There is no one-size-fits all model for building a startup.
At TechCrunch Disrupt, we heard from a handful of founders about alternative approaches to creating a sustainable company that ensures more than just VCs and early founders benefit from its success.
One way is building a cooperative, which Driver’s Seat CEO Hays Witt described as “a kind of corporate entity that both allows and requires that we return the majority of our profits to our members, and that our members have a majority of governance.”
Driver’s Seat helps ride-hail drivers use data to maximize their earnings. It works by requiring drivers to install an app that educates them about how the co-op collects and uses their data. In exchange, the app gives them insights about their real hourly wages after expenses and how those wages relate to different driving strategies.
“At a community level, what we do is sort of align everybody’s interest so that as gig workers come into our co-op, as they generate data, the value of that data in the aggregate gets higher and higher,” Witt said. “The dividends that we’re able to return back to drivers gets higher and also the kind of insights we’re able to give communities about work gets higher at the same time. So we kind of align all of our impact and mission goals. And our business model is through our co-op structure.”
That’s not to say Driver’s Seat does not create returns for its investors — investors are just one group of many that benefit from the company’s success. Witt said a desire for accountability made him decide to form a co-op.
“If we are always accountable to our co-op members, and our co-op members are gig workers, then we’re going to know that we’re accountable to the right things,” Witt said. “Now, we have investor members, too. We’re accountable to them, too. But our structure means that the gig workers always have at least that 51%. [ … ] it’s certainly not the only way to build a business. But, you know, for us, it was the way that we would build a business that would align with our mission of really changing the gig economy.”
Zebras Unite, which focuses on creating a more ethical and inclusive startup ecosystem, has landed on what co-creator Aniyia Williams calls a tripod business model of an LLC, nonprofit and a co-op.
“Believe it or not, we’re starting to see more organizations kind of play around with this,” Williams said. “It’s something that kind of gives a little bit of like a Swiss Army knife ability, when you kind of create these relationships between the different entities. But what happened was with the nonprofit we, you know, started that because that was the thing that felt like it was the easiest pathway for us to get the kind of funding that we needed to do the work that we were doing.
But we felt very heavily constrained by some of the rules and ways that we had to operate as a nonprofit. In terms of ownership, one of the things about nonprofits is that no one owns it, right? It’s a public benefit kind of organization. And we knew that there was still a role for there to be a way for the people who had been contributing to it and building it to participate in some of the benefits of it. And we also knew that we wanted to have a model that embodied the values that we have as an organization and something that really spoke to our ideas around shared ownership and that was how we arrived at a co-op.”
Co-ops are just one way of achieving shared ownership. Conductor, led by CEO Seth Besmertnik, figured this out when buying back his company from WeWork. After selling to WeWork, Besmertnik found himself wishing he’d done more for his employees. Buying it back allowed him to rethink its corporate structure, he said.
“I wanted to do things differently and I wanted to make sure that myself and any potential investors in the future and all the people at the company, we all were aligned,” he said. “I feel that the people who run the company and work at the company, they’re contributing their life to this organization and we really should try to limit situations where they end up getting you know, quote unquote, like screwed or on the bottom of the stack. From my perspective, you know, you can have a great culture, but is there a way to align your culture with the corporate entity and the corporate structure … and most companies are not doing that.”
Besmertnik said he considered starting a cooperative or an LLC but ultimately started with a C corp.
“But what we ended up doing was one, not creating any preferred stock,” Besmertnik said. “So we all have the same class of stock, but what we did was we created founder class stock. So all of the employees at the company that were with the company at that time, and everyone we’ve hired so far this year, they all get founder class stock and the founder class gets special rights.”
That means employees can vote on members of the board of directors, obtain information about the company’s performance, trade stock amongst themselves and be exempt from a right of first refusal.
https://www.youtube.com/watch?v=sZf8oMpbd94
“There’s a bunch of protective provisions and statements that are in there that effectively give our people a lot of equal stake in the organization,” Besmertnik said. “And then I think from operating practices, we try to move a lot of decision-making to cooperative-style decision making.”
Besmertnik pointed to how employees get to decide how they want to allocate the funds spent on benefits and if they want it to go to things like a One Medical subscription, or a ping pong table or on wellness reimbursement, he said.
“It’s a corporation, but it has a lot of the egalitarian elements of creating equality and creating it so all the stakeholders, our customers, our investors, our employees — we all are in this together,” Besmertnik said.
What Conductor has shown is that it’s not impossible for corporations to build in equitable practices. However, there must be a lot of intention, Williams said.
“The reality is that they just weren’t conceived that way,” Williams said. “And they’re not really designed to work in those ways, right? Where you’re trying to make sure that the people who come in and put work and put their blood, sweat and tears into the business also get to participate in a way that feels, you know, commiserate with what they have put into it. And so I think that this is why we’re seeing this wave in interest, even from lots of people who want to start companies and really be thinking about it in this way.
I think there hasn’t really been a moment until now where we’re seeing all of this reckoning around ethics and how profits get used and how you can have one of the richest companies in the world and have employees that work for the company that are, you know, on welfare, even though they’re employed by this company. I think there’s this idea, this movement that’s growing around the idea that this job that you have, it should be enough.
You shouldn’t have to have multiple jobs if you’re coming in, showing up and putting all of the things into it. So I think that the way that we’ve seen this happen in the past, the way that these things were conceived, not so much, but I loved hearing what Seth proposed and how he managed to kind of make this corporate structure work in a more equalizing kind of way. But that takes an incredible amount of intention and will from the founders of the company to make that happen.”
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