Q. Could you start by telling us a little about yourself and the journey of The Drivers Cooperative?
My name is Erik Forman, and I’m one of the co-founders of The Drivers Cooperative. I’ve been a labor organizer in many various contexts for almost 20 years now, which feels shocking to even say. I like to tell people, I got fired trying to unionize Starbucks before it was cool, all the way back in 2008. That’s how I got my start, and I spent a little over half a decade working on union campaigns as a worker in the US fast food industry. After that, different things led me to become a teacher; and then about six years ago, I found myself working for a labor NGO that was organizing Uber drivers in New York City, running their education programs. Crucially, what I heard from drivers is that, yes, of course, they wanted to organize and fight for their rights. But what really fired people’s imaginations, what really got drivers excited was the idea of owning the platform.
I saw this dream bubbling up from our membership that kept posing the question: organizing is great, but why don’t we go all the way? Why don’t we just create a platform of our own? These industry workers actually put up a substantial portion of capital already in the form of their vehicles. The only thing they don’t own is the app, the technology, which at first glance seems very simple. It’s some code on a server somewhere. Of course, as we came to learn, it’s not so simple at all. But yeah, that’s how we come to the origins of The Drivers Cooperative.
I raised money to run a class on a participatory action research project about cooperatives (co-ops) and how they could be used to change the conditions of work in the ridesharing industry. The class was extremely popular amongst drivers. This was around late 2019. When the class ended, that was about as far as the NGO I was working for was interested in going with it. So, I decided to go further on my own with the drivers who were part of the class. We began planning how to build an actual business, a co-op business together. I incorporated the co-op in April 2020, about a month into the pandemic.
We initially experimented with trying to raise funds to buy existing businesses, but found little luck. So, we had to be creative. In the end, it was the co-op movement that came to our support and loaned us about USD 300,000, which was enough to get the company started. We’ve had a long and challenging journey with building the app, where we started with trying to buy a white-label app and customize it, and found that this was simply not good enough for on-demand transportation. We continued to use it but have been building our own app alongside it, which we’re actually launching this week!
We’ve managed to achieve a USD 30/hour minimum wage for drivers. We’ve paid over USD 6 million in wages in the past 12 months. It’s allowed us to become very successful in terms of the growth trajectories of start-ups. We’ve grown by 12x in the last 12 months.
While we were putting the other pieces in place for launch, we began doing outreach to drivers. Over 2,500 drivers signed up and downloaded the app. We found with the white-label app we were using, we were able to use it for a sub-segment of the for-hire vehicle industry providing transport called ‘paratransit’, which is essentially transportation for people with disabilities. This is a government-funded program where you book a day in advance, and the company then builds routes for drivers. So, we’ve been doing that. And through that program, we’ve managed to achieve a USD 30/hour minimum wage for drivers. We’ve paid, at this point, over USD 6 million in wages in the past 12 months. It’s allowed us to become very successful in terms of the growth trajectories of start-ups. We’ve grown by 12x in the last 12 months.
Q. Has the situation changed over the last 1-1.5 years? What is the status of the ridesharing economy and how is it evolving currently?
Well, we aren’t backed by the venture capital (VC) ecosystem, which is a strength, given the end of the VC-backed start-up bubble. The approach we’ve taken towards growth is very different from the VC-backed model. The venture model, I think some people have described it as ‘lose money on every transaction and make it up on volume’. This fits, if you look at the list of the 100 largest start-ups that have IPOs, very few of them have become profitable, which is stunning, really, when you think about it, they’re just slowly burning through very big piles of capital. What they do is they issue shares, it becomes a kind of a self-perpetuating illusion that they’re going along with, like Wile E. Coyote walking over a cliff. Another way to think about it is that they mobilize so much capital, that their growth projections can become self-fulfilling prophecies because they are able to buy the market, for a time. That bubble however is slowly bursting and valuations are coming back to earth.
Our approach to growth has been very different. Our goal is to hit break even early, with positive unit economics on each transaction. So, we don’t deeply discount rides to attract market share. Instead, we found ways that we can win. We found a niche where we can grow and grow to profitability, and from that niche, build a large fleet of available drivers, which is the first piece of the puzzle you need to achieve the network effects that are necessary for rideshare and on-demand transportation.
So, we aren’t really impacted by the broader financial climate in the same way, and it might even make us more competitive to have less easy money floating around. I think platform co-ops serve their stakeholders more effectively than venture-backed platforms. For conventional venture-backed platforms, their key stakeholder is their venture investor, and what they’re interested in is an exit that allows them to get their money. What we’re interested in is sustainable, long-term value creation, to use the finance term, you know, to serve drivers and riders. It’s in some ways more like a classical type of business, in that, it’s not premised on making losses forever, and creating what I would call the illusion of value. We’re creating real value and providing a service that creates good jobs for our members and high-quality transportation for people who need it.
Q. What do you see as the most significant challenges to a co-op model such as yours? Similarly, what are the opportunities that may be unique?
There have been so many challenges. Nothing has been easy. I’ve always said to build a business like this, you need five things. You need drivers, of course, to take trips, and you need riders. Secondly then, to get riders in, you need some type of a marketing campaign. Three, you need technology, you need an app. Four, you need a staff who knows how to put these previous three things together in order to build a functioning business. And the fifth is you need capital for all those.
If you look at the list of the 100 largest start-ups that have IPOs, very few of them have become profitable…they’re just slowly burning through very big piles of capital. What they do is they issue shares, it becomes a kind of a self-perpetuating illusion that they’re going along with, like Wile E. Coyote walking over a cliff.
It’s very difficult to raise capital as a co-op because you can’t promise the kind of outsized returns through exits that venture-backed start-ups can through IPOs. I want to emphasize this: conventional VC-backed start-ups don’t deliver returns through profitability, they generate returns through ‘exits’, which means a secondary sale of the shares that an early investor buys to later investors at a higher valuation in successive rounds, usually intended to culminate in an IPO or acquisition. It all turns on the perception of value and the secondary sale of shares. For all of its flaws, the venture ecosystem has been very effective at providing large amounts of capital for high-risk start-ups, but the structure doesn’t fit for co-ops, at least not without some creative modifications and willingness to experiment on both sides. We don’t have the possibility of a secondary sale as a co-op, because this would mean us no longer being a co-op – you would be owned by investor stakeholders, rather than by workers. That means you don’t have a lot of money. Then, you don’t necessarily have much staff you can hire. Our model has very much put drivers at the center. And so wherever possible, we’ve embraced the idea of worker self-management, where our member drivers take on roles in the leadership, staff, and management. But understandably, one of the challenges has been tensions between the different stakeholders. Drivers may not understand the work that the staff does or the work that software engineers do, and vice versa. Most organizations have some kind of tug-of war over resources, over power, and over credit. Those things are present in co-ops too. And it’s difficult. It’s been particularly difficult at certain phases of our growth. Early on, we had a lot of volunteers who didn’t come from the communities that we were organizing, and had not spent a lot of time building trust with the drivers we serve. And so that led to lots of tensions. Some of those folks even left.
Apart from that, operationally, building technology like an app is not simple. As we very quickly discovered, a rideshare app is a highly complex system where you need a scalable server infrastructure, you need security protocols, you need geolocation data, you need the system to function with very low latency, and you need tight adherence to many various regulatory regimes. You need many, many processes to run very smoothly in order to achieve the desired order to match a driver with a rider and bill them accurately for the trip and pay the driver accurately. And these are all technical systems that even somebody with a lot of software engineering experience might not necessarily know how to build. How do you build a payment system? Or how do you do geolocation, for example, or detect tolls? We’ve solved a lot of those problems. Well, we’ve made a lot of mistakes and learned a lot. It’s what led us to really go and decide that we needed to have our own app and build it from scratch, because customized white-label software was just impossible to tweak to the level we needed it.
So, the present build that we’ve completed, the way we achieved success here is to find folks who had relevant prior experience, and also leverage off-the-shelf solutions as much as possible. Instead of building our own location-based matching service, we leveraged some APIs that Google has provided. It made business sense because we got it for a lower price than building it ourselves. It also allowed us to focus our efforts on building the more customized and unique parts of our system, for example, our algorithm that provides drivers with an hourly pay guarantee.
Bringing together all these stakeholders in one organization has also been a challenge. But while trying to operate with substantial democracy and running a business where folks vote for the leadership and have a voice in decisions is the right way to do things, it’s also a harder way to do things, when you have very, very complex situations that require rapid decisions to save the business from being destroyed. Moreover, operating in a highly regulated business environment, we have a lot of regulatory compliance stuff that we have to do and do perfectly. Those are a few of the challenges. And probably the big one, when it comes down to this business, is just getting enough trips. We solved it by focusing on paratransit, which is a nice way that allows us to achieve both a positive impact for riders – our riders are people with disabilities – and from a business standpoint, it makes sense as a starting point because we don’t have to do marketing. To get riders, we just get blocks of trip requests the day before, it’s very helpful for us.
Q. How did you go about finding this niche market? And do you think there are other similar opportunities out there for platform cooperatives to capitalize on?
It’s been part of our model from the beginning. I’ve been embedded in this sector since 2017. First as a labor educator, but also as a researcher. And so, I made it my job when I started working in this industry to fully understand it top to bottom as a labor organizer. I’ve been doing corporate research on the sector for six years and I was able to apply that knowledge. What most unions do with that type of corporate research is they’ll use it to tailor campaign strategies to pressure employers. I used that research to create a new employer – The Drivers Cooperative – which has achieved the highest minimum wage in the industry.
In terms of other opportunities with platform co-ops, I would say co-ops generally, as I don’t think there’s that much that’s unique to platform co-ops, mainly it’s the easy scalability. It’s easy for people to download an app. Now, while I was building this co-op, another co-op I’ve been supporting and developing is an internet service provider (ISP), which was started by workers who were on strike against one of the major ISPs in New York City. That’s been fairly successful. It’s also had major, major challenges. It’s called ‘People’s Choice Communications’, and what I’ve seen in both cases is that labor workers and allies can create companies that compete with predatory capitalist enterprises, and provide higher quality service for end users and a better livelihood for workers.
‘Really existing capitalism’ is not a free market system. It’s a system where the incumbents entrench their power in ways that allow them to prevent the entry of competition. That ultimately hurts the public.
So, it is possible. That said, it’s also extremely hard. Many of the challenges we’ve had to deal with are actually monopoly issues with our competitors. With the ISP, we ended up having problems with the local city government, which has tried to push us out. They have aligned with the major corporate ISPs to push us out to replace us with conventional corporate services. We’ve had similar issues with predatory incumbents in transportation. ‘Really existing capitalism’ is not a free market system. It’s a system where the incumbents entrench their power in ways that allow them to prevent the entry of competition. That ultimately hurts the public.
Q. How do you see the relationship between building alternatives such as yours and more conventional forms of labor organization?
Great question! The way I think about it is that unions, what they do is raise the floor, so that no employer can go below a certain minimum. And you can do that through union contracts, you can do it through legislation, you can do it through job actions. What co-ops can do – they certainly don’t always do this, but at their best, what they can do – is they can raise the ceiling, they can become the best employer that can exist within a sector as it currently exists. That’s what we’ve done with our Economic Security Program, which provides USD 30/hour minimum wage to drivers. The other thing that we as a co-op are able to do is that we aggregate workers, we help workers come together and speak with a democratic voice. So our co-op, just like Uber and other companies, has its own policy agenda. Of course, in our case, it’s been democratically determined by our members, and many of us are active and we want to fight for some of that legislation. Some of it involves things that help co-op businesses grow. But a lot of what it constitutes are things that actually just help workers in general, like fighting for universal health care, for example. That’s a campaign that we have joined.
Q. You’ve mentioned your Economic Security Program and how it’s also part of your app’s technical architecture. Can you tell us more about this and how it works?
Yeah, this industry, even before Uber came along, it has been based on piece rate. There’s a famous Marx quote, where he says the piece rate is the form of compensation most appropriate to the capitalist mode of production, where workers are paid a small fraction of the value of each piece they make. Unlike other types of wage, there is no guarantee of income such as you get in an hourly wage. Indeed, the capitalist’s nightmare is that you pay someone an hourly wage and they spend most of that time not working. That’s where all these productivity monitoring tools come from, making sure that you’re getting every second of productivity out of a worker. The piece rate solves that problem for capitalists because they don’t have to worry about how long it takes you to do a task, they only pay you a fraction of the value of the thing that you create. This invariably leads to longer hours and lower pay.
Unions, what they do is raise the floor, so that no employer can go below a certain minimum. And you can do that through union contracts, legislation, job actions etc. What co-ops can do…is they can raise the ceiling…
Essentially, what we’ve done is attempted to replace the piece rate precarity of the rideshare gig economy with a stable living wage. Of course, it’s tragic that at this point in history, an hourly wage is a substantial advancement, but that’s the reality in this industry and it has been like that for quite a while. What we were able to do is actually combine piece and hourly rates. This is because sometimes you get really high-paid trips, you might have really good hours where you make USD 90 an hour, great. But then you also have the risk, you also have hours where you don’t get any work at all. We’ve used the co-op business model to say, okay, in one day, we might bring in USD 25,000 from doing, I don’t know, 1,000 trips, where we have some drivers who made USD 300 over an eight-hour day, you know, they’ve made more than 30 bucks an hour. We also have other drivers who made only USD 200 over an eight-hour day. They had bad luck, some of the trips were canceled, maybe they had gaps in the schedule etc. So, what we say is, any driver who makes more than USD 30 an hour, great, keep what you made. But for the driver who made less, the co-op will process what we call a ‘top-up’ payment, where we will pay you the gap between what you made for your trip and what you would have made at a USD 30/hour wage.
The money to do this is generated from the commission the co-op takes from its member drivers. So really, you can think about the commission as actually like an income insurance mechanism for drivers. It’s like yes, you’re going to get charged a commission on your trips. That’s what we use to run the business to get trips for everybody. We also use it to do some redistribution between workers so that everybody at least makes a minimum. That is the epitome of what a co-op does. It allows workers to come together to reduce risk and achieve greater stability through sharing.
You can think about the commission as actually like an income insurance mechanism for drivers. It’s like yes, you’re going to get charged a commission on your trips. That’s what we use to run the business to get trips for everybody. We also use it to do some redistribution between workers so that everybody at least makes a minimum.
Now in terms of the algorithm, it’s not the most complicated hard science computer problem, but we’ve managed to build a mechanism for this to be automated. One of our engineers wrote code in Python that does this. So, each day, we look at the earnings of the previous day, and then we figure out, okay, who should receive what, who needs to receive a top-up payment to hit the USD30/hour floor. It’s automated, which allows us to scale it. In the next phase, what we’ll be figuring out, is a vehicle routing algorithm, which should work to increase utilization, which is the amount of time drivers are active on a trip. With that, we can hopefully get more trips done, which brings more income into the co-op, which will hopefully allow us to increase the income for more drivers.
Q. Finally, thinking of worker struggles in the rideshare economy more generally, particularly in the US, where do you think we are headed over the next few years?
Unfortunately, the power of gig economy companies has been overwhelming for labor. It has been largely dominated by the power of major platforms. The predatory platforms have spent so much money to curry so much favor with the general public that efforts to regulate the industry have been very ‘two steps forward, one step back’, or even sometimes ‘one step forward, two steps back’. Previously, there was the hope that the state and federal government would just force Uber and Lyft to reclassify drivers as employees, which would bring with it certain minimum guarantees. Sadly, that hasn’t worked. And so I think we’re at a moment where we need to look for fresh solutions.
I think we’ve got one: The Drivers Cooperative, which basically uses technology and a co-op business model to achieve the basic employee rights that all workers should have. We’re now working to build what we’re calling a federation of co-ops, not just in the US but everywhere. So, we are looking for groups of drivers anywhere who want to start a co-op, and we will provide you with the platform and the tools to do so at a non-profit, at-cost model. We hope that can be a motor to driving change in this sector.