Small Business Labs

Sharing Economy = Variable Cost Economy

The Economist's The Rise of the Sharing Economy provides an excellent overview of this growing segment of the global economy.  Key quote:

The big change is the availability of more data about people and things, which allows physical assets to be disaggregated and consumed as services. Before the internet, renting a surfboard, a power tool or a parking space from someone else was feasible, but was usually more trouble than it was worth. 

Most coverage of the sharing economy focuses on the social and environmental aspects of this trend: sharing means fewer resources used and a more sustainable economy.  These are clearly good things.

But there is surprisingly little coverage of how sharing turns fixed costs into variable costs and what this means for businesses, consumers and the economy.

The technologies that have produced the sharing economy are the same as those turning fixed costs into variable costs.

These technologies are also driving the increased use of outsourcing, partnering and business infrastructure service companies (UPS for logistics, contract manufacturers for production, Amazon on others for IT and web services, etc.).

The use of variable cost business models and services reduces the need for capital, provides businesses the ability to scale up and down much more easily and cuts business risk. It also allows small businesses to tap into world class and scale business infrastructure on a "pay as you go" basis.

These are big changes.

The shift to variable costs also is changing the employee/employer relationship. Companies are increasing their use of contingent workers and turning their human capital fixed costs into variable costs.

This is fundamentally changing the labor force and the social contract between companies and employees.  

The sharing economy is exciting on many levels. For those looking for more information check out Shareable, which covers all things related to the sharing economy and Collaborative Consumption, which is from the authors of the book on the sharing economy What's Mine is Yours.  

What's Driving Food Trucks Forward?

Food truck are hot. They have been highlighted as a food trend, new industry model, cultural fad and a political hot potato in the press.

But despite their popularity, there's been surprisingly little research on why they're so successful.

We decided to spend some time figuring this out and just released our findings in Food Trucks Motor into the Mainstream, a new research report from Intuit and Emergent Research (that's us).  

This continues the broader Intuit 2020 research series which assesses long term trends impacting small businesses and consumers.

As part of this project, Emergent Research conducted in-person interviews with 272 food truck customers. The team also interviewed 27 food truck owners or managers in person, by email or on the phone. All of these interviews were conducted in San Francisco or nearby suburbs. 

We also conducted a series of interviews with industry experts, government officials and other members of the broader food truck industry. These interviews were mostly by phone and the interviewees were distributed across the country.

The underlying theme from this survey work is that food trucks are not a fad, but instead a viable market segment. We found that food trucks have substantial competitive and business model advantages relative to their main competitors, which are take-out, fast and fast-casual food vendors.  

Another key finding is that food trucks operate much like lean technology startups.  They focus on rapid prototyping, business flexibility, cash and resource conservation and a laser-like focus on customers to quickly adapt to market needs.  We first reported on this in our article Food Trucks as Lean Startups.

Based on these advantages and operating agility, Emergent Research forecasts that food truck industry revenues will grow fourfold over the next 5 years, reaching $2.7 billion in 2017.

On the consumer side, we found that diners not only like food truck food, but they enjoy the experience of eating at food trucks.  More than 90 percent of the diners interviewed rated food truck quality as either excellent (43 percent) or good (48 percent). Just over 80 percent of those interviewed used words like fun, exciting, new, different, unusual and unique when asked why they dined at food trucks.  

There's much more in the full report and click here to download it.

Also check out our Food Truck category for more food truck coverage.

The Rise of Branded Content

The Online Publishers Association's Is Branded Content the Future covers the growing trend towards online media companies allowing sponsors "to publish branded content directly into the main news stream."

As the article points out, this isn't a new idea. Advertorials have been around a long time. But in print publications it was generally very clear what was sponsored content versus real content. Online it's much harder to differentiate between the two.

The article points to Business Insider, Forbes and Quartz (a new site from Atlantic Monthly) as examples of this trend.  

With their business model completely broken, it's no surprise that media companies are turning to branded content to try and drive revenue.

For readers, this means paying even more attention to what you are reading and understanding you may be reading an ad instead of a piece of journalism. The old adage of "buyer beware" needs to be updated to include "reader beware".

Small businesses need to start thinking about how this new content model may fit in their marketing plans. The growth of local and hyperlocal news and information sites means many new potential outlets for content from small businesses.

Tom Foremski from Silicon Valley Watcher has been saying "every company is a media company" for years.  It's clear he's been right.

Gen Y Not Interested in Cars

There's been a flurry of articles on Gen Y (also called millennials, born 1980 to 2000) not being as interested in owning cars as prior generations.  Examples include:

Business Week's Gen Y Eschewing V-8 for 4G Threatens Auto Demand.  Key quote:

"The rate of U.S. auto sales to 18-to-34-year-old buyers declined to 11 percent in April 2012, down from 17 percent for the same age group in April 2007, before the recession, according to Southfield, Michigan-based R.L. Polk & Co."

Time's Will Millennials Change How Cars Are Bought and Sold.  Key quote:

"Gen Y doesn’t seem to care much for cars. Based on sales and survey data, it’s clear that young Americans are far more interested in iPhones than cars."

USA Today's Toyota's chief's big fear: Gen Y "lukewarm" about cars.  Key quote:

"They also are environmentally conscious and embrace bikes and public transportation."

The quick summary of these article is Gen Y doesn't view cars as a necessity like prior generations. Also, Gen Y doesn't link auto ownership with freedom to the same degree as prior generations.

These are big shifts and will have a major impact on transportation and related industries. 

Big Name Chefs Starting Food Trucks

Good article on Zagat's on Hawaiin celebrity chef Sam Choy starting a food truck in Los Angeles. According to Zagat's his Pineapple Express truck will bring "poke, Kalua pork sandwiches and Mauie Wowie chopped salads to those starved for a taste of the islands."

    

It turns out a lot of well known chefs are starting food trucks, or partnering with others to start food trucks that take advantage of the celebrity chef's brand.

This trend is part of the maturation of the food truck industry.  Just as big brands are moving into food trucks, celebrity chefs see the value in getting involved.  

It's interesting to note that Choy is using a food truck to after a new market, Los Angeles, instead of his existing market in Hawaii.  

This is an example of one of the great business model advantages of food trucks - they can be used as a low cost way to test out and get established in a new market.  I think it's safe to say if the Pineapple Express is successful, Choy will create a brick and mortar restaurant in LA.

The Rise of Co-ops

In case you missed the announcement, 2012 is the United Nations International Year of Cooperatives. The UN defines cooperatives as:

"Cooperatives are business enterprises owned and controlled by the very members that they serve. Their member-driven nature is one of the most clearly differentiating factors of cooperative enterprises. This fact means that decisions made in cooperatives are balanced by the pursuit of profit, and the needs and interests of members and their communities."

According to The International Co-operative Alliance (a co-op trade association) there are over 1 billion global co-op members.  In the U.S., credit unions are a prominent example of co-ops.  Other highly visible U.S. co-operatives include Ace Hardware and Sun Maid Raisins.  

Co-ops are not new.  They started as grassroots organizations in Europe, the U.S. and Japan in the early to mid 1800's.  As a former midwestern farm boy my favorite early co-op is The National Grange of the Order of Patrons of Husbandry.  For obvious reasons, it's more commonly known as The Grange.  

The Grange started a secret fraternity, but took off in the late 1800s as a way for farmers to organize in the face of low agricultural prices and the power of railroads.  It's still around today.

One of the drivers in the growth of cooperatives is their values and principles. Cooperative "are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others."

There are also 7 principles of cooperatives:

1. Voluntary and Open Membership
2. Democratic Member Control
3. Member Economic Participation
4. Autonomy and Independence
5. Education, Training and Information
6. Co-operation Among Co-operatives
7. Concern for Community

These sound a whole lot like the core values of coworking.  Like coworking, the co-op field even seems to have their own hyphen issue, with some hyphenating co-operative while others don't.  

We believe the use of the co-op model will continue to expand.  The co-op model provides a lot of business flexibility, but also allows for member control.  It fits well with the shift towards values-based business.

The Return of Intercity Bus Service

After almost disappearing - when was the last time you were on a intercity bus? - the bus is now the fastest growing way to travel.

Innovative bus companies like Megabus and Bolt Bus offer convenient service, comfortable seats with power outlets, WiFi access and super cheap fares purchased online.

The buses don't use a bus station, they pickup curbside at locations listed on their websites.  This makes it very easy to quickly add or reduce service. 

The sweet spot for the service appears to be in mid-range trips of around 200-300 miles.  These are too short for air travel but too long to easily drive. 

The new intercity bus lines are a great example of using business model innovation to reinvent an industry.  With gas prices increasing and more focus on reducing green house gases, the outlook for intercity bus travel is quite positive. 

There's been a flurry of articles on this topic, including:

• Business Week - good overall coverage of the buses
• Switchboard - looks at the buses from a public policy point of view
• New Geography - detailed look from a policy and environmental standpoint
• The Economist - likes the buses but aren't sure if they will thrive long term

Ultralight Versus Lean Startups

The phrase "lean startup" was coined by software entrepreneur Eric Reis a few years ago. 

A lean startup uses open source technologies and other low cost products to keep their burn rate low.  At the same time, lean startups also make continual and rapid revisions to their products based on feedback from customers. 

The term and methods have been widely adopted in Silicon Valley and his blog, Lessons Learned, has become a Mecca for software and web entrepreneurs.   

So if the term "lean startup" is so successful, why do we need the term "ultralight startup?" 

The reason is simple.  The term "lean startup" is tightly linked to software and web startups.  If you read articles on lean startups, you will learn about agile programming methods, open source tools and rapid code development. 

Also, as Tim Berry points out in his Entrepreneur article Is Your Next Startup an Ultralight, lean startups tend to be "high-powered firms."  They're run and backed by people with a high-growth, swing for the fences mentality. 

We use the term "ultralight" to describe more traditional small business startups and even solopreneurs that focus on bootstrapping and keeping their capital costs extremely low.  The online shirt company ooshirts.com, for example, spent only $2,200 to start the company.  They now gross over $1 million per year. 

Ultralights are mostly outside of the technology industry and while they all hope to be successful, very few are looking to be the next Google or Facebook. 

Or as Tim says, ultralight "... sounds to me like an extremely small and economical startup."  We agree with Tim and he should know.  He was doing both lean and ultralight startups well before the advent of either term. 

We cover the trends enabling ultralight startups in more detail in the Intuit 2020 Report.  You No Longer Need Cash to Start a Business, in particular, focuses on this topic. 

Disruption and the Analyst Industry

I signed up for GigaOm Pro recently.  It is a analyst service that provides research reports and analysis on emerging technology.  It costs $79 a year to subscribe.

GigaOm is trying to fill a need for timely, high-quality yet low cost data and commentary on emerging technology.  The traditional players in this space - Gartner, Forrester, etc. - charge many thousands of dollars for their research. 

I haven't been a subscriber long enough to know if I will get my money's worth, but it is hard to imagine I won't.  First off, this is a business expense so my after tax cost is quite low.  Second, the GigaOm folks know their stuff.  Third, they simply don't have to provide much value for me to cover my costs. 

And for those not willing to risk the $79, there is a free trial.   

Low cost business models have disrupted a number of content industries, with music, newspapers and magazines getting hit very hard.  It will be interesting to see if a new wave of low cost analyst services are able to disrupt this high cost content industry. 

Why Aren't Newspapers Doing Social Shopping?

We've been researching social shopping and have done a few recent posts on the topic.  The leader in this space is the start-up Groupon, which just raised $125 million and is valued at over $1 billion. 

Groupon is an online collective buying service.  Groupon subscribers get emails with deal offers from local businesses.  The deals are generally discounted.  For example, a recent San Francisco Groupon offer was $50 for a child photography session normally costing $295.

Groupon's business is exploding and they are in 30 cities today, with plans to expand to 80 by the end of the year. 

The question this begs is why aren't local newspapers doing this?  It seems to me they are ideally positioned for this business.   They have a large base of subscribers.  They have existing relationships with local advertisers.  Most have trusted brands, or at least trusted enough to be in this business. 

When local newspapers did not respond to Craigslist I disagreed with their decision making but understood it.  They didn't want to cannibalize their existing classified ad business.

In the case of social shopping, I have no idea why they aren't aggressively pursuing it.

Anyone know, or have ideas or theories?