Small Business Labs

The Rise of Tiny Apartments

New York City just approved a plan for an apartment complex on Manhattan’s East Side featuring 55 “micro units.”  These units will range from 370 to 250 square feet. The prior minimum size for an apartment in New York City was 400 square feet.

New York joins many other cities in embracing micro units. Last year San Francisco changed their building code to allow micro units as small as 220 square feet and is already considering lowering this to 150 square feet.

Vancouver added micro units in 2011, ranging in size from 226 to 300 square feet.  

Cities like Tokyo, Hong Kong and Paris have long allowed micro units. I used to live in Tokyo. I didn't live in a micro unit, but I did live in a 2 story, 3 bedroom house that was only 800 square feet. Needless to say, the rooms were cozy.

If you're curious what these units look like, Smart Space - a SF micro unit developer - has micro unit designs on their website.

Several trends are driving the interest in micro units.  Cost, obviously, is the big one. These units are substantially cheaper to build and rent (so far almost all U.S. micro units are rental) than traditional apartments.  

Atlantic Cities has a good description of the appeal of micro units beyond cost and the amenties that come with Smart Space's micro units:

"... tiny apartments are particularly well-suited for the active, car-free, single Millennials already coming to American cities. SMARTSPACE Mission will include spacious common areas that encourage residential camaraderie and balance out the spartan quarters themselves. Elaborate lobbies, a café, and a lounge area — kind of like micro-apartments meet the Ace Hotel ..."

Sort of like a post college dorm. Sounds like fun, which is why I'm sure at least the SF units will be highly sought after.

Expect to see micro units in cities across the U.S. in the next few years.  

Top 10 Amazing College Finance Stats

The University's Dilemma, from Strategy + Business, is a fascinating article covering the business model problems and risks faced by America's colleges and universities.

The article includes some amazing financial stats. I did some digging and found more.  

Here are my top 10 amazing college finance stats:

1. Tuition at four year universities has tripled in constant dollars over the past 30 years — a faster rate of increase than healthcare.

2. Total U.S. student debt exceeds $1 Trillion.

3. Student loans exceed both auto loans and credit cards, making student loan debt the largest form of consumer debt after mortgages.

4. 37.1 million Americans have student loan debt, up from 23.3 million in 2005.

5. The average student loan balance is $24,301, up from $15,651 in 2005. 

6. About 5 million federal student loan borrowers are in default.

7. Ten percent of recent graduates of four-year colleges have monthly student loan payments that exceed 25 percent of their income.

8. There are about 2.2 million student borrowers over the age of 60. Their average loan balance is $19,225. 

9. Two-thirds of last year's college graduates had student loan debt with an average balance of roughly $26,000.

10. Less than two-thirds of students enrolled in a four-year institution attain the targeted degree.

Our university system is so broken.

CFO's Top Corporate Finance Trends for 2013

Interesting 2013 trends list from CFO Magazine.  Their six trends are:

1. The pressure on CFOs to unlock corporate cash hordes will grow. Billions and billions are sitting corporate balance sheets basically earning bupkis due to low interest rates. CFO expects stock buybacks and increased dividends. 

2. To hire or not to hire will be the question. CFO thinks 2013 might be the year corporations increase hiring. We're not so sure, but agree hiring in general will pick up this year.

3. Like it or not, financial reporting will continue to globalize. Agreed.

4. Tight credit at banks will trigger increased use of alternative sources of funding. The CFO list targets bigger companies. Small businesses have faced tigher credit for years and have already increased their use of alternative funding sources. Interesting to see this happening to larger firms who have had relatively easy access to capital for the last couple of years.

5. Big Data will smarten up. Key quote for SMBs from this trend is "With the price of predictive analytics and Big Data tools falling, the finance folks at SMBs seem likely to pull open their firms’ purse strings."  We obviously agree.

6. Obamacare will come to ground. The gist of this trend is 2013 is the year to plan for Obama Care. We agree.

By the way, according to the Urban Dictionary "bupkis" at one time may have meant "goat shit". Great word.

Go to CFO's site for more detail on their trends. 

The Rise of Public Unions; The Fall of Private Unions

The U.S. Bureau of Labor Statistics (BLS) released their annual Union Summary this week. The New York Times sumed up the data quite well with their article title, Unionization Rate Lowest in a Century.  Key quote from the article:

"The percentage of workers in unions fell to 11.3 percent, down from 11.8 percent in 2011 ... That brought unionization to its lowest level since 1912, when it was 11.1 percent ..."

Both private and public union membership fell in 2012, with public membership falling 234,000 and private membership dropping about 166,000. 

Looking longer term we can see two clear union trends: (1) private union membership has been falling consistently since the late 1950s; and (2) public union membership has been increasing since the 1970s.

As the chart below shows, there are now more public sector union members (7.3 million, or 35.9% of the public workforce) than private sector union members (7 million, or 6.6% of the private workforce). The two crossed over in 2009, when recession driven union layoffs led to a decline of 800,000 private sector union members.

   

For those interested in historical data on union membership, visit Unionstats.com. The site is run by two college professors, has a good mix of data and is much easier to work with than the always confusing BLS website.  

Wall Street Journal's Explosive Technologies

The Wall Street Journal's Explosion in Innovation covers 8 technologies the author believes will drive innovation over the next decade.

The eight are:

1. Biotechnology: especially synthetic biology, which is the application of engineering principles and approaches to biological system design and development.

2. Computational Systems, which is defined as the ability to model almost anything.

3. Networks and Sensors

4. Artificial Intelligence

5. Robotics

6. Digital Manufacturing, with the almost required these days reference to 3D printing.

7. Medicine

8. Nanotechnology

Nice list. One of the things that jumps out at me is most of the technologies on this list make use of or are enabled by the Internet, but they aren't Internet technologies. A few years ago lists like this focused on Internet technologies.  

Also interesting is clean tech is not on the list, nor are any energy related technologies. These definitely would have been on a list like this a few years ago.

Finally, it's interesting see artificial intelligence, nanotechnology and sensors make the list. These were all considered hot technologies at various times in the past, but fell off lists like this because they failed to take off.    

But since the time they were first hyped as the next great thing, these technologies have matured and I agree all will have an impact on innovation over the next decade.  

Big Data Not Always So Big

One of the interesting things we found interviewing Big Data experts is how they define Big Data.

Most articles and studies define Big Data as:

a collection of datasets so large and complex that it becomes difficult to process using traditional database management tools or data processing applications.

Most definitions also discuss the 3 Vs - volume, variability and velocity - and how the Internet, mobile computing and smart objects are leading to vast increases in all three.

When we asked experts to define Big Data, they consistently gave us some form of this definition. But in the discussions that followed, their usage of Big Data indicated a different definition.

The experts consistently talked about Big Data as any use of the data and analytics that was bigger than normal for their firm or clients.  

In multiple cases the experts even talked about using Excel to analyze their Big Data datasets. Obviously datasets that can be analyzed using Excel are not too big for traditional IT tools.  

Also, the experts' usage of Big Data made it clear they include data analysis when they use the term. For example, we heard things like "we use Big Data to target customers better" and "Big Data has really improved our supply chain".

This usage makes perfectly good sense.  The "Big" in Big Data is situational - what's big to one firm or person may be very small to another.  And obviously data is not of much value unless it's analyzed and turned into useful insights.

Because of these interviews we're thinking differently about Big Data. We now define it as:

Any use of data and analytics that leads to actionable information where the volume, variety and/or velocity of the analyzed data is greater than normal for the firm/user.

We think this works for businesses of all sizes and better fits the way the term is being used.  We also think it better reflects the importance of turning data into information.

For more on Big Data and what it means for small businesses, see the Intuit 2020 report The New Data Democracy.  

Book Review: The Encore Career Handbook

One of the trends we've long covered is the desire and/or need by aging baby boomers to continue working past their traditional retirement age. Related to this is the growing trend of baby boomers looking to do something new work wise starting in their 50s.  

For many boomers the main drivers for staying in the workforce or switching careers is a desire to stay active, engaged and have the opportunity to do something they have a passion for.

The other reason is financial. Simply put, a lot of baby boomers don't have the financial resources to retire.  

But regardless of your motivations, before pursuring a new career or working past the traditional  retirement age you'll want to do some research and planning.  

The Encore Career Handbook, by Marci Alboher, is a great resource for helping with that planning. It's targeted at baby boomers looking for their next gig, with a focus on how secure encore jobs or start encore businesses that create social value.

According to Encore.org - Alboher's employer and a leading resource site on encore careers - about 9 million Americans are already in encore careers and another 31 million are considering it.  

The goal of the book is to provide these folks a guide on how to find an encore career that combines personal meaning with a social purpose - and also provides a paycheck.  

The book achieves this goal. It's full of practical advice for budding second careerers.  

I particularly liked the sections on financial planning and networking.  We're always surprised in our research how few baby boomers understand their finances.  We're also surprised how many don't grasp the power and importance of networking in today's world.

The Encore Career Handbook is an excellent resource for those looking to work for or start a non-profit or socially oriented firm.  But we think boomers and others who are considering a for-profit second career will also find it very useful.

We're also big fans of the work done by Encore.org and strongly recommend anyone considering a second career visit their site and review their information.

Another article worth reading on this topic is Over 50 and Under No Illusions, a recent article from the NY Times. It covers 5 late career job switchers.  

What is Smart Dust?

Smart dust is one of my all time favorite buzz words.  It refers to tiny wireless sensors that detect anything from light to temperature to humidity to vibrations.

They're called smart dust because the idea is lots of them would be deployed, they'd be really small (the size of grain of sand or smaller) and they'd float and lie around, like dust.

Despite their small size, a smart dust "mote" (the term used for single smart dust sensor) would contain sensors, computing circuits, bidirectional wireless communications technology and a power supply.

To do this, advanced micro-electro-mechanical systems (MEMS) would need to be designed and fabricated. When you hear the term MEMS, think really,really tiny machines. 

I first heard about smart dust more than a decade ago while visiting a research group at UC Berkeley. I also visited Dust Inc., which was a really hot startup at the time. They tried to develop smart dust peer-to-peer wireless sensor networks.  They failed.   

Since then I hadn't heard much about Smart Dust until last week when O'Reilly Radar blog had a post called The Inevitability of Smart Dust.  They describe smart dust as:

General purpose computing, sensors, and wireless networking, all bundled up in millimeter-scale sensor motes drifting in the air currents, flecks of computing power, settling on your skin, ingested, will be monitoring you inside and out, sensing and reporting — both for you and about you.

This is obviously more than a few years away, but it's fun to think about.

Top 10 Small Business Trends for 2013

Below is our sixth annual Top 10 Small Business Trends list.  Last year's trends and links to our trends lists from prior years are available here.

Our overall economic outlook for 2013 is for continued moderate growth with U.S. GDP increasing 2.25% to 2.75%.  We expect hiring and the job market to continue to improve with unemployment falling and finishing the year in the 6.8% to 7.2% range.

Technology 

1. Big Data for the Little Guy:  Big data is big news these days. Yet much of the discussion has been about how big data will help big businesses.  But the data and analytics revolution will also benefit small businesses. 2013 will see rapid increases in the number of small businesses using powerful yet inexpensive cloud-based data and analytical tools.  These systems will deliver meaningful insights on customers, markets and competition and will also improve bottom-line business results.  This trend comes from our work with Intuit on The New Data Democracy.  

2. Smartphones, Tablets and the Cloud Rule the World:  The growth of smartphones, tablets and cloud computing – and their impact on business – is hard to overestimate.  In 2013 small businesses will need to do more than just make their websites mobile device friendly (few currently do), they will need to re-think how they operate and serve customers in a world dominated by mobile and cloud computing. 

Economic 

3. The Solo Support Industry Grows Up: 2013 will see the continued growth of products and services designed to make it easier for solopreneurs and the self-employed to start and operate their businesses.  Expect more niche online marketplaces like Elance and Task Rabbit to connect independent workers with the organizations looking to tap their services; more educational programs and government support for starting and operating a self-employed business; more services and tools to help manage a solopreneur business; and more coworking and solopreneur-oriented commercial workspaces.  We borrowed this trend from the 2013 Future Workforce Trends from our friends at MBO Partners.

4. Small Business Hits the Road: One of the most interesting findings from our food truck research project is how quickly other industries are discovering the advantages of taking to the road and going to their customers.  We expect this form of “mobile commerce” will take off in 2013 as personal service firms, retailers of all kinds and even industrial firms take advantage of the lower costs, increased flexibility and high levels of customer satisfaction that mobile business provides. 

5. Go Midwest Young Man (and Woman):  There’s an economic renaissance happening in the Midwest driven by the rising demand for commodities, an energy boom taking place in many Midwestern states and the growth of reshoring of services and manufacturing to the U.S.   Technology now better connects the Midwest to the rest of the world, and the cost of doing business is lower than in many coastal states. These trends are resulting in strong Midwestern economies, low unemployment rates, strong net migration and lots of small business opportunities.  

6. Angels Will Fear to Tread: Over the past few years there’s been a boom in Angel investing.  According to the Center for Venture Research at the University of New Hampshire, 66,230 companies received $22.5 billion from Angels in 2011.  They also report 2012 will likely see an increase in these numbers. But at the same time, A and later round funding by traditional VCs has declined, with only about 4,000 firms receiving these rounds in 2012. Traditional funding is expected to be even harder to come by in 2013. This, coupled with intense startup competition, will result in many Angel backed firms failing.  Because of this, Angels will learn how hard it is to make money as a startup investor and the Angel investing frenzy will subside.  

7. Small Manufacturing Gets Big:  2013 will see the continued growth of the small manufacturing sector. Driven by 5 strong trends – (1) technology and variable cost business models are making it easier and cheaper to be a small manufacturer; (2) rising overseas costs are making U.S. manufacturing cost competitive; (3) developing world economic growth is leading to stronger export opportunities; (4) the Internet and online systems are improving the ability of small manufacturers to find, sell and support customers; and (5) growing demand for customized and niche products both locally and globally – small manufacturing will thrive. 

Social 

8. Time is More than Money - Time has become the scarce commodity of the 21st century. Life for both consumers and small businesses has become more connected, complex and on-demand, making it hard to get a day’s tasks done.  The debated work-life balance has morphed into a more realistic discussion of work-life flexibility as we become more aware of a limited hourglass. In 2013, products that help users manage time, life and work effectively will be in demand, as will services targeted to relieve our schedules of mundane tasks and improve personal experience (see trend 4, Small Businesses Hit the Road). Time scarcity will spur growth in the personal services economy and related employment.

9. Consumers Embrace Hyper-Transparency:  2012 was the year showrooming - the trend towards shoppers visiting stores to see a product, but then buying it online or from some other store – reached the mainstream.  2013 will see the showrooming trend gain even more traction and expand beyond price with smart phone and data-powered customers and competitors getting ever-greater, real-time access to information on small business products, services and business performance. 

Health Care 

10. Planning for Obamacare: The election results means Obamacare will be the law of the land for at least the next 4 years.  With most of its major provisions coming online in 2014, 2013 will be a year of health care planning for small businesses.  While most of the focus of the law is on firms with more than 50 employees, owners of smaller firms will also need to review their personal and business health coverage due to changes caused by the law.  

The 3 Mega Shifts Changing Work and Employment

We spend a lot of time researching, debating and talking about trends. But behind the trends are major shifts - the higher level changes in how our world works that drive or enable a wide range of economic, social and technology trends.  

Mega shifts tend to be slow acting and take a long time to impact business and society. While their long term impacts are powerful, the changes they bring can be subtle in the short term.  Because of this, the mega shifts are often underestimated, ignored or dismissed as common knowledge. 

We believe there are 3 mega shifts that have reached the tipping point and are having major impacts on businesses big and small.  These are:

1. Workers are Expensive, Machines Cheap: The economic order that emerged from WWII was based on an economic assumption that workers were cheap and machines expensive. This is no longer true. Today workers, and expecially highly skilled workers in high demand fields, are expensive and often difficult to hire and retain. Machines, on the other hand, have gotten cheaper and even free in some cases. 

2. Intellectual and Social Capital Trumps Financial Capital: This might not seem true to those having a hard time getting a loan or raising venture capital, but the world today is awash in money. This is very different from the past, when capital was scarce and our business and economic systems were designed to minimize its use and favor large, capital rich firms. Increasingly, leading firms (and workers) win because they have the power of knowledge and effective social networks on their side.

3. Access Trumps Ownership: Owning the means of production used to be required for business success. But the use of outsourcing, partnering and business infrastructure service companies (UPS for logistics, Amazon for IT, etc.) has created the ability to start and operate businesses using variable cost business models. Often referred to as the Sharing Economy or Collaborative Consumption, variable cost business models are disrupting industries and changing how consumers and businesses view and use assets (incuding human assets).

The impacts of these mega shifts are far reaching. They are the main long term drivers behind the break down of the traditional employment contract and the shift to a contingent workforce.  They're also behind the disruptive changes happening in a wide range of industries.