The “gig economy” is here and will not be going away. It’s not a temporary phenomenon. And it didn’t begin or end with ridesharing. Instead, it is an overall development of the market for jobs that will eventually affect all sectors. This development should be considered by entrepreneurs when making hiring and strategic decisions.
A universal development
My 20-year-old career was in web systems development. A few brave souls attempted to spread their wings and become self-employed code consultants. Software development firms hired them as hourly subcontractors to help with projects that required more keyboards than they had in-house.
Today’s software development industry structure is quite different. Its processes are more refined and more standardized. Today, self-employed designers, coders, and architects are not an anomaly. The profession is becoming more gig-oriented, with fewer opportunities for full-time employment.
Ridesharing was much more rapid than taxi companies to private drivers, who worked their hours for Uber/Lyft. However, it’s the same thing. Companies and industries fall over time. This natural development will not stop.
In time, industries and companies fall apart.
We have come to see firms as central to the market. This is a good thing. While there are some firms, they are often temporary. For long-lasting businesses to survive, they often need to reinvent their business models. IBM, for example, started with manufacturing machines and then moved to computers, calculators, and finally consulting.
This is an entirely natural development. The firm is, economically speaking, a temporary solution. In the book The problem of production: A new theory of the firm that the company allows for the implementation of new products beyond the ones possible through contracting. Also, markets can’t do what the firms can. The needs eventually catch up to the company and take it over.
The same holds for whole industries. New competitors emerge from a unique innovation and then break down into more specialized companies, which supports the core innovation. Although this can take many decades or even centuries to complete, the pace of change seems steady. The market has few if any, stable states.
How to think about how you will hire
It means that it will be easier and less expensive for entrepreneurs to outsource certain functions. This means that outsourcing functions will become more expensive relative to doing them in-house. This is a trend that entrepreneurs need to be aware of and incorporate into their company’s strategy. It should be evident in how the startup deals when it comes to hiring. These are some guidelines to be aware of:
1. Hire as long as possible
Because hiring is costly and cash flow is uncertain, this is an established practice in startups. However, there are good reasons not to hire unless you have the cash flow to do so. Take into account the industry’s current status. Is it growing? Are competitors or partners likely to shed workers? There is always the risk of hiring too many people. This is especially true for mature, standardized industries.
2. Consider outsourcing
Because outsourcing is expensive, entrepreneurs tend to avoid it. However, it is best to avoid high costs. Outsourcing allows you to adjust production to meet changes quickly. The additional cost can be used as part of a cost-cutting plan. It all depends on what your industry expects — hiring might be a disaster if many employees are laid off.
3. Concentrate on your core competency
Entrepreneurs are likely to prefer to run their business in-house. However, you may not have a CPA or a bookkeeper on your staff. Why? Because bookkeeping has become a standard service in the market and is highly competitive. This is because it is sensitive information that businesses are reluctant to outsource. It will soon be the same for the I.T. department. What will become the standard market service? To avoid going wrong, it is best to keep your focus on your core competency — the place where your startup creates real value.
Given the nature and scale of the market, the gig economy is not new. The gig economy is simply a new name for an already existing development. However, it is now enhanced by modern, highly effective information technology. Entrepreneurs must recognize that every company is a solution. Each firm has a typical lifecycle. It’s essential to do this when formulating strategies or making decisions in a startup.