A union for startups

May 18, 2019 (1410 words) :: Reflections on Brex, which bills itself as a corporate card for startups, and what it means to uncritically promote startups in this day and age.
Tags: startups

This post is day 138 of a personal challenge to write every day in 2019. See the other fragments, or sign up for my weekly newsletter.

Here are my two favourite ways to take the pulse of the tech industry. One is to read through cold emails from technical recruiters, as I’ve been doing as a result of this call for recruiter emails (please, send me yours). The other is to go around San Francisco and look at public-facing advertisements, from the highway billboards to the posters on the sides of bus stop signs.

One company I’ve seen advertised in a lot of posters and billboards around the city is Brex, which bills itself as the first corporate card designed for startups. Here’s one ad on Market street:

Brex poster saying '$5,000 in AWS credits for all new Brex customers'

Here’s a billboard near 11th and Folsom:

Brex billboard saying '$101,552,027.49 in rewards back to startups in 3 months'

Brex has such an incredibly lucrative business model that I can’t believe it’s only worth $1.1b. Here’s the basic idea: you launch a credit card aimed at tech startups, with perks ranging from discounts tailor-made for startups (offered by companies like Amazon, WeWork, Twilio, SendGrid, Zoom, Hubspot, Salesforce, etc) while maintaining an air of exclusivity so that customers feel like they “made it” when they get their matte black card (their rewards program is literally called “Brex Exclusive”). And if you’re able to get enough top-tier investor interest, then your beachhead market is practically handed to you: your investors can get their portfolio companies to sign up as early customers, and once you have a decent number of well-known startups on board, you have a lot of bargaining power to help you negotiate better deals with providers.

This is basically a no-brainer for any startup that doesn’t already have access to equivalent perks through an accelerator program, and still a compelling option even for those who do, because the rewards are more startup-specific than mainstream rewards-based credit cards. If you want to be glib and ignore the class dynamics here, you could even think of it as a union for startups: using the power of startups as a class to collectively bargain for the common good.

Well, maybe not the common good per se, since this really only helps startups. Brex is a classic ‘shovel in a gold rush’ business, and I mean this in the most negative possible interpretation of the analogy, which I’ve written about extensively in an earlier post. Brex’s goal is to serve - and ultimately subsidise - a particular kind of tech startup, one that follows the standard playbook of any outlet for surplus capital seeking a return. It doesn’t really matter what industry or vertical or product you go after, as long as your goal is to reconfigure the way people interact - with each other, with technology, with corporations - in order to maximise the amount of money that you can skim off the top. That’s pretty much what you have to do, if you’re ever going to justify your valuation.

I’m sure you can think of many different tech companies that follow this playbook, representing a diverse array of products and services. But the ‘diversity’ in the startup ecosystem only goes so far. Tech companies are disrupting the way we work, sleep, eat, buy, travel, etc - everything is up for grabs, except the creeping spread of the market into every aspect of our lives. All the ambition represented by the startup model is never directed at the political & economic terrain that made startups feel like such a natural thing in the first place.

You could call this capitalist realism, or an almost tautological consequence of the way startups are funded: why would capital intentionally fund something that would threaten the reign of capital? Would any rational investor fund a startup that sells below-cost guillotines to disaffected members of the lower classes, the way they’re happy to subsidise money-losing apps like Uber or Lyft? Maybe some concerned individuals will occasionally turn class traitor and fund initiatives that diminish the power of capital as a class, but it’s not what’s structurally incentivised; instead, the typical startup approach is all about monetising, financialising, app-ifying the rot. Who needs better wages when your exploitative employer offers you payday loans via an app? Who needs rent control or public housing when your landlord lets you take out a loan when you can’t pay your overpriced rent?

To return to the “union for startups” analogy: not all “unions” are good. Much depends on what the union is for: whom it serves, and what the goal is. Tenants unions are generally pretty great, because they help protect renters from predatory landlords; police unions not so much because one of their primary roles is to shield police officers from facing accountability for their actions. A “startup union” that helps early-stage startups get access to subsidised cloud computing is only socially laudable if those startups are building useful things. And these days, I don’t really see much incentive for your average startup founder to care about social good. Much more lucrative to put your own unique spin on a copycat app that does Uber for marijuana delivery or something.

Sometimes I worry that my frustration with the startup ecosystem devolves into a heavy-handed moralism, not dissimilar to the stereotypical conservative argument against giving cash ‘handouts’ to those in poverty - “But they’ll spend their money foolishly!” Why, after all, should startup founders have to work on things that are socially useful? Why can’t they just work on whatever they want, even if it’s wasteful or counterproductive? It’s their life, after all. It’s theirs to waste, if they so choose.

But it’s not just theirs, is the point. Startups are currently a major component in the global engine of economic prosperity, and their significance as an outlet for capital means that there’s more at stake than whether founders have control over how they spend their own time. Taking venture capital is a privilege, not a right, and it confers a certain kind of responsibility - a responsibility that, too often, is ignored by founders who can’t see beyond their own desire for fame and fortune. When you’ve been given enough money that you’re able to hire other people, buy up buildings, and reshape entire cities according to your will, then it is no longer just about you; it is about other peoples’ lives, over which you happen to have control.

Is this control legitimate? Why should investors and founders and executives - who are never democratically elected - have so much decision-making power in terms of how society allocates resources? In our post-Theranos era, even the most diehard startup advocates would have to admit that sometimes the incentives are wrong; sometimes startups are about individuals chasing rewards more than they’re about advancing society. Sometimes individuals pursuing their own self-interest isn’t going to magically result in collective good.

I think there’s a lot to admire in the startup model, which can be an extremely powerful playbook for creating something new and quickly scaling it up. The thing that’s going wrong is that this power isn’t always aimed in the right direction: instead, it’s predominantly serving the interests of a few who see an opportunity to profit.

We need a new startup ecosystem, governed by a new social contract that prioritises social good over individual reward - and, notably, recognises that the two do not necessarily go hand-in-hand, as some proponents of the status quo would have you believe. We need different incentives, different funding mechanisms, different criteria for selecting people and ideas. Most importantly, we need structural solutions that tackle the material conditions of the industry, not merely individuals pledging to invest their time and money more wisely.

This is, of course, not a small undertaking; removing the ‘financial lottery’ element from startups would require transforming the system in its entirety. It could even necessitate a fundamentally different form of capitalism.

Until this is done, though, any endeavour that promotes startups in the abstract seems fairly naive at best, deliberately unethical at worst. Kind of like being an accountant who helps rich people avoid paying taxes by squirreling money through tax shelters and getting paid handsomely in return. It might technically be legal, but it’s really not something to be proud of, and you certainly shouldn’t be putting up billboards bragging about how much money you’ve saved for your clients.

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