple, from O’Hare airport to Chicago’s Loop and North side. He did well. He had to. He had four children.
Driving a cab in NYC and Chicago was a way for the working class to get ahead. The money that one could make was so good that many made it their full time business, buying a fleet of cars and the pricy cab medallions that permitted them to do so.
That was in the 1960s. Today cabbies are committing suicide because they’ve lost everything.
It is becoming increasingly difficult for the working class to get ahead. I grew up watching men from very humble backgrounds become wealthy and independent. Today one must have a highly desirable specialty with the prerequisite degrees to prove it. The acquisition of meaningful capital is becoming almost impossible for far too many and does not bode well for our republic. A nation is only as secure as its most humble.
Wow, we should start a pool on when one of the major Presidential candidates adopts the catch phrase, “Our nation is only as secure as its most humble.” That line is too good to not be used by someone.
More to the point, you touched on one of the big problems of taxis that made Uber so successful – taxis were always a regulated monopoly, or at least oligopoly. Government set the rates and restricted the number of medallions, making the work lucrative and the medallions extraordinarily valuable. Uber came in and – rightly or wrongly – claimed the regulations didn’t apply to them. When governments tried to clamp down, there was an uproar from the citizens who for so long been inconvenienced by the taxi regulations, and government backed down. Value of medallions and the income of taxis plummeted. The taxis had forgotten one of the “great truths” of our age – what government can give, government can also take away.
That great truth worries me as I look to my retirement that is largely made possible by 401-K and IRA rules.
Uber corporate reached out to me for a manager level role back in 2017. We had initial salary expectation talks and it sounded in range for both sides. During the midst of interviews, I dropped out because I accepted another offer. Flash forward two years later, Uber HR reaches out to me for the exact same role/title but for a different team, except base salary was cut by at least 30%. I asked the recruiter why there was such a huge decline in base comp. They said they are more equity heavy now in terms of compensation. Maybe it was just for that role or title. But after speaking to two friends who work in corporate there, I politely dropped out and declined to move forward. I probably would not mix well with the culture.
Financial Samurai says
Fascinating. Can you share the base salary offer and years of experience required?
Getting more equity from 2017-now so far is a mistake versus higher cash comp. But the stock can obviously go up. But everybody can now buy.
This is a great read. Thank you for writing it. I shudder at the lack of compassion for the drivers from some of the corporate employees.
I agree with a lot of what you said but I think your comment that the five female executives should drive Ubers overlooks a lot of the reality of being a woman. How many female Uber drivers have you had? Or taxi drivers? As a woman, I would feel even less safe driving an Uber than a taxi, because at least a taxi has a barrier.
Financial Samurai says
Good point. Never crossed my mind probably because I believe in equality and my last Uber driver was a woman from South Africa. I only take Uber maybe once every 2-3 months so I remember clearly.
There were more men at the meeting. And what I later found out is that someone told me supposedly there is a policy that Uber corporate employees cannot drive. I’ll have to double check this. But I have met dozens of employees over the years and none of them have ever driven.
It seems like it would be a big liability to Uber if their employees were to drive. They’d be target for a lot of lawsuits, legitimate or otherwise.
Waiting for Uber or Lyft to drop to the $20s!
It’s not just at the low end either. My experience is in IT.
It’s getting harder to find real jobs (and it’s only going to get worse). An awful lot of so-called job advertisements these days are not job advertisements. They are advertisements for a contractual engagement. I don’t have any percentages but perhaps half?
While it may seem that there is nothing inherently wrong with taking a contract position, the sheer magnitude of this expectation by industry, that highly skilled workers in very specific disciplines should come out of the woodwork when they are called, be grateful for whatever they can get, and then quietly slink away to try to find and compete for an opportunity to work another six months somewhere else, indicates deeper problems. In essence, it’s a big win for the firm that avoids hiring an employee (and the staffing firm that takes a big cut for doing very little) and this comes at the expense of the individual.
Why it’s a very bad trend for workers is complex, but trust me, it wouldn’t have become so prevalent if the workforce wasn’t increasingly (and alarmingly) at the mercy of the employers.
These aren’t traditional contract jobs of yore, where a contractor could expect to get the big bucks and make enough to carry them through the gap. The expectation now is that they will take these jobs, many paying no more than what is comparable for employees, and like it.
The government has a lot of blame to share as the administrative overhead of employees has become so high that many smaller businesses don’t even actually hire any. Instead they send the candidate they want to an accounting firm that specializes in staffing. The accounting firm hires the individual and sends them back to the “employer”. Going forward, the staffing agency receives regular payments from the firm, takes their profit, and applies the remainder to wages, benefits, and withholding for the designated employee. That this has become a common model, and without any government bureaucrats being tarred and feathered, is a very unfortunate sign of the times. Like the proverbial frog in a heated pot of water, when the heats rises gradually enough, we just never realize how bad it is getting. Bottom line is, when companies want to grow, they have lots of incentives for look for all kinds of alternatives to actually hiring employees. They may even forego the opportunity rather than hire more people.
Given it is quite possible that, in the United States alone, unemployment due to automation could become enormous by the year 2030 (that’s the year when today’s sixth graders start graduating en masse from four-year colleges, by the way) this treatment of workers as a fungible commodity isn’t a problem that is going to get smaller.
Your note about the government is actually almost 100 percent the reason. I run a couple small businesses. I have intimate knowledge of these costs.
I just hired a new office administrator. The company can afford to pay her about $50k a year. On a contract basis, I pay $50k a year. If she was made a full time employee, between taxes, unemployment insurance, Obamacare, insurance at the company level, etc. That dropped to $29k a year.
Of course I actually detail this out in writing in final interviews. Evey single candidate is always stunned and quite happy to be on a contract basis at that point.
Oh, wow. Pray you are never audited. It would be extremely hard to convince the IRS that a full-time office administrator is not a common law employee. Look up the “common law test.” It could be catastrophic for you.
Snazster this is not only happening in IT or the US. I’ve noticed a lot of companies are following this model and when permanent positions come up, there are little to no benefits; so the supposed compensation increase is wiped out by benefits you must fund out of your nett pay. Why would I change jobs just to be paid the same (or less) salary?
Further job adverts no longer list offered benefits/compensation, etc. It’s just about the role, etc.
Most troubling, the hiring HR don’t make salary offers without your current salary slip and then they add another x% to the gross when they make an offer!
I’ve had friends tell me I have to take this leap and accept less compensation for about a year and have faith I will eventually receive the correct compensation.
It something I can’t do. I can’t take a step back in the hopes that some person I don’t know at some new company is going to do the right thing push me 3 steps forward.
UBL under website.
This heavy contracting gig trends is pretty awful for most workers, most places. I am merely limiting this to my own industry. Consider the following.
1) Contracting is a young person’s game. At some point, if you want a family and a home you have to recognize that these are commitments and . . . not just commitments, but long term commitments. For the stability and support required for these you are going to need long term financial commitments to be made to you (or a huge safety net). While most jobs are “at will” these days the fact remains that an employer is at least marginally invested in you.
2) How can you dare buy a house if you don’t know where, or even if, you are going to be working in a few months? What does that do the economy? You probably can’t even get a mortgage.
3) Most of the contract positions are not actually offered by the payee. They are, instead, being advertised by a third party (called a staffing agency) that will take a very large cut of whatever they can get from the employer and only pass on to the contractor what they must. This means the employer is paying substantially more than what they would have to pay the individual directly. The fact that they are still willing to do this (willing for many reasons, including that it helps a lot in claiming the contractor is not a common law employee) is indicative of just how much a contractor loses by not being an employee.
4) Any number of articles out there will tell you that contracting is not a bad thing. They’ll tell you it can put income in your pocket, get you out where you can be seen and meet people, and it let’s you gain a variety of experience in different areas and work environments. They are probably written by staffing organizations, because you know what else does those same thing? That’s right, a real job. These are not reasons to become a contract worker, these are weak justifications. They are akin to encouraging you to agreeing to become an indentured servant because the alternatives are much worse.
5) Real IT work requires constant training to learn new things. Contractors don’t get time or money for IT training (and yes, it’s very expensive, especially certifications). But the contractors are expected to know it all coming in and the customer doesn’t about keeping them current while they are working there. It’s like a company renting some farmer’s fields, then returning them after their productivity has been seriously compromised through negligent land use practices, and failing to do any crop rotation management while they had it.
Oh, the very high end professionals, those of us closest to being in the one percent without actually being in it (i.e. getting those six-figure paychecks and a nice office with an actual door) will continue to do okay for at least a couple of decades, at least until synthetic intelligence rolls out in a big way. We aren’t the ones worried about having to become contractors, but it still disturbs us to see what is happening.
Let’s face it, IT people, in general, are treated pretty much like engineers, or worse, just interchangeable resources. I bet you never heard anyone say of a C# programmer: “Oh yes. He’s one of the top in his field.” They get salaries, but they don’t get royalties on patents or residuals on past work, regardless of how creative it was. They don’t get golden parachutes. They get hired in droves when times are good, and laid off in droves when they are not.
But this whole thing with short-term contractual engagements for peanuts? Just consider the way some dubious employers of unskilled labor will take a truck down to a locale used as a gathering place for illegal aliens or indigents and ask who among them wants to work that day. See any similarities?
It does seem like there is a superiority/arrogance from the top that really blew an opportunity to really make something that people would rally for and want to be employed by.
I heard Amazon treats its workers awful and works them to the bone. Whereas some companies champion the employees and are rewarded with loyalty (from I have seen on TV, Google seems to be a great example of this).
Just another interesting tidbit about you Sam, you certainly have run the gamut of jobs for sure.
These unicorn IPO’s that have been popping up lately like Uber, Lyft, Pintrest, etc. are clear signs of the market being in a late-stage bull market. Benjamin Graham points this out in his Intelligent Investor book. These IPOs are simple cash grabs and won’t be able to sustain the amount of cash they burn every quarter. Be careful out there!
Mr. Tako says
Great timing on this post Sam. On the eve of the Uber IPO, I think it’s important to remember that IPO’s mean *someone is selling*.
Usually it’s early investors or VC’s getting out because most of the big gains from growing the business are gone. The other common situation is the company is simply issuing shares to generate enough cash to stay alive.
For cash flow negative companies, it’s a lifeline. A business *subsidized* by investors.
Good article. Thank you for writing it.
Money Beagle says
It’s inevitable. Whenever something is too-good-to-be-true, it never lasts. That’s been true of just about every job I’ve had. Eventually, the workers get less as those in charge get more. It’s honestly one reason I got out of management, even though I was good at it. I was not up for taking away from those who did the majority of the work so those at the top can get even more.
It certainly has been interesting watching Uber grow and evolve locally and around the globe. It sure has made traffic hellish in SF. Their driving incentives did seem good in the past and definitely decreased over time as you experienced. Driving full-time or part-time is not an easy job by any means! It really is nuts how the company is hugely loss making too yet will be raising so much with the IPO. I’m curious to see how the company will be doing in 10 years.
It would be very interesting to see a breakdown of what the driver makes compared to what Uber keeps on each transaction.
It makes me wonder, what will happen once the excess profits are competed away. What companies will take the place of Uber? I expect that there is room for someone to take their place unless they compensate drivers better or they find a way drive costs down for the consumer. Lower margins could make it less attractive for new competition to take their place. The shareholders will want higher margins which could make Uber less able to compete for drivers or clients if they don’t have the margins. It seems like a trap for Uber longterm.
Am I wrong?
Just answered today in the SF Chronicle:
Thank you for posting. It looks like Sam is right. I don’t see this penciling out for most drivers at these margins.
I’m glad someone with a huge national following wrote this. I took a hard look @ ride sharing couple years ago and couldn’t justify it living near Iowa City, IA. This same trap can be applied to many of the courier / delivery services that hire only Independent Contractor’s and require you to use your own vehicle.
Below is an email I sent to a Courier Company Owner after having a phone conversation. He never replied!
We spoke on the phone last week regarding a Courier position in Tucson. After factoring all the costs according to Edmunds True Cost to Own for my vehicle, a 2012 Scion xB, you are either blissfully unaware of or don’t care how meager your pay plan really is:
.13 Gas (Stop and Go City Driving on Delivery Route)
.01 Taxes, Fees and Financing
.34 Total x 60 Miles per Day (Minimum) = $20.40 Minimum Daily Cost
.34 Total x 100 Miles per Day (Maximum) = $34.00 Maximum Daily Cost
At $90 flat rate per day for a 10 hour day (7 am – 5 pm) that’s only $9.00 per hour. Then when you deduct the above expenses
= $70 / 10 Hours = $7.00 Net Hourly Pay x 250 Work Days = $17,500 Annual Income – $2,473 Self-Employment Income Taxes = $15,047 Annual Net Pay
= $56 / 10 Hours = $5.60 Net Hourly Pay x 250 Work Days = $14,000 Annual Income – $1,978 Self-Employment Income Taxes = $12,022 Annual Net Pay
Now I know why you don’t hire employees for this position……. to avoid complying with Arizona’s minimum wage law which is now at $10.00 per hour. Independent Contractors are not protected under this legislation and therefore you get away with offering a substandard rate. With the Federal Poverty Level (FPL) @ $11,880 for a single person in the 48 contiguous states, the net pay is not much above it. But many realize that the FPL is woefully inadequate in today’s world. According to the Economic Policy Institute (EPI), http://www.epi.org/resources/budget, that a household of 1 adult and 0 children in Tucson would need just over $26,000 (2016 Dollars) to live a modest yet adequate lifestyle.
These numbers don’t make sense even if I were driving the most fuel-efficient vehicles, a Toyota Prius or the electric-hybrid Chevy Volt.
Could you live on this level of income? Most certainly not and neither can I. I would need 2 more part-time jobs or be on the Federal Government’s Food Assistance and Section 8 Housing Programs!!! It is really appalling that this type of subsistence-level compensation is rampant in this industry that takes advantage of the gullible and ignorant that don’t realize what they are getting into until after the fact. I’m guessing you have very high driver turnover, a revolving door of economic victims?
With my degree in Personnel and Industrial Relations, I learned about the turbulent history between employers and employees. This violent past was the basis for the formation of labor unions. Which led me to coin the phrase, “A Company That Has A Unionized Labor Force, Deserves It”.
It’s also very misleading on your website to have a B2B uniformed person standing in front of a company-logoed van giving the false impression that your drivers are driving company-provided vehicles. Why is that?
As an entrepreneur, I applaud your initiative, courage and risk-tasking to create a better life for you and your family. But you Sir have an addiction called Greed. The love or more likely, lust for money, has tricked you into thinking of a scarcity mentality……more for me and less for everyone else. Your drivers are the face of your company and most likely the only ones that have daily in person interaction with your customers.
You might want to consider applying to be on the show, Undercover Boss, and watching Morgan Spurlock’s documentary “30 Days on Minimum Wage” http://www.youtube.com/watch?v=8tE93V_DeUk and https://www.youtube.com/watch?v=nUHi3RpFYK8 to gain some perspective, humility and compassion.
My only hope is that you will be compelled to make a change not only for the betterment of your drivers, but more importantly, the betterment of society.
Thank you for your understanding.
I welcome your feedback.
this is awesome
That’s Capitalism, the cornerstone of Democracy, something that you and your readers support, whole heartedly. I’ve been told that if you don’t like a job, find another one…
Christine Minasian says
What a great post! So insightful Sam. With your background, maybe you can explain who will benefit from this IPO? I’m sure it’s not the average investor…is it once again the VC and PE guys making all the money? You read about all the millions & billions Uber is making via this IPO. Hopefully the snots at that table you sat at aren’t making any of the wealth!
Financial Samurai says
Hi Christine – The purpose of the IPO are mainly for these reasons:
1) Raise new money to fund money losing operations from new investors
2) Make liquid early investors and employees after 10 years (lockup period over in November 2019)
3) Ego, to say you are a publicly listed company.
At a share price of ~$41.5, Uber has a market capitalization of ~$76 billion. Therefore, employees who joined and investors who invested since the last fund raise at $75 billion in 2015 haven’t made any/extra money.
Running and being a part of a public company is MUCH WORSE than running and being part of a private company. All eyeballs are on you.
Christine Minasian says
Totallly agree. We own a private company and it’s awesome! I feel like once you go public- it’s all about the shareholders and stock price. Too much greed.
re: “1) Raise new money to fund money losing operations from new investors”
Isn’t this more commonly known as a ponzi scheme???
That’s how corporations work, right? It’s designed to funnel money to the executives. Employees are always last in consideration. That’s why I can’t work for a corporation anymore.
It all depends how early an employee you are. You can’t join a big corporation as a low level employee and expect to get rich in a few years. But I’m sure low level employees that joined Uber many years ago are doing very well now.
I joined early at a start-up as a low level employee and got 0.3% of the company. Doesn’t sound like a lot, but the company hit a peak market cap of $180 billion.