Small Business Labs

The New Entrepreneur Presentation

I was forwarded a link to a really interesting presentation on small business trends called The New Entrepreneur.  It is from Grasshopper, a company that provides virtual phone systems for small businesses.  They worked with the market research firm Trends Spotting to develop this very professional and visually appealing presentation.   

The New Entrepreneur covers a number of trends and includes information from a mix of sources such as the Kauffman Foundation, IDC, GEM and others - including several references to studies done by us. 

So while I'm a bit biased, I think the presentation is quite well done.  It was posted yesterday on Slide Share and already has close to 2000 views, so many others agree it well worth taking a look at.   

Outlook for Jobs, Small Business Hiring Improving

According to the Bureau of Labor Statistics, U.S. unemployment held steady at 9.7% in February.  This was a positive surprise because most economists thought the east coast blizzards would cause the unemployment rate to increase. 

According to T.R. Price's chief economist as reported by NPR, the economy probably would have added jobs in February except for the storms.  Floyd Norris of the NY Times concurred, saying:

The decline in overall employment, of 36,000, was almost certainly caused by the weather.  As I have noted before, there were two sets of blizzards in the East to affect employment in the week the survey covered.  The “real” number almost certainly was positive, and we are set up for a good gain next month. 

Small business hiring signs are even more optimistic.  John Tozzi's Business Week article Hiring by Smallest Employers May Signal Job Recovery covers recent data from Intuit and Sure Payroll showing that small business hiring is picking up.  The chart below is from the Business Week article.

 

Intuit's new Small Business Index is based on payroll data from over 50,000 of their payroll customers.  It shows small businesses with fewer than 20 employees started adding jobs last June.   Sure Payroll's February report, also based on small business payroll data, showed a 1.9% increase in small business hiring.

Most economist expect hiring to increase as the year goes on.  Some are even quite optimistic about U.S. job and economic growth.  This is good news for all. 

The End of Men

I jokingly refer to a set of trends related to changing gender roles as "the end of men." I am joking, so please don't send hate mail.

But there is a growing set of data and trends indicating that men are not as well equipped for the demands and stresses of modern society as women.  Men die younger, have substantially higher substance abuse rates and are much more likely to be in jail. 

Recent studies also show a major shift in mental health, with depression rising among men and decreasing among women.

Men don't do as well in school as women.  The chart below is from The Rise of Wives, a Pew study on marital changes caused by women outpacing men in education and earnings growth over the past couple of decades.

    

The shift towards women in college is so pronounced - over 58% of U.S. undergrads are female - that many universities have affirmative action programs for men. 

Women still earn less than men, but the gap is closing.  The Rise of Wives points out that women's inflation adjusted earnings grew 44% from 1970 to 2007, compared with just 6% for men. 

Structural economic shifts will likely result in additional gains for women. The U.S. Bureau of Labor Statistics Occupational Outlook job forecast shows that categories with higher levels of women employment are expected to outperform categories dominated by men over the next 10 years.  This means the earnings gap should continue to close, and earnings parity may happen by the end of the next decade.   

We're also seeing a shift towards women small business owners, a trend we highlighted several years ago in the Intuit Future of Small Business report Changing Face of Entrepreneurs.

Adding to this is a recent study by the Guardian Life Small Business Research Institute.  While they don't explicitly state it, you can't read their research summary without thinking their results show that women are better suited for small business ownership and management than men. 

So while I am joking about the end of men, the rise of women is a clear trend. 

Follow the Money to Spot Trends

One of the tools we use in our small business trend identification process is "following the money."  By this we mean keeping track of where venture capitalists, private equity firms and money managers are investing. 

The reason we do this is simple.  The rewards associated with successful investing are enormous - just ask anyone working for Goldman Sachs.  Because of this, the financial industry attracts very smart people and spends a lot of time, energy and money trying to understand where things are going. 

Money management firm Oppenheimer recently released their list of 2010 investment themes.  One of their key themes is the recovery will be led by the BRIC countries (Brazil, Russia, India, China) and other developing nations.  The chart below from their report highlights expected 2010 economic growth for selected countries.

 

This growth picture is a key reason we believe small business globalization will increase in 2010 and continue to grow in the coming years. 

Autism Clusters and the Coming Human Enhancement Divide

NPR has a fascinating, but not surprising, story on autism clusters.  According to researchers at UC Davis, clusters of children diagnosed with autism tend to occur in places where parents are older, well educated and white.

It's not that these people have more kids with autism.  The clusters occur because this socio-economic group is more likely to go through the time consuming, complicated and often expensive diagnosis process. 

This is an early sign of the coming human enhancement divide.  Simply put, rich people are going to have better access to technologies and drugs that improve cognitive ability and other forms of human enhancement than poor people.  The same will be true for rich countries versus poor countries. 

Cognitive enhancement is already here in the form of drugs (called nootropics) that improve concentration.  The ADD drug Ritalin, for example, is widely used by students, high tech workers, financial professionals and others interested in gaining a mental edge.  

More powerful nootropics are under development, and other forms of human enhancement and genetic engineering are much closer to use than commonly believed.

I'm often asked what future trends scare me.  Cheap, easy to make bio-weapons tops my list. 

But not far behind is human enhancement.  This field and technologies are moving much faster than our ability to deal with the related ethical and moral issues. 

Top 10 Small Business Trends for 2010

In what has become an annual tradition, below is our top 10 small business trends list for 2010 (click here for our 2009 list, here for 2008). 

The economy continues to be the key issue facing small business.  We expect a country & western song type of recovery in 2010 - we've been down so low, the bottom looks like up.  We anticipate moderate economic growth and stubbornly high unemployment.

Economic Trends 

1.  The Shift to Contingent Workers Turns Employees into Entrepreneurs:  Employers large and small are shifting from full-time employees to part-timers, freelancers, outsourced services, partnership arrangements and other forms of contingent workers.  They are doing this to save money and increase business flexibility.  Despite the economic recovery, 2010 will see the contingent workforce grow as companies continue to limit hiring of full time staff.  Many of these contingent workers will create or work for small businesses.

2.  Personal Businesses on the Rise:  Enabled by the Internet and low-cost information technology, the number of personal businesses (one employee businesses) has grown twice as fast as the overall economy over the last decade and exceeds 22 million.  With the unemployment rate remaining high and traditional employment options limited, 2010 will be another year of strong growth in the number of personal businesses.  The growth in personal businesses will also result in an increase in overall small business formation and numbers in 2010.

3.  Small Business Lending Returns to Pre-Bubble Levels:  The Great Recession was caused in large part by a decade long credit bubble.  The recession ended the bubble and small business borrowing was extremely difficult in 2009.  2010 will see a thawing of credit markets, but the easy credit environment of the last decade will not come back.  Instead, lending standards will return to pre-bubble levels and only highly credit worthy small businesses will be able to borrow.  Because of this, the availability and use of alternative credit sources - merchant advances, micro-lending, community lending, factoring, etc. - will grow as sub-prime small businesses seek funds. 

Social Trends

4.  The New Local Movement:  New localism is a long-term trend whose impact has been accelerated by the recession.  Driven by changing demographics, new technology, rising energy prices and growing concerns about the environment, more Americans are focusing on their families, friends and communities.  Small businesses tap into and benefit from this trend several ways.  Small businesses allow greater community focus for the owner and employees, and they benefit from market opportunities created by locally-oriented customers. 

5.  There is No Place Like Home for Small Business:  Fueled by technology and enabled by low costs, 2010 will see the continued growth of home-based businesses.  According to the SBA half of all small business are home-based. Our research shows that about 6.6 million home-based enterprises provide at least half of their owners' household income, and together employ more than one in 10 private sector workers.  See our Top 10 Hompreneur Trends for 2010 list for more on home-based businesses.

6.  Clean and Green Creating Small Business Opportunities:  Despite the current climategate controversy, the trends towards sustainability, clean technology and green energy continue to gain strength with consumers and businesses.  In many cases the shift to sustainable business practices, products and services is changing how industries operate and creating a wide range of new small business opportunities.

Technology Trends

7.  Social, Mobile and Cloud Computing Converge:  All three of these interrelated technologies have been on our top 10 list for several years.  Mobile and social computing entered the mainstream in 2009, and cloud computing will join them in 2010.  Individually, each of these technologies is having a major impact on small business.  But the increasing convergence of these technologies is amplifying their impact and fundamentally changing how business is done.

8.  Location Technology and Services:  With the near ubiquity of GPS systems in smartphones and cars, consumer and business use of location aware applications will grow dramatically in 2010.  Location information on businesses and consumers will become common and merge with online reviews and ratings.  The use of location-based marketing services will grow as location data makes the shift from offline to online marketing even more powerful and attractive.

9.  Analytical Tools Lead to Data-Driven Decisions:  Sophisticated yet easy-to-use tools are allowing small businesses to move from "gut level" decision making to evidence-based management.  Online marketing and customer relationship management systems in particular allow small businesses to develop data-driven marketing and support programs that even recently were available only to large corporations.

10.  Online Training Brings Professional Education to Small Business:  Low-cost yet highly professional online training courses and programs provide small business with the ability to improve productivity and employee engagement.  Often utilizing digital video and delivered just-in-time, online training provides small business with the ability to adapt and adjust to changing business conditions.  Negatively impacted by the recession, small business use of online training will accelerate in 2010. 

10 Emerging Technology Trends from 2020 Science

2020 Science is a blog focused on the future of science and technology.   It is one of my favorite science blogs. 

Their Emerging Technologies to Watch list is:

1. Geoengineering
2. Smartgrids
3. Radical materials
4. Synthetic biology (engineering DNA)
5. Personal genomics
6. Bio-interfaces
7. Data-interfaces
8. Solar power
9. Nootropics (drugs that enhance cognitive ability)
10. Cosmeceuticals (cosmetics that also deliver drugs)

The post also discusses convergence as a mega trend.  Key quote:

And one final word.  Many of the technologies I’ve highlighted reflect an overarching trend: convergence.  Although not a technology in itself, synergistic convergence between different areas of knowledge and expertise will likely dominate emerging technology trends over the next decade. 

For details on the 10 trends, or more on the future of science visit Science 2020. 

Signs Point to a Better 2010 Tech IPO Market

Going public has long been the dream for tech company founders and their investors.  But the last few years have not been good for companies hoping to do an initial public offering (IPO).  The financial crisis and Sarbanes-Oxley reporting requirements severely limited their number.

But the IPO market seems to be thawing.  Q4 2009 has already seen the most IPOs since Q1 of 2008.  Last week security software company Fortinet had a very successful offering and several more IPOs are slated for debut before the year is out. 

2010 also looks to be a much stronger year for IPOs.  The drivers are:

1.  The economy and stock market are improving, opening the IPO window for companies that have shown the ability to thrive during the downturn.   

2.  Successful private companies with strong operating track records are positioning to go public.   Facebook is the best example and their recent announcementof creating two stock classes indicates they are on the IPO path. 

3.  Investor interest in clean tech and environmental company public offerings.  Several clean tech firms, including electric car company Tesla Motors and smart grid supplier Silver Spring Networks, appear to be planning 2009 IPOs.  Neither of these companies is reported to be profitable. They will be going public on a future growth story - a clear indicator of renewed investor interest in growth IPOs - at least in clean tech.   

While the glory IPO days of the late 90s are not going to return, we expect 2010 will be a much stronger IPO year than the last few.  The industries likely to lead the IPO markets are social computing, clean tech, security and cloud computing. 

The Average American No Longer Exists

That the U.S. has become more multi-cultural is no surprise.  But the extent of the demographic changes that have occurred over the last few decades can be surprising.

According to an article in Advertising Age that anticipates the results of the 2010 Census, there is no longer an average American. Key quote:

"The concept of an 'average American' is gone, probably forever," demographics expert Peter Francese writes in 2010 America, a new Ad Age white paper. "The average American has been replaced by a complex, multidimensional society that defies simplistic labeling."

Examples of this include:

• Married couples with children account for only 22% of households
• White non-hispanics comprise less than 50% of the populations of Texas or California
• In the nation's top 10 cities, no racial or ethnic category describes the population majority

Going forward, the country will become even more multi-ethnic and multi-cultural.  80% of people 65 or older are white non-hispanics; but just 54% of children under 18 are white non-hispanics.  In 2010, hispanics will be the largest minority (50 million) and the fastest growing.

Ad Age has a more detail and projections in a white paper they have for sale. 

The Rise of Social Games

Social games are online games that are played on social networks like Facebook or MySpace, or on smartphones like the iPhone. 

One of the most popular is Zynga's Farmville.  It is a Facebook application that allows users to grow digital crops and sell them for virtual money - which is used to buy virtual items that help you improve your farm such as tractors and tools.  As silly as this game sounds, there are roughly 61 million players around the world. 

The game is social because all the players are logged into Facebook and users can choose to work together or compete with one another.  During my very brief Farmville experience, I neglected to water my crops.  But in an interesting example of the social nature of the game, a friend of mine noticed this and watered them for me. 

Besides Zynga, two other social gaming firms have popular games.  Playfish has 21 million users of its Pet Society game and Playdom has 16 million users for its Mobster game. 

The companies make money two ways.  The first is selling virtual goods to game players.  Using a credit card or Paypal, users improve their game performance by buying items that speed up play or make it easier to reach a higher level in the game. 

The other - and much larger - revenue stream comes from lead generation for companies advertising on the games.  The game companies offer virtual cash in exchange for game players taking offers from advertisers.  Sign up for a credit card or Netflix, buy ringtones or an energy drink and you get rewarded with virtual cash.  The company gets rewarded with real cash.

These companies already have substantial revenues and are growing very rapidly.  Not surprisingly, they are also rumored to be quite profitable (all three are private) - which is not surprising since they are selling virtual goods and trading fake money for real money.   

For more on social games see BusinessWeek's article on the App Economy or the Tech Crunch review of social game companies.