Guest author Scott Gerber is the founder of the Young Entrepreneur Council.
Recently, Uber and other companies that provide on-demand services have been under the regulatory microscope. Despite these setbacks, it’s still a great industry to get into, full of potential advantages for a would-be entrepreneur.
That said, there are a few best practices that you should follow so that the problems Uber and Handy are facing don’t become your problems, too. To set you down the right path, I asked nine founders from YEC what entrepreneurs should consider before starting up in this space.
Set Up Workers As Employees, Not Independent Contractors
It might seem easier to hire independent contractors, but if you get nailed by the government for hiring those same people because they are technically employees, it will not be pretty. If you think you might have employees, they’re employees. If you think you are cutting it close, they’re employees. If you’re operating in the gray area, they’re employees. When I first started my company, we worked with a lawyer to set up contracts with 20 independent contractors. This was great for two years until suddenly the government audited our contractors and found that they were all employees. Despite fitting almost every single independent contractor requirement, one tiny discrepancy caused us to get fined. We had to pay back taxes and fines going back two years, and halt business until we got everyone switched over. It’s not worth the risk! —Vanessa Van Edwards, Science of People
Consider Potential Conflict With Other Companies
Uber faced a backlash that may have been unexpected, but could have been predicted and maybe even prevented. If your business involves commandeering customers from other companies, consider how you can tailor your business to better coexist within the current industry. —Andrew Namminga, Andesign
Understand Who Your Customer Is
As the W-2/1099 debate wages on, it is important that you define who your real customer is. Uber has made a case that their customers are the livery drivers and not the passengers. Entrepreneurs really need to make sure they have a concrete reasoning as to who their customer is, in cases where they may be in a gray area. —Reza Chowdhury, AlleyWatch
Create A Solid Process For Vetting Your Partners
I feel that ensuring the safety of customers is a major issue for these types of companies. If Uber sends out a driver with a criminal record who ends up assaulting a customer, you can bet that customer’s going to blame Uber. So, as Uber, you need to be prepared to spend the time and money to fully vet your partners in a way that instills customer security and confidence. —Alexandra Levit, Inspiration at Work
Operate With Scrappy Fierceness
Starting a business in the on-demand economy is a balancing act. On the one hand, prepare to be persistent. Travis Kalanick, CEO of Uber, calls this “scrappy fierceness.” Every day, you will have to make decisions and fight for your startup’s survival. You’re not going to make it by going about things in a conventional way. On the other hand, if you get into the new spaces of the sharing economy and grow large enough, you’re going to end up dealing with legislation and public policy. This might sound like a lot of headache-inducing bureaucracy and red tape, but you are going to have to work with policy makers to a certain extent if you want to succeed. —Breanden Beneschott, Toptal
Concentrate On The Supply Side
Establishing a healthy flow of suppliers is more important than generating demand. You have to make sure your value proposition for suppliers is good enough that people are eager to sign up for your platform. Since suppliers—people who rent out their house, their car, their services, or their products—often put more time into the transaction, you have to focus on attracting and engaging them. If your value proposition works, then finding demand for your services should be easy. If you’re not doing enough for people to perceive value in supplying that demand, then no amount of marketing or consumer outreach will solve the problem. —Jared Brown, Hubstaff
Ensure Both Sides Of The Marketplace Are Even
When you create a two-sided marketplace, you must ensure it is well outlined and stays consistently balanced on each side. This remains the hardest aspect of breaking into a two-sided marketplace. This will be a constant balancing act of consumer and client growth. If one side becomes larger than the other, it’s time to reevaluate your business plan. —Jayna Cooke, Eventup
Meet Regulation With Automation
Startups often face tax hurdles. You can smooth a lot of friction if you develop a system that manages and advances the logistics of both tax collection and payment. After initially resisting the idea that it should collect local hotel taxes, Airbnb started collecting these taxes and, in some cities, it’s making it easier for their hosts to file those taxes. It was a true win-win situation—the cities make more money, and Airbnb now has an advantage over newer startups that might spring up to offer shared accommodations, but can’t handle the tax implications. The move was reminiscent of Apple’s idea that people only stole music because it wasn’t easy to pay for a digital single. —Jere Simpson, Kitewire
Connect With Your Business Lawyer
The legal and regulatory environment we operate in is changing as rapidly as the businesses themselves. It’s impossible as an entrepreneur to stay abreast of all the intricacies and shifts, so rely on your experts. Cultivating relationships with lawyers, accountants and advisors can be very beneficial as a business owner. If you’re making critical decisions about your business, take the time to sit down with these experts and get their input. Set yourself up for success by avoiding legal and regulatory pitfalls from day one. —Robert De Los Santos, Sky High Party Rentals
Photoillustration by Madeleine Weiss for ReadWrite