Small Business Labs

The Growing Customer Acceptance of Home-Based Businesses

One of the key trends driving the growth of home-based businesses is the increased willingness on the part of customers to buy from them.   This shift in attitudes has made it much easier for home businesses to be successful.   

The BusinessWeek article, The Rise of the Homepreneur, includes coverage of this trend.  Key quote:

"But just as important, there has been a change of consciousness in the business world to recognize home-based enterprises as legitimate."

Most trends - and especially attitude shifts - take a long time to enter the mainstream.  The growing acceptance of home businesses started many years ago.  The underlying, inter-related drivers of this trend include:

1.  The rise of telecommuting and mobile computing:  Telecommuting exposed many people to working from home.  This led to a broader understanding that real work can be done from a home office.

2.  The blending of work life with home life:  Similar to telecommuting, the blending of work and home life is now common for many and again shows that you don't have to be in a traditional office to get work done.   

3.  The interest in work/life balance:  Work/life balance has become an important issue for many.  Many see home businesses as a way to help achieve better balance.  Because of this, there is more acceptance of people who choose to work from home.

4.  The realization that home businesses can be cost efficient:  Many homepreneurs stress the cost efficiencies they gain by being home-based.  This allows them to be very price competitive, which is attractive to their customers. 

While tipping points are hard to discern or predict, we believe customer acceptance of home businesses has reached a tipping point.   With millions of home businesses in the U.S., we've reached the point where many Americans have worked with or know a homepreneur. 

For more on home businesses and homepreneurs, see our research report Homepreneurs - A Vital Economic Force.   

Amateurs are Becoming Professionals

John Tozzi's BusinessWeek article Cheap Photo Sites Pit Amateurs vs. Pros examines the impact of low cost digital images - often produced by amateurs - on professional photographers.

John points out that while affordable digital cameras and desktop design software have made it possible for amateur photographers to compete with the pros, photography is not the only industry where this type of competition is happening.  Key quote:

"In any industry where technology has enabled passionate amateurs to try their hands, businesses face new competitors who may not be motivated by profit." 

We consistently talk to small business owners who started their business due to a hobby or passion.  Often these businesses start part-time, but grow into full time personal or small businesses. 

New, lower cost technology - like digital cameras - and Internet-based marketing are the primary drivers of this hobby to business trend.  The low cost of starting and operating a home-based business is another driver.

Over the last 2 years (2007 and 2008) the number of U.S. personal businesses (single person businesses without employees) increased by more than 2 million.  Many of these new personal businesses are part-time and/or hobby businesses.  Because of new technology and the Internet, part-timers can now compete with professionals.  Amateurs and hobbyists can also more easily evolve into professionals - often taking advantage of the low costs associated with personal businesses to effectively compete on price with larger, existing firms.

We expect the trends towards hobbies and passions leading to small businesses - and more amateurs becoming professionals -  to gain momentum over the next few years. 

We are finishing up a research brief on how the new Do It Yourself (DIY) movement is resulting in hobbyists and amateurs starting small businesses.  We will cover this issue and related trends in more depth in this soon to be released research brief.

Number of U.S. Personal Businesses Grew by Almost 1 Million in 2007

According to new data released by the U.S. Census, the number of personal businesses - whicy are single person businesses with no employees - increased by close to 1 million in 2007 reaching 21.7 million.  This is an increase of 4.5% over 20.8 million personal businesses recorded in 2006.

This increases the total number of U.S. small businesses (defined as less than 500 employees) to roughly 28 million. 

Personal business total receipts (roughly equivalent to revenue) grew 2.2% to $992 billion.  This means personal businesses generated about 7.5% of America's economic activity in 2007.  The average personal business had about $46,000 in receipts in 2007.   

The personal business category includes freelancers, independent contractors and other forms of self-employment.  The Census derives this data from tax returns.  This number includes full time and part-time personal businesses.  The Census calls this group "nonemployer businessess." 

The number of personal businesses has been growing steadily since the late 90's when the Census first started collecting this data. 

We are forecasting that this growth will continue over the next few years due to lower personal business start-up costs, lower relative risk associated with starting a personal business and the economic downturn reducing traditional employment options.

Longer term we see multiple structural shifts driving the growth of personal businesses.  We cover this in more detail in our Changing Faces of Entrepreneurship research report and in our personal business and self-employed blog categories. 

Recession Drives New Businesses

Three good articles last week on the economic downturn resulting in displaced workers starting businesses and freelancing.   

In Hard Times, Freelancers Turn to the Web, NY Times reporter Dan Fost discusses layoffs leading to a growing number of freelance workers and the various freelance marketplaces they turn to for business.  The article covers Elance, oDesk and several vertical industry sites that connect freelancers and independent workers with companies looking to hire contractors. 

Weary of Looking for Work, Some Create Their Own, also from the NY Times, talks about a surge of interest in entrepreneurship due to the economic downturn. 

And over at BusinessWeek, John Tozzi's After Layoffs, Starting a Business From Scratch reports on laid off workers starting small businesses. 

The BusinessWeek article also has a great slide show with 29 examples of displaced workers - referred to as "rebounders" - who have started a new business. 

We've posted in the past on recession leading to higher rates of small business formation. 

Self-Employment and Nonemployer Businesses

Self-employment week continues with a look at the differences between government definitions of self-employment and nonemployer businesses.  And yes, it doesn't get much more exciting than this:).

Let's start with nonemployer businesses (we call them Personal Businesses).  According to the U.S. Census Bureau:

"A nonemployer business is one that has no paid employees, has annual business receipts of $1,000 or more ($1 or more in the construction industries), and is subject to federal income taxes. Most nonemployers are self-employed individuals operating very small unincorporated businesses, which may or may not be the owner’s principal source of income."

The data comes mostly from tax returns filed with the IRS.  So as long as we aren't looking at cabinet nominees or those buying and selling senate seats, it is probably pretty accurate.

According to the Census, there were roughly 21 million nonemployer businesses in U.S. in 2007, up from 20.8 million in 2006.  We've posted a lot in the past on personal businesses and covered them in detail in our Changing Faces of Entrepreneurship research report. 

Self-employment data comes from the Current Population Survey (CPS), which is a monthly survey of about 50,000 U.S. households.  The CPS has been around over 50 years and is the primary source of information on the U.S. labor force.  The widely followed monthly unemployment rate, for example, is derived from CPS data.

According to the CPS, about 16 million people were self-employed in 2007.  This is total self-employment and includes unincorporated, incorporated and agricultural self-employed.  Alert readers of the prior two posts in this series will immediately recognize why we need this qualifier.

So in 2007 the U.S. had 21 million personal (nonemployer) businesses and 16 million self-employed.

Because the data collection methods are so different, one should not try to draw a lot of conclusions from the combination of the two datasets. 

Recession and Personal Businesses

Personal businesses are single person businesses that do not have employees.  They include sole proprietorships, independent contractors, independent consultants, most hobby and part-time businesses and most home businesses. 

The US Census calls them "nonemployer businesses" and they are an important part of the US economy.  As of 2006 (the most recent data available) there were almost 21 million personal businesses in the US.

Driven by a mix of economic, social and technological changes the number of US personal businesses has grown faster than the economy over the last decade.  These long term shifts include corporate downsizing and outsourcing, corporate shifts away from the traditional employment contract, increasing interest in work/life balance and the rise of the Internet.

With a recession starting (or already started), we expect the number of personal businesses to grow over the next two years.  The slowing economy will lead to higher unemployment and fewer traditional job opportunities.  As we saw during the economic slowdown at the beginning of this decade, the lack of traditional jobs will lead to higher rates of personal business formation.

The recession will also hurt existing personal businesses.  There will be fewer opportunities for work, business and consumer spending will fall and we expect declines in personal business revenue and income.  But since personal businesses have few fixed costs, are relatively inexpensive to operate and personal business owners will have limited alternatives, we do not expect sizable personal business closures. 

The net result will be an up tick in the personal business growth rate over the next two years.  This will be followed by slower personal business growth as the economy recovers and traditional job opportunities improve.

For many personal businesses will act as a lifeboat helping people get through the coming tough economic times.  We saw this in Silicon Valley after the first Internet boom.  The standard joke in 2002 and 2003 was almost everyone in the Valley was an independent consultant.  For many their personal business got them through the downturn and positioned them for opportunities when the economy improved.      

The good news is starting a personal business is cheaper and easier today than ever before.  So is starting a regular small business.  This is not to say it is easy - especially in a recession - just easier than it was in the past.

For those looking to start consulting businesses, Tim Berry has some excellent pointers at his Up and Running blog.   

Part-Time and Hobby Business Trends

Forbes has an interesting article on the growth of stock photograph sales on the Internet.  According to the article,  there are "thousands of amateurs who are discovering how to turn their expensive hobby into a profitable part-time pursuit."

Emergent Research buys stock photographs.  We bought the picture on the right from Philip Silverman, a part-time photographer based in England. 

We use the photo on our website and in presentations.  We found Silverman and his photo by searching the web for pictures of emergent growth trees. 

Our purchase of this picture - and the growth of the stock photo industry in general - illustrates several of the trends driving the growth of part-time and hobby businesses:

1.  Technology is reducing production costs in a number of industries, allowing part-time and hobby businesses to compete in industries that used to be limited to bigger companies.  Digital photography, for example, has substantially cut the costs of taking, developing and editing photographs and has led to a boom in the number of part-time photographers.   

2.  The reach of the Internet greatly expands the addressable market for part-time and hobbyist businesses and provides them new ways to find customers - and for customers to find them.  In our case we found Silverman, which simply would not have happened prior to the broadband Internet. 

3.   Payment and back office systems allow the smallest of businesses to easily bill and collect.  We used Paypal to buy Silverman's photo, which was priced in British Pounds. Even 5 years ago it is unlikely we would have bothered to purchase this photo due to payment problems.   

4.  New middlemen are creating new small business opportunities.  A wide range of intermediaries have emerged to make markets more efficient and help buyers and sellers find one another.  Like iStock in photos, many of these intermediaries target part-time and hobbyist suppliers.

5.  Baby boomers want to work in retirement, preferably doing things they enjoy and are different from their existing careers.  Part-time and hobby businesses fit their needs.  Silverman, for example, is a baby boomer with a regular job and career who plans to continue his photography business well into retirement.   

In our research we often find that small and personal businesses started part-time and/or as hobbies.  Because of this, more part-time and hobby businesses will lead to more small and personal businesses.   

   

 

Escape From Corporate America

The book Escape from Corporate America by Pamela Skillings is a What Color is My Parachute for the new economy.   It is focused on helping disenchanted corporate workers find jobs, careers and work options that better fit their life goals and aspirations.  While the book covers a wide range of career options, it stresses leaving big company jobs for entrepreneurship and small business. And like “What Color is My Parachute,” it is full of advice and exercises that help the reader plan for their new career.

The book is positive and upbeat about self-employment and small business, but without the over the top sugar coating and hyperbole that usually comes with “how to” entrepreneurship books.   Skillings even points out that there are a lot of good corporate jobs and corporate employers. This is good because the decision to leave a corporate job and head out on your own should not be made lightly.  And not everyone is cut out for and/or ready for entrepreneurship. 

Escape from Corporate America does a nice job of helping the reader think through and plan career change decisions.  While targeted at unhappy corporate employees, the book is useful for anyone thinking of changing careers.  I also think corporate execs and HR managers should read this book.  It does a great job of describing why so many corporate employees are unhappy.

Spending on Pets Continues to Grow

We have 4 dogs and 1 cat in our family.  How this happened is a long story, but between food and health care (2 of the dogs are old) we spend a lot of money on our pets.

According to the Yankelovich Monitor Minute, we are not alone.  Key quote:

"In 2007, Americans spent $41.2 billion on their pets, an increase of 142% from the $17 billion spent in 1994."

Some of the more interesting pet related small businesses mentioned by Yankelovich:

• Dogcars.com - a blog on pet friendly cars and travel.
• Eddies Wheels for Pets - wheel chairs for handicapped pets.
• The Barkely Pet Hotel and Day Spa - exactly what is sounds like. 

The Yankelovich Monitor Minute is quite interesting and covers a wide variety of consumer research and trends.  Well worth reading and/or subscribing to.   

Employees Want to Work on Their Terms

Interesting report by Deloitte called Competing for Talent.   The study suggests that companies need to change the nature of work to continue to attract and retain high value employees.  Key quote:

"For today’s workers, hefty compensation packages and fancy retirement plans just aren’t as appealing as they used to be. What they really want – more than anything else – is to control when, where, and how they work. They’re happy to work hard, but want to do it on their terms.

And by the way, we’re not just talking about "Gen Yer’s", also known as, "Millenials." As it turns out, recent retirees who are re-entering the workforce want many of the same things as their younger counterparts. So do "Gen X’ers," although most are too afraid to ask."

In our research on very small (5 employees or less) and personal businesses (one person businesses), work flexibility, work/life balance and values are consistently mentioned as key reasons for starting small businesses.  Competing for Talent looks at this issue from the point of view of larger organizations, but reaches the same conclusion as our research - people want more work flexibility and  want to work on their terms.

EDN has a related article on this study that discusses Gen Y in more depth.