A Start-Up Goes with Full-Time Employees, Not Leaning on the “Gig Economy”

Nick Wingfield reported in the business section of Sunday’s New York Times that, “When Glenn Kelman became the chief executive of his online real estate start-up, he defied the tech industry’s conventional wisdom about how to grow.

Instead of hiring independent contractors, he brought in full-time employees and put them on the payroll — with benefits. That decision over a decade ago made Mr. Kelman and his company, Redfin, iconoclasts in the technology world.”

The article stated that, “Many tech start-ups lean on the idea of the ‘gig economy.’ They staff up rapidly with freelancers, who are both cheaper to hire (none of the insurance, 401(k) and other expenses) and more flexible (they can work as much or as little as needed). It’s the model Uber has used to upend the taxi business.

“That model is also fueling a national debate over worker protections. Uber, with 1.1 million active drivers globally, recently agreed to settle class-action lawsuits brought by drivers in Massachusetts and California who argued that they should be classified as employees. Similar suits continue in other states.

“In a fairy-tale version of the Redfin story, the company’s bet on employees would have resulted in industry-rattling success. The truth is more complicated.”

Mr. Wingfield pointed out that, “In Redfin’s early days, prospective venture fund investors walked away, saying that betting on full-time employees was a deal killer for them. Its hiring strategy has slowed the company’s growth and contributed to what Mr. Kelman calls a ‘near-death experience’ after the 2008 economic crisis. Problems like these illustrate why tech companies prefer to use contractors if they can.”

Yesterdays article went on to say that, “Mr. Kelman argues that full-time employees allow him to offer better customer service. Redfin gives its agents salaries, health benefits, 401(k) contributions and, for the most productive ones, Redfin stock, none of which is standard for contractors. Redfin currently employs more than 1,000 agents.

“Now with his company on a stronger footing, Mr. Kelman says he believes his approach has been vindicated. He has even become an informal counselor to other tech entrepreneurs exploring a shift to employees from contractors.

But they are still the exception. The idea of building a large work force of full-time employees, outside of core disciplines like engineering, is not part of the ethos of most companies in today’s tech industry, observers who have studied the industry say.”

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