Composable Workforces
A general trend appears to be the increasing use of contractors versus full-time employees.
This is largely due to the benefits contractors confer upon businesses versus the legal and compliance headaches of employees.
We can see the extremes in the rise of "solo" entrepreneurs.
These entrepreneurs, as they scale, do hire people; but they hire contractors.
Doing so gives them somewhat more flexibility to expand and contract as needed. I'd argue that most businesses, even with a full-time workforce, have the same level of contraction under "at-will" provisions. They just suffer from risk in pro-employee jursidictions.
But the "gig" economy has also enabled very large businesses like Uber and Airbnb to acquire workers that are fungible resources, who are contractors.
Legislators have some right to be concerned.
The gig economy can leave many people, especially in unskilled fields, exposed with lower pay and fewer benefits.
The platforms and beneficiaries of the gig economy argue otherwise: that there's more freedom, and some people can, in fact, make more than they would as an employee. However, those are the Power Law exceptions. That person making $1M on Upwork is likely a unicorn; and very very far from the average.
But the traditional legislative response of just imposing tighter classifications also doesn't feel right. The intent is directionally right: if the employer is treating contractors in much the same way they would an employee -- dictating the how, when, and whats -- with limited sovereignty for the contractor, that sounds like an employee.
The trade-off assumption is that, in exchange for micro-managing type control, an employer should pay the additional burden of hiring an employee.
But it's not quite so simple.
In some ways, the best employees are those who are able to operate with autonomy. Not only is the experience better for them, but also for the employer. An autonomous employee who has initiative, ownership, and creativity should perform better than a employee who can only follow directions.
At the same time, a contractor who has full initiative, ownership, and creative could also perform poorly as a contractor. I've had that experience when hiring contractors. And the biggest problem typically is that they continue to acquire more customers or clients, and as a result, work on my behalf suffers.
Unless you are hyper efficient the way DesignJoy founder is, who have a fixed subscription for design work and works so efficiently he makes $1M a year as a design, the contractor model seem about increasing autonomy and anti-fragility, potentially at the expense of income.
I think that sweet spot that all people strive for, however, is both: more autonomy with higher income than being a captive employee.
Who wouldn't want that?
Well, potentially the cost comes to the employer, who largely wants lower costs...unless a higher cost directly and clearly yields greater profit or revenue.
An example of this trade-off is with sales people.
In high-ticket sales, it appears rare to have purely commissioned, contract-based sales people. I know they do exist, and I'd love to learn a little more about how that really works in reality. But with high-ticket enterprise sales or large consulting deals, these aren't typically farmed to contractors. The knowledge transfer and tightly integrated collaboration doesn't support a commodified workforce.
I see that there are exceptions, but sometimes I wonder how truly different these are.
For example, real-estate agents are commission only, and they sell high-ticket items and make good money.
I have heard (but don't know for certain) that medical equipment sales has been a contract-only business.
While I don't know the reasons one business model works over the other, I have been thinking it could be a false choice.
Meaning: why can't businesses benefit from paying more costly for contractors?
I think we do see this emerging. Traditionally, the higher paid contractors have been consultants, and two big flavors were the "strategy" consultants and the "body shop" consultants, who provided large numbers of expensive IT people.
Big corporations are likely the most open to commodifying more and more of their workforce. Because they have such large numbers, the distribution curve means they have larger numbers of incompetent and mediocre people.
To them, shrinking this number in exchange for higher quality, dedicated people would make sense.
The question is also a supply and demand question: are those who do have higher skills and better work effort seeking to go out on their own?
I don't know.
On the one hand, software engineering is highly skills and high in demand. Software engineers probably would prefer to be on their own. But I think very very few companies use contractors for engineers. What seems to happen, instead, is that these companies create contractor-like autonomy, with employee-like benefits, to retain them.
This is probably due to the shift in demand.
When software engineering was not seen as valuable, these were likely unpleasant "back-office" type jobs with low autonomy and poor overall working conditions.
The hard part about being a contractor is the consistent demand. With an employer who has more development work than they can hire, typically, there's more than enough demand. The idea of a software engineer even being able to support more than one client would be impossible. So it works best for both the engineer and the company to enter into a mutually beneficial relationship: the employee in this case has the leverage.
As I write this out, it seems that only when the employee has such massive leverage can the working relationship be more beneficial than becoming a contractor. Otherwise, the employer is likely to always drive employees into commodified gig workers where possible.
Note: I think some forward thinking companies may be able to instill a multiplier effect -- through training, culture, team-building -- they extract much more from an employee than they could from a contractor. But I think this is a rare exception.
AI is going to further contract the low-skilled side of work.
So what will this mean for most workers?
I think it does, in fact, mean finding skill that increase demand. And after demand is created, to find ways to increase robustness of that demand.
Some start-ups have been trying to do this by creating fractional work forces and teams. These sort of fall in the weird, uncharted territory between contractors and full-time employees by creating some higher-quality level of work, high pay, high reward.
But in the end, those jobs still seem to only work (and in the end, this makes sense) that have demand exceeding supply.
What, then, will increase demand?
Originally, I titled this essay "composable workforces" because I was exploring this idea where people could work seamlessly, collaboratively and have a flush amount of demand by working with DAOs or autonomous organizations. The true decentralized nature of the workforce would, somehow, make skills and output more visible and trust; at the same time, it would encourage greater fungibility across organizations.
Some people seem to have made this employer polyamory work: they just work simultaneously on a fractional basis across different businesses. The early successes, however, seem to come from an economic misalignment: in crypto, even these "gigster" did well for themselves, making far more than the market because crypto was mispriced.
But in writing this essay, I actually feel the dominant first principle is supply and demand.
As markets are more global, supply grows.
Will demand grow?
Two things can increase demand.
One: there are alot of companies that need to hire. In start-up land and, for a brief period, in cryptoland, there was so much additional capital available to higher, that there has been growing demand.
This funding, of course, depends on the overall economy (if investors cannot liquidiate, they don't have additional capital to then invest in more hiring); we saw how the low interest rate environment fueled alot of unnecessary hiring that led to lots of firing when the economy hit a bump.
So being in a segment where there are lots of new companies that need to hire talent is one way to be in demand.
The second is being around those few companies that are growing so fast -- like Amazon, Google and Facebook had. Large companies that are growing super fast probably generate as much demand as an explosion of lots of smaller companies (but I would need to check this.)
So does a rising tide lift all boats?
No. We see with regular automation and now with AI that certain fields actually have not benefitted from the influx in capital. Jobs that don't appear to add value, have too much competition because of the skillset being a commodity, or that could be augmented or automated don't increase in demand.
So if one can design the same number of assets with one designer instead of two when the designer is AI-assisted, demand has been cut in half. If a QA person can do the same amount of work as 3 QA because of an automation platform or contracting for part of the work, the number of employees also drops.
Who will benefit?
These automation tools, especially AI, will grow in demand; so what's likely to happen is those who work for the right companies that rise in this tide of decreasing the need for employees will, instead, increase their employee count. There's demand for whatever skills will make those companies successful.
What are the skills, then, that could be useful?
Despite the scare that AI can do more coding, based on above, the technical skills that enables such successful AI will be in demand. The complexity and customer demands will grow.
As the demand for those platforms grow, there will likely be a need for sales people.
There's been a saying attributed to Larry Ellison that there are only two things for a business: either making the product (engineer) and selling the product (sales reps). Everything else is a cost.
Now, I don't know if this is entirely true, especially now. And I think it depends on the market and the nature of the operation.
For a solo entrepreneur, I would argue that the engineering requirement has decreased dramatically; and social media and marketing automation tools have decreased the need for a solo entrepreneur to have sales reps or be a sales rep.
Instead, I think we are in a period (I don't know how long it will last) of product-led solo entrepreneurship. Meaning a solo entrepreneur ultimately needs to apply the product skills to their solo business and, in many cases, can both build and sell it themselves. Scaling won't need full-time employees but can be done with contractors.
Perhaps....these successful solo entrepreneurs build products that are very niche but they need to find a way to compose those products for larger customers into something that can compete. But this is something very very far away.
But the demand function still seems to be the most important thing.
What changes then?
One, is that the amount of demand available is large -- many companies, many individuals, at global scale -- while the mouths to feed is small -- the solo entrepreneur.
This might support many markets and might be easier to find with a more nimble environment.
What are the right tiers of things a solo entrepreneur can help offer?
Well, the remaining employees probably see the writing on the wall so tools and skills:
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