Small Business Labs

Freelancing and the 3 Laws of Future Employment

New Geography's The Three Laws of Future Employment looks at a mix of issues around future employment with a focus on whether or not we need more STEM (science, technology, engineering and math) graduates.

The part of the article I'm most intrigued by are the 3 laws of future employment.  These are:

Law #1: People will get jobs doing things that computers can’t do.

Law #2: A global market place will result in lower pay and fewer opportunities for many careers. (But also in cheaper and better products and a higher standard of living for American consumers.)

Law #3: Professional people will more likely be freelancers and less likely to have a steady job.

There appears to be broad agreement with these 3 laws.  The Marginal Revolution blog, for example, argues against some of the article but states "We are in basic agreement about the laws of future employment." 

I too am in agreement with the laws.

Related to freelancing, the interesting - and unanswered - question is how extensive will freelancing be?

We think Gene Zanio, CEO of MBO Partners, is correct when he suggests up to half of all U.S. workers will independent in 2020.  But I need to disclose MBO Partners is an Emergent Research (that's us) client and we worked with them on the State of Independence Study.

But while we think the number of independent workers will continue to grow, we are in no way forecasting the end of traditional employment or traditional jobs.

Even looking out very long term - 20 or 30 years - we think somewhere between 25% - 40% of workers will have employment relationships that are, or look a lot like, traditional jobs.  

Income Inequality Not Caused by Independent Work

GigaOm's Independent Work: Another Cause of Income Inequality and Maclean's The End of the Job look at the issues around independent work and income inequality.

The key quote comes from Maclean's:

"The rise of the contract worker may also be having a more wide-scale impact than previously realized. A growing gap between rich and poor in countries like Canada has been blamed, in part, on a growing number of poor quality jobs. There’s also mounting evidence to suggest that the rise of the throwaway worker has made recent recessions more painful and longer-lasting. Temp jobs? More like a temporary economy."

Obviously Maclean's is not a big fan of independent work, and sees it as a cause of income inequality.

We don't agree.  

As part of the 2011 State of Independence study we looked at independent worker income.  We found median per capita income for U.S. independent workers to be roughly the same as the median per capita income for workers overall.  

We also found a fair amount of income inequality among independent workers.  In particular 3 overlapping groups of independent workers significantly out earn other independents: (1) older independents (55+), (2) independents who have been independent longer than 5 years, and (3) independents that are highly satisfied with independent work.  

In other words, income inequality among independent workers somewhat mirrors overall income inequality.  

Our explanation - which is based on our interviews and other qualitative work - is independent workers with the right skill sets and experience are thriving and are much more financially successful than those who don't.  This is very similar to what is happening across the workforce in general.  

Because of this, we don't see the shift to independent work as a cause of income inequality.  

Instead, we think the shift to independent work is being driven in part by the same trends that are causing income inequality.  

So what's causing income inequality?  I think former Labor Secretary Robert Reich nails it in his book Super Capitalism.  

Everyone should read this book, but his recent Financial Times article We are all going to hell in a shopping basket nicely summarizes his views.  Key quote:

"At a deeper level the crisis marks the triumph of consumers and investors over workers and citizens. And since most of us occupy all four roles, the real crisis centres on the increasing efficiency by which we as consumers and investors can get great deals, and our declining capacity to be heard as workers and citizens."

The Rise of Online Micro-Job Markets

There's a growing number of online marketplaces designed to connect people who are willing to pay for small tasks to be done with people willing to do them. 

Think of them as eBay's for chores, small jobs and other personal and business tasks.  Examples include:

Coffee and Power: is a new marketplace with 2nd Life founder Philip Rosedale at the helm and funding from Amazon CEO Jeff Bezos and VC firm Greylock Partners.  The goal of the marketplace is allow people to buy and sell pretty much any kind of task (which they call a "mission"), although today a lot of posted tasks are IT related. 

One intriguing aspect of Coffee and Power is their plan to create coworking spaces around the country to give Coffee and Power workers (and others) a place to work.  Coffee and Power calls these "Work Clubs" and so far there's only one.  But if the concept catches on there will soon be a lot more.

Another intriguing aspect is they are offering their own virtual currency - called "coffee dollars" - and all transactions on the site use their currency.  The company guarantees a 1-1 exchange rate with the U.S. dollar and takes a 15% transaction fee on all missions.   

Zaarly:  Although a relatively new site, Zaarly also has quite a bit of investor star power.  Google, Kleiner Perkins and Ashton Kutchar have put in some of the $14 million they've raised, and ex-eBay CEO and current HP CEO Meg Whitman is on their board. 

In many ways their site looks like a collision of Craigslist and eBay, only with much better UI designers involved.  In addition to buying services, you can also buy goods on Zaarly. 

Gigwalk:  Provides a free iPhone app and pays people to use it to take pictures of stores, cafés, bars, and other businesses and places in their area.  Their claim is they provide an "instant mobile workforce." Microsoft, for example, is using Gigwalk to add pictures to their Bing local search listings. 

TaskRabbit.com:  Probably the best known of these sites.  People post tasks they want done (walking a dog, getting tires changed on a car, cooking dinner, etc.) and amount they're willing to pay for it.

Once posted, TaskRabbits - people willing to do small jobs who have registered and been vetted by TaskRabbit - bid on the task.  The lowest bidder wins and does the job. 

Online job marketplaces are not new.  Elance, for example, has been around for well over a decade.  But these new sites are using the efficiencies offered by the Internet to go after smaller jobs and person to person (often referred to as P2P) commerce opportunities that used to be considered to small to pursue. 

Caterpillar's Growing Flexible (Contingent) Workforce

Like many large corporations Caterpillar, the Illinois-based heavy equipment maker, is increasing the size of their contingent workforce (freelancers, contractors, consultants, temps, etc.).  

What's interesting about Caterpillar is they've decided to include information on contingents in their quarterly earnings releases.  They call this group "flexible workers" and report each quarter how many they have and how many they hired.

For the quarter just ending, they reported their flexible workforce totaled 27,385, up 7,117 employees from 20,268 at the end of the same period in the previous year.  This is a 35.1% increase.  

Full-time, traditional employment at Caterpillar rose 18.7 percent to 121,513 workers at the end of the third quarter.

This means 18.1% of Caterpillar's workforce is flexible (contingent).  This percentage has consistently grown since Caterpillar starting reporting this information.

We haven't talked to anyone at Caterpillar, so we don't know why they are choosing to report this.  Our guess is to show they are adding workers, and adding U.S. workers as part of a broader corporate growth story.

Regardless of the reason, kudos to Caterpillar for this show of transparency.

The growing use of "flexible" workers is one of the reasons we're forecasting the continued growth of independent work and workers.  See our State of Independence report for more details.

The Growing Importance of Talent Agents

Most people think of talent agents and talent agencies only work with movie and sports stars.  Wikipedia, for example, defines talent agent as "a person who finds jobs for actors, authors, film directors, musicians, models, producers, professional athletes, writers and other people in various entertainment businesses. 

But with the growth of independent workers (consultants, freelancers, contractors, etc.), the role of talent agents is rapidly expanding and includes many types of firms that act as talent agents. Examples include:

 - Temporary Agencies such as Manpower and Kelly Services.  They employ almost 10 million Americans over the course of a year and on average day place 2.6 million Americans in temporary jobs.  Both specialty staffing agencies and the big players are increasingly placing higher value employees - including C-level executives - with their clients.  These firms have grown quite rapidly over the last 2 years. 

 - Online Talent Exchanges such as Elance and oDesk.  These firms continue to grow at a rapid pace - both in terms of jobs offered and industries/job functions served. 

 - Sites that let you hire people for specific tasks.  This is a hot area for startups.   Task Rabbit, for example, allows people to post jobs they need doing (mostly chores) and find others who are happy to carry them out.  The Next Web has a nice article covering several of these types of firms. 

 - Outsourcing firms also continue to grow in number and scope.

All of these firms act as agents, connecting talent with those in need of talent and making this transaction more efficient for all. 

Our recent survey work as part of the MBO State of Independence study showed that independent workers are very concerned about job pipelines, unpredictable income streams and marketing their services.  The growth of talent agents will help independents with this crucial phase of their business.

The Highs and Lows of Going Out on Your Own

Maybe it's Time for Plan C covers the ups and downs of starting your own business.  Oddly enough, it's from the Fashion and Style section of the New York Times. 

Key quote on career switchers who go out on their own:

The lures are obvious: freedom, fulfillment. The highs can be high. But career switchers have found that going solo comes with its own pitfalls: a steep learning curve, no security, physical exhaustion and emotional meltdowns. The dream job is a “job” as much as it is a “dream.”

My favorite quote comes from a solopreneur book photographer: 

“Even though I hate taking on all the responsibility myself and I’m often crazed,” she said, “the moment that I hold a book I’ve completed, it makes up for all the uncertainty of getting there.”

Our research on freelancers and other solopreneurs echo the themes of this story.  Becoming a solopreneur isn't easy and it's risky.  But for those that make it, it's highly rewarding. 

Benefit Declines Makes Self-Employment More Attractive

It's no surprise that companies continue to cut workplace benefits.  According to a U.S. News article: "Employers have significantly cut many of the benefits they offer to workers over the past five years."

The article goes on to list 21 workplace benefits that are going away, with reductions in retirement and health care benefits leading the way.

Most people looking at becoming self-employed or starting a small business go through a risk/reward analysis of their choices.  This process is based on their views of the advantages and disadvantages of traditional employment versus self-employment.

We've found that corporate benefits tend to be overvalued in this analysis.  

People think employer benefit replacement costs are higher than they are, or that certain benefits can't be replaced when they can.  We've also found employer retirement and health benefits tend to be the most valued - and overvalued - in the evaluation process. 

There are a lot of other factors people include in their analysis - work/life balance, job security, advancement potential, social factors, etc. - but benefits matter. 

So when corporations cut benefits - and in particular cut health and retirement benefits - they increase the attractiveness of self-employment or starting a business. 

We don't see the trend towards lower benefits changings.  This means more people are likely to find self-employment or starting a small business more attractive. 

MBO's Independent Worker Study

MBO Partners has announced the kickoff of its first annual "State of Independence in America" study.  This study will examine the significant and growing independent worker (self-employed, freelancer, contractor, temps, etc.) movement in the US.

The goal of the study is to assess the size and the demographic profile of this growing segment of the workforce and detail the trends and challenges that will impact independent workers over the next five years.

MBO Partners provides legal, financial and business infrastructure services for thousands of independent consultants and freelancers.  They also provide contingent workforce solutions for companies who hire independent consultants and freelancers.  Because of this, they have deep domain knowledge on independent workers. 

Emergent Research (that's us) is partnering with MBO on this study, as is the market research firm Rockbridge Associates. 

The study has both qualitative and quantitative components, including interviews and focus groups of independent workers and a national survey. 

We will posting on the study here and MBO has an excellent blog on independent workers that focuses on this topic. 

The 9-5 Cure: Should You Become a Freelancer?

MSN Careers has a review of the book, "The 9-to-5 Cure: Work on Your Own Terms and Reinvent Your Life" by Kristin Cardinale.  In the book Cardinale outlines her "Patchwork Principle," which is described as:

"a freelance career strategy based on the simple idea that working for a number of employers simultaneously presents unique business opportunities and insulates an individual from sudden and total job loss. In short, enjoyable work in abundance is the signature of this business model."

We often hear in interviews with freelancers that they consider their jobs more secure than if they had a traditional job.  We also often hear about "enjoyable work." 

We rarely hear about "work in abundance," but a lot of freelancers are happy with their work load.

Our anecdotal, interview-based evidence is about 1/3rd of freelancers love freelancing, about 1/3rd would rather work full-time for someone else and about 1/3rd aren't sure which is better.

Since this topic is growing in importance, we've decided to do some statistically valid research to better understand how freelancers feel about freelancing.  We'll post the results on this blog when we're done - probably sometime this fall.

Oh, I haven't read The 9-5 Cure but I ordered it.  Looks interesting and it only costs $10. 

MBO Partners: A Business Platform for Independent Consultants & Freelancers

As part of our broader research looking at freelance and contingent work, I interviewed Gene Zaino, CEO of MBO Partners, last week.  MBO Partners offers a service providing a legal and financial infrastructure for independent consultants and freelancers. 

Although not well known, MBO has assembled a large client base - they say they have over 15,000 independent consultants and freelancers using their service. 

Their infrastructure service includes (from their website):  "group health benefits, retirement programs, a business and medical expense reimbursement program, billing and invoicing, and more."

They provide these services, in part, by becoming the "portable employer of record" for their indenpendent consultant clients.  This means, legally, the consultants and freelancers work for MBO Partners. 

But this employment relationship is for administrative, legal and back office purposes only.  The independent consultants continue to run their own businesses as they see fit, and are fully responsible for almost all client-facing activities. 

Their service solves a number of business problems for the independent consultant:

1.  Since MBO Partners is the legal employer of the independent consultant, there is no compliance risk for clients.  With worker classification becoming an increasingly problematic issue for large corporations, this is a real benefit for independent consultants and companies they serve.

2.  They handle contracts, billing and collections.  This cuts down on the administrative time and effort required by the consultant.  MBO also has existing master agreements with several thousand client organizations.  These existing contracts can be used by all MBO consultants, making contracting easier.

3.  MBO Partners offers group health and other benefits.  And while the consultant has to pay extra for these, because they are group programs they will likely be cheaper than other options.

MBO Partners charges a flat rate of 5% of billings for their services.  The agreements are short-term and the independent consultant can opt out of their relationship with MBO at any time. 

I talked to an independent consultant who uses MBO Partners at last week's Freelance Camp.  He said they saved him a lot of administrative time and effort.  He also said his accountant estimated he broke even on their service before accounting for health care costs.  The estimated health care savings were $500 per month.  He was very pleased with MBO.   

MBO Partners is targeted at high value knowledge workers who want to remain independent, but are also looking for administrative support and access to benefits.  If you fit in this category, MBO is well worth taking a look at.