Even bootstrapping your startup requires some capital. You have to eat, keep the lights on, and cover the cost of hosting and registering domains. And if you live in a state that isn’t small business friendly (cough..cough..California), you’ll need to deal with business licensing fees.
Most of my friends and family know that I make my living writing content for companies around the world. During my first few years, they thought I was just agoraphobic because I chose to sit at the keyboard and type away, instead of going on trips and partying it up like in my college years.
Now They Want My Advice on How to Fund a Startup
But now that’s it’s been a few years and I haven’t asked anyone for money, I get the question: “Hey, how do I make money working from home like you?”
I shared a little about my journey into the freelance lifestyle in a previous post. So I won’t repeat myself here. But I want to cover something incredibly important that I hear far too often:
“Hey James, I’m tired of working at a job that is slowly draining the life out of me. I want to do what you do and work for myself. I think I’ll start by signing up for Lyft and Uber!”
Driving for Lyft or Uber Does NOT Make You an Entrepreneur
If you get nothing else from this post, please do not sign up as a driver for Lyft or Uber in order to fund your startup. I don’t say this out of hate for the amazing technology that makes these sharing economy platforms work.
And I have no ill will towards those who choose to drive for Lyft or Uber because they just love driving and meeting new people.
But I feel duty bound to warn you that driving for a ridesharing service in order to raise money and launch your own startup is a foolhardy errand.
I’d caution anyone against trying to replace a full-time income by driving people around town, on demand. You might disagree with me. That’s okay, but at least hear out my reasoning.
Lyft and Uber Take Advantage of Wannabe Entrepreneurs
First, there’s the issue of misleading ads for sign-up bonuses. Many of the advertisements make it sound like you’ll get a bounty for completing your first X number of rides.
Unfortunately, the majority of these offers are guaranteed payouts, rather than guaranteed bonuses. Many new drivers fail to realize this fact until it’s too late. So read the fine print carefully before diving in and going for a bonus—this is good life advice in general, really.
There Are Many Costs That Drivers Incur
Second, these companies don’t do a good job of educating new drivers on the cost of maintaining their vehicles, paying for extra gas, and getting more expensive insurance with rideshare liability coverage.
As a Lyft or Uber driver, you get all the expense of running your own business. And the platform gets a big chunk of the profit—without risking the additional operating costs you incur along the way.
This post offers reasonable calculations of how much drivers can possibly earn driving full-time for a service such as Uber. The article also does a good job of highlighting the costs.
I can tell you that I have a number of close personal friends and family members who have tried driving for Uber and/or Lyft full-time. They have shared with me their daily incomes and the amount of downtime they have as they wait for requests in and around a BUSY CITY LIKE LOS ANGELES.
I’ve learned that most rideshare drivers have to work 10 to 16 hours a day in order to generate enough income to live reasonably comfortably. They spend much of this time waiting for fares.
Then I hear the horror stories about unexpected vehicle maintenance and repairs or the random passenger who pukes in the backseat. The cleanup fee from the rideshare company can’t possibly make up for the smell of vomit once it’s worked its way into the fibers of the car’s upholstery.
You End Up Earning Little More Than Minimum Wage
I’ve taken the numbers my friends and family have given me in confidence and verified them by looking at their driver history reports. Then I subtracted the costs of maintenance, fuel, insurance, and vehicle depreciation.
I discovered that many, if not most, rideshare drivers make little more than minimum wage. There’s a reason why rideshare companies are desperately advertising for new drivers to replace the ones who have burned out.
I’ve come to a simple conclusion: Driving for Uber or Lyft is like entrepreneurship with training wheels. These companies will keep you upright and busy, but they’re a major drag that obliterates personal profitability.
You aren’t building a personal brand; you’re building theirs. You can’t set rates for yourself, so they decide your income potential. And they always get paid first.
Their 20%+ fee comes out of your pay, regardless of whether you need to cover an unexpected repair. You take on all the risk and upfront costs, while they decide when, where, and how much they will pay you.
Better Solutions for the Freelance/Entrepreneur Lifestyle
If you don’t believe me, go ahead and evaluate these rideshare companies for yourself! Run the numbers as an entrepreneur. You’ll find that your time is worth a lot more than what you can earn on Lyft’s or Uber’s platform.
But you can still seek out a humble living if you’re passionate about fighting traffic and meeting strangers. So I’ll stop hating on rideshare companies and offer some real alternatives:
- Don’t quit your day job until you have enough in the bank to cover six months of living expenses, in addition to the amount you need to launch your product or service.
- Work 16 hour days, seven days a week. After your eight hours at your 9-5 are up, use every spare minute to launch your dream. Building a dream while you still have a reliable income and healthcare is far less stressful than doing so without that stability.
- Use crowdfunding to finance your first production round. I love this option because it gives you the opportunity to validate your assumptions about your market. And you get to cut your teeth on marketing your concept to the world.
- Work as a freelancer in the field that you want to enter. Uber and Lyft are options if your goal is to launch a taxi business. Fiverr and UpWork are great starting points for securing entry-level work in creative professions. And you’d be amazed at how many volunteer opportunities are available, especially if you call up small businesses and offer to help them in return for experience.
Gain Industry Experience and You’re Far More Likely to Succeed
The more experience you have, the more likely you are to succeed when you finally launch. And if you have to grind in order to fund your dream, you’ll be far less likely to blow money on vanity exercises or needless distractions along the way. (I’m looking at you, branded thumb-drives, hats, and mousepads.)
Whether you agree or disagree, I’d love to hear from you in the comments section below. Tell us about your personal experience. Let’s keep it civil—I know things can get passionate.
So with that, I’ll thank you for taking the time to read my thoughts on why driving for Uber and Lyft is a horrible way to raise money for your startup.
Latest posts by James Lang (see all)
- Lyft and Uber Are the Worst Ways to Fund Your Startup - February 13, 2018
- 3 Powerful Lessons for Novice Freelancers and Entrepreneurs - August 17, 2017