Ride-hailing startup treats drivers as employees, unlike Uber and Lyft

Uber and Lyft have come under fire for increasing congestion in cities. They've also been criticized for classifying drivers as independent contractors, avoiding paying things like overtime and other benefits. Circuit, an upstart ride-hailing firm is using both of those shortfalls to its own advantage. Founder Alex Esposito told Business Insider about how the company's early days shuttling beach-goers from parking lots to sandy shores inspired a plethora of other possible markets. It's hard to compete with Uber or Lyft.The two ride-hailing companies combined are worth a whopping $88 billion combined and provided 5.8 billion total rides around the world in 2018.But the newfound societal benefits that come from the ability to hail a cab with the tap of a button haven't been uniform. Multiple studies have found — with forceful pushback from both companies, expectedly — that the nascent industry has singlehandedly increased urban congestion and siphoned ridership away from public transit.In New York, for example, drivers spent 12 to 13 miles circling in empty vehicles for every 10 miles driven with fare-paying passengers, a 2017 report by Schaller Consulting found. (Both Uber and Lyft have disputed this study, as well as others with similar findings). Still, such congestion is exactly the problem Circuit hopes to solve.The six-year-old startup, fresh out of the Urban-X accelerator program's fifth cohort this year, isn't trying to compete directly with Uber and Lyft (at least not yet) and is instead focused on the problem spots where even companies with the most venture capital resources have struggled.It all started in The Hamptons, of all places, a mega-rich seaside enclave roughly 100 miles east of New York City, where investors are more likely to spend their money on lavish vacation homes rather than on fledgling startups. But those same millionaires also had a glaring problem: the parking lot closest to the beach was overcrowded, and no one wanted to walk from the overflow lot roughly a mile away.“We kind of fell into the first-mile last-mile problem by accident,” founder Alex Esposito said in an interview with Business Insider. As it turns out, those same issues weren't limited to private beaches in wealthy villages: drivers the world over are pouring countless hours and miles into circling parking streets looking for a spot.Now, Circuit's operating with about 140 drivers, shuttling riders for free in six-seat, electric golf carts in markets including the beaches of Fort Lauderdale, around Brooklyn, and at shopping malls in suburban Houston. What's more, the company already turned a profit, Esposito said, with revenue in the “seven figures and climbing” thanks to revenue from advertising inside and outside its vehicles. That's a stark difference between Circuit and Uber and Lyft, which lost a combined $1.2 billion in 2018.“The market size is massive,” he said, “but I think they're more focused on hyper-growth and not actually combating specific issues in just going after cities with the same solution, which is where they've run into some problems. I can't really blame them entirely for creating this congestion, I think it's really just the way that users have been using some of their services.”Esposito credits Circuit's success thus far with its niche services, as opposed to broad solutions.“Because we actually train and hire our drivers as W2 employees, we're incentivized to have as few empty cars on the road as possible,” he said. “Whereas Uber and Lyft don't really have any reason not to have all the cars on the road. Drivers don't cost them anything unless they're on a ride.”With $1.36 million in funding under its belt to date, according to Pitchbook data, Circuit plans to double down on working with cities on closed-loop transportation, as it has done in downtown San Diego.“Where there are other companies spending millions and millions trying to build an advanced algorithm,” Esposito said, “We can have a pretty simple pooling algorithm because we're just focused on these very short rides.”