Small Business Labs

Small Business Owners Getting Older and Not Planning to Fully Retire

According to Barlow Research, the average U.S. small business owner is 60.3 year old.

As the Barlow chart below shows (click to enlarge), 57% of small business owners are over the age 60, up from just 38% a decade ago.

Barlow defines small businesses as those with revenues between $100,000 and $10 million. This range includes the vast majority of U.S. employer small businesses.

Also interesting is Barlow's findings on small business owner retirement plans. In general, small business owners are not the retiring type.

They found average small business owner with plans to retire is planning on retiring at age 67. 

But 7 in 10 of those plan to work at least part-time after their "official" retirement.

Also, only 68% of small business owners report plans to retire. Almost 1/3rd (32%) reported they plan on working indefinitely.

So if you do the math, you find only about 20% of small business owners plan on fully retiring.

We've long covered the topic of delayed retirement in our Baby Boomer section. Most baby boomers are reporting they plan on working longer than prior generations, either due to need or choice.

In the case of most small business owners, it's mostly choice. Small business owners tend to find business ownership fulfilling and want to continue.

Barlow Research is a research firm that provides in-depth information on business customers to the banking industry.  They are an excellent information and insights on the small business sector of the economy. We turn to them often in our work.

Patreon, True Fans and the Return of "Patron Funding"

In 2008 Kevin Kelly wrote a prescient essay called "1000 True Fans".

Key quote:

"A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author - in other words, anyone producing works of art - needs to acquire only 1,000 True Fans to make a living."

According to Kelly, if you have 1,000 True Fans (defined as people who will pay for your content) you have a large enough audience for your work to generate enough money to live. 

Since that essay crowdfunding has become a large industry, but it's been mostly focused on the funding of physical products.

More recently there has a been a growing trend towards the funding of artists and other creatives through "patron funding" models. These are sites that allow fans to subscribe to the creative output of individuals. 

A good example is Patreon, a site that allows creators to build subscription services that allow access to their work. 

According to the New York Times article Suffering for Your Art? Maybe You Need a Patron, Patreon currently "has one million “fans” who each contribute an average of $12 every month to their favorite artists on the site."

Originally designed for musicians, Patreon now has a wide range of "creatives". 

A good example is Naked Bakers.

The Vice article How NSFW Content Makers Found a Home on Prateon describes Nakde Baker as an R rated video series "that let's patrons of the show watch the "Baker" whip eggs, sift flour, and add her wet ingredients to her dry ingredients in the nude."

NSFW is a an acronym for "not suitable/safe for work".  

Subscribing to Naked Bakers costs a minimum of $3 per month, with the average subscriber paying $10 per month. The Naked Bakers, BTW, also gardens and cleans in the nude. 

While the relatively new Naked Baker show is not a huge hit, it's generating enough revenue that the "Baker" has quit her day job. 

One driver behind the shift to patron funding is advertising revenue models are becoming harder to make work. This is due to what some are calling the adpocalypse, which is the advertising revenue declines many content sites are seeing. 

The other driver is the growing awareness that a relatively small number of patrons can generate a decent living. As Kelly pointed out in his essay:

 "If you keep the full $100 of each true fan, then you need only 1,000 of them to earn $100,000 per year. That’s a living for most folks."

Patron funding is not new. During the Renaissance royal houses provided room, board, materials and business support to talented artists of the day.

Today, thanks to the Internet and platforms like Prateon, you don't have to be a Medici, or even rich, to be a patron.

This democratization of patronage is a good thing for artists and content creators. We believe this model will continue to expand, providing a growing alternative revenue source for a variety of independent workers.

Tech Jobs Moving to the Midwest

U.S. companies have long moved work overseas to save money. But a long emerging trend of moving work to lower cost areas of the U.S. instead of overseas appears to be gaining steam.

The New York Times article Hot Spot for Tech Outsourcing: The United States looks at the outsourcing of software development tasks to lower cost U.S. cities, mostly in the Midwest.

Although lower cost U.S. cities are more expensive than outsourcing overseas, rising salaries and costs overseas is making outsourcing there less of a bargain.

Meanwhile, locating in the U.S. has a number of advantages.

Having work done in the U.S. greatly reduces issues and problems associated with  navigating time zones, cultures and languages that are common with international outsourcing. 

The nature of software development and product design has also changed in ways that make domestic outsourcing more attractive. Key quote from NY Times article:

... companies in every industry need mobile apps and appealing websites, which can be made smarter with data and constantly updated. That software is best created by small, nimble teams, working closely with businesses and customers — not shipped to programmers half a world away.

Regular readers know one of our favorite trends is the paradox of place. 

The paradox is even though the Internet and connective technologies has made working remotely easier than ever, people and companies are increasingly clustering together in fewer, more valuable locations.

But despite the paradox, there are a growing number of signals indicating that companies - and workers - are becoming more distributed. 

The talent marketplace Upwork, for example, released a study earlier this year showing that work conducted via their site is increasingly moving from high cost areas of the U.S. to lower cost areas. 

Another example is the growing trend towards "near-shoring" - locating manufacturing in the U.S. to be closer to customers and supply chain partners.

Also driving this shift is cities like San Francisco and New York have become so expensive, it's simply become hard for companies and their employees to locate there,

LinkedIn's Labor Arbitrage Comes To Silicon Valley covers the shift to lower cost locations by many Silicon Valley firms. Key quote:

The advantages of these remote locations include lower salary costs, higher standards of living for employees, greater ability to retain employees, less competition and consequently higher retention.

A number of domestic outsourcing firms have sprung up to tap into this trend. The New York Times article covers the Midwest-based Nexient, whose tagline is "100% U.S. based software partner". 

Technology is, of course, the other driver of this shift. Next-generation chat, video calling, and project management software make it easier to coordinate work with and manage remote teams.

But paradox of place continues to be, well, paradoxical.

IBM and other major corporations are reducing telecommuting and ordering more people back to the office. 

And according to NewCo Shift, Co-located Outsourcing is The Newest Trend In Tech Outsourcing. Key quote:

In person, face-to-face, co-location is the most effective form of communication, especially when you are faced with brainstorming and solving complex issues. Software development is often complex. And, the more that companies rely on technology to be a differentiator, the more complex it becomes.

So the trends indicate there will be both more distributed work and more co-located work. We believe both will continue to happen, at least for the next 5-10 years. 

But we also think in the long run distributed work will become more common as technology reduces the problems associated with distance.

The short video below (less than 1 minute) give a quick overview of the Midwest's Silicon Prairie.  

Mastercard on the Sharing Economy

Mastercard believes the sharing economy is large. growing rapidly and here to stay. Key quote from their press release on their recently released sharing economy study:

“The sharing economy is experiencing an extraordinary level of growth, transforming the fundamental way industries operate and people experience a variety of things,” said Mark Barnett, President, Mastercard UK & Ireland.

The study chart below shows how much faster the sharing economy is projected to grow relative to traditional rental industry segments. 

Online staffing, which Mastercard is projecting to grow at 37% compound annual rate, caught our attention for two reasons.

First, we don't often see online staffing included in sharing economy analyses. 

Second, a 37% CAGR would mean this segment would double every 2 years. This would mean it would be 16 times as large in 2025 as it is today.

That's a lot of projected growth.

The Mastercard report is a little hazy about what they are including and not including in their sharing economy definition. They are also a bit unclear about what geographies they are including.

But if they are including China, the forecast is probably reasonable.

As the World Economic Forum article The numbers that make China the world’s largest sharing economy points out, China's sharing economy is large and growing rapidly. Key quote:

In 2015, the sector was reportedly worth $229 billion and is predicted to grow by 40% annually over the coming five years. China’s state information sector recently announced that by 2020, it could account for over 10% of domestic GDP, and that the ratio will continue to grow to roughly 20% by 2025.

To put this into perspective, the largest U.S. industry is healthcare. Very broadly defined, the healthcare industry is about 17% of U.S. GDP. Real estate very broadly defined is probably the 2nd largest, at about 13%.

So clearly the sharing economy, even if the forecasts are off quite a bit, is going to be very, very big in China. And if Mastercard is correct, also elsewhere in the world.

The Growing Use of Online Talent Marketplaces

One of the more interesting findings from the MBO Partners State of Independence study is how much the use of online talent marketplaces has increased over the past 6 years.

As the blue bars in the chart below show (click to enlarge), only 3% of independent workers reported using online talent marketplaces to find work in 2012. By 2017 this grew to 20%

Also interesting is the response to a question about their planned use over the next year (red bars).

This has increased from just 4% in 2012 to 25% in 2017.  This indicates that 2018 will again see an increase in the usage rate.

There are several reasons for these increases.

The rising number and diversity of online talent marketplaces is clearly one reason for the growth of their use.

Whether you're a dog walker, doctor or driver (or pretty much anything else) there are vertical market platforms that will help you find work. 

A greater willingness on the part of companies to utilize these marketplaces is also creating more demand. 

More people looking for highly flexible ways to supplement their income is a third reason. 

And while few independent workers report these marketplaces are their primary source of business or income, more independents are turning them to fill gaps in their schedules, find new clients and explore new business opportunities.  

In other words, independent workers are seeing online talent marketplaces as another channel for finding business.

Not surprisingly, the use of online marketplaces is correlated with the age. Younger independent workers, who tend to be more tech savvy and have less developed professional networks, use them more than older independents.

The trend towards greater use of online talent marketplaces will likely continue.

In addition to the growth of public talent marketplaces, a growing number of corporations are setting up private talent clouds and marketplaces. Combined, this means much greater demand for labor found through the cloud.

Despite Big Problems, Uber Will Likely Continue to Thrive

To say there's been a lot of recent bad news about Uber is, of course, a massive understatement. 

Rarely has a firm had as many problems, miscues and crises as Uber has had so far this year.

Recode even calls it Uber's no good, very bad 2017.

But despite all this, CityLab's Why Uber Will Still Dominate covers the reasons the company is very likely going to continue to be successful.

The key reasons are Uber (and Lyft) are cheaper than their competitors, have much greater name and brand recognition and have a huge data advantage relative to their competitors.

They're also fortunate in that their market continues to grow very rapidly. And regulatory pressures on Uber and ridesharing in general seem to be declining. 

A good example that Citylab points out is how quickly Uber has regained share in Austin, Texas since it reentered the market. 

Uber and Lyft left the Austin market last year due to what they felt were unreasonable local regulations. A new Texas state law overrode these regulations, so both firms reentered. 

Despite Austin being considered an anti-Uber town, they almost immediately returned to being a market share leader.

Florida also recently passed a state wide law favorable to Uber and other ride sharing firms. 

Uber's biggest strength is consumers like them.

The chart below (click to enlarge), from the excellent Quartz article There’s still one thing people like about Uber, nicely illustrates this.

 

The article also covers the myriad of scandals, problems and issues Uber is facing.  Key quote:

"The latest Uber headlines are straight out of a TV drama ... The facts in the stories are worse ... The stories would defy credulity if they weren’t about Uber, a company whose first half of 2017 seems better suited to fiction than reality."

But the article also points out:

"Despite all of it, there is one thing people still like about Uber: its service."

Uber's data advantage is simple. They have more data than their competitors. More data means better analytics, which means better business insights. Better insights provide competitive advantage. 

Before you send us an email about it, yes, we are aware of the various Uber boycotts. 

Two points about them:

1. Most consumers aren't paying attention to the news about Uber.
2. Most of Uber's revenue comes from outside of the U.S., where consumers are paying even less attention than they are here.

And we're also aware they are facing talent attraction and retention issues, especially in San Francisco. But Uber still shows up on top places to work lists and they've recently made several high profile hires. 

Also, as long as they offer compelling jobs - and their mission to re-engineer global transportation is very compelling - people will want to work there.

This is not to say Uber won't fail. They can and will if they don't fix their management team and bring in adult leadership. 

They also need to treat their drivers better.

But as long as they are winning with consumers and their industry is growing at what the DC think tank Brookings call "hyper growth", they have the time required to fix their problems.

And we think they will.

BTW, in case you are wondering Uber is not currently nor has ever been an Emergent Research (that's us) client. 

Cyclical and Structural Forces Behind the Growing Independent Workforce

MBO Partners released their 2017 State of Independence report today.

In 2017, the total number of independent workers (self-employed, freelancers, independent contractors, etc.) in American rose to 40.9 million, up 2.8 percent from 2016.

And MBO Partners is forecasting the independent workforce will continue to grow over the next 5 years, reaching 47.6 million in 2022.

It's the 7th year MBO Partners has conducted this study, which gauges the size, growth, motivations and attitudes of independent workers. We work with MBO Partners on this study.

While the overall independent workforce continues to expand, how it's expanding is quite interesting and reflects broader cyclical and structural forces impacting the overall economy.

Looking a bit deeper at the data shows:

1. The number of full-time independent workers declined for the second straight year.

The number of full-time independents (those working as independents at least 15 hours per week in an average work week) declined by 4.1 percent to 16.2 million in 2017.

The main driver of this decline is the strong jobs market is allowing "reluctant independents" - people who work independently but would prefer a traditional job - to return to traditional employment. 

In 2017 the share of full-time reluctants declined to its lowest level of 24%, down from 26% in 2016 and 34% in 2012. 

In addition to reluctants returning to traditional jobs, so did some independents who are highly satisfied with independent work. Despite being highly satisfied, opportunities presented by the strong jobs market lured them back to traditional employment. 

2. The number of high income independents continues to grow.

Despite the decline in full-time independents, the number of full-time independents who earned $100,000 or more increased for the sixth straight year.

In 2017, 3.2 million full time Independents reported making more than $100,000 annually, up 4.9 percent from 2016. This group has grown steadily throughout the study time frame and now represents nearly one in five full time Independents.

The tight labor market and ongoing economic expansion is enabling those whose skills are in demand to get more work, and to command a premium for their services. It's also leading to more highly skilled people to choose independent work over traditional employment.

3. The number of part-time independents also declined.

The number of part-time independents (those working as independents less than 15 ours per week in an average work week) declined to 11.8 million in 2017 from 12.4 million in 2016.

This again was largely due to the strong job market pulling people back to traditional employment. 

4. The number of occasional independents continued to surge.

Occasional Independents (those working irregularly or sporadically as independents but at least once per month) soared 23% to 12.9 million, up from 10.5 million in 2016.

Stagnant wages, declining middle class jobs and rising costs (particularly for housing, education and healthcare) are resulting in more Americans supplementing their income through regular but occasional independent work. 

It's clear that both cyclical and structural forces are impacting independent work. 

The cyclically strong job market and the related "war for talent' are impacting the growth of the independent workforce several ways.

It's pulling some independents back to traditional work. At the same time, it's enabling independents with in-demand skills to find more work and earn more. This is making independent work more attractive to highly skilled workers.

The structural shift towards independent work is also made clear by the fact that overall independent workforce continues to grow despite an extremely strong traditional job market.

The unemployment is 4.3%, a level last seen in the late 1990's and only reached a couple of times since 1960. The number of open jobs, a bit over 6 million, is at an all-time high. 

Yet despite this historically strong jobs market, more people continue to join the independent workforce. 

This is due to a combination of structural factors that are leading to growing numbers of independent workers.

These include such factors as changing demographics, social shifts, organizations shifting to contingent talent, technology enabling independent work, wage stagnation, the hollowing out of middle class jobs and many others. 

See the report for more details. 

We'll have more on this study in the coming weeks.

Mapping Key Emerging Technologies

Maps are a popular way of displaying emerging technologies and how important they are and/or how quickly they will impact business and society.

Almost all technology analyst firms produce maps. They do this to try to display complex information in a simple, digestible form.

Traction Technology Partners, a firm that tracks and analyzes emerging technologies for enterprise clients, has created an interesting tech trends map (click to enlarge).

The map's horizontal axis is based on survey of "members of the Traction Network (mostly CIOs, CTOs, and senior IT execs in the enterprise)".  They were asked to rank the importance of a wide range of technologies.

The map shows the technologies that ranked in the top 6, with cybersecurity ranking the highest in terms of importance. 

They were also asked to rank the rate of adoption of these technologies on a 1 to 10 scale. This is the vertical access and cloud computing ranked the highest on this metric.

According to the map maker's Medium article the goal of this map is to:

... create a relatively small, 2-D map that a reader can grasp in 15 minutes or so, and which accomplishes the paradoxical and essential job of pulling all the emerging technologies into one map while dividing them into different and more-or-less well-defined neighborhoods.

All technology maps have their strengths and weaknesses. This one struck us as being quite useful. 

Six Points on the Map of Emerging Tech covers the map and its creation is more detail, including charts on how technologies outside of the top 6 ranked. 

Click here to sign up for the Traction Technology Partners newsletter. We just signed up and have yet to see it, so we can't provide a review.

But based on the people who are at Technology Traction Partners, it's a safe bet it's well worth reading.

Despite Strong Job Market, Economic Uncertainty Still High

We consider the trend towards rising levels of economic uncertainty and insecurity to be one of most powerful trends we follow. We also think it's one of the least studied and understood.

A combination of factors drive economic uncertainty. These include relatively slow growth, stagnant wages, middle class job losses and declining job security.

In addition, a growing amount of research also points to income volatility as a cause of economic uncertainty.

The New York Times article Steady Jobs, With Pay and Hours That Are Anything But covers research by the JP Morgan Chase Institute showing that income volatility, while most pronounced for those with lower income, is common across all earning levels.

The excellent article chart below (click to enlarge) nicely summarizes this data.

Key quote from the article:

“Since the 1970s, steady work that pays a predictable and living wage has become increasingly difficult to find,” said Jonathan Morduch, a director of the U.S. Financial Diaries project, an in-depth study of 235 low- and moderate-income households. “This shift has left many more families vulnerable to income volatility.”

The article points the main culprit is shifting pay and variable work hours at a growing number of traditional jobs.

This fits with the findings of The 2017 edition of the Intuit On-Demand Economy Workforce study.

This study found a large percentage of gig workers are doing gig work supplement their income in response to financial shocks and/or income volatility associated with their primary source of income. 

Key quote from the Aspen Institute's New Findings Reveal the On-Demand Economy Plays Key Role in Improving People’s Financial Stability, which covered the Intuit study:

... income volatility is growing and more Americans are facing financial hardships and shocks than in the past. Second, it’s clear that our traditional safety nets are not working as well as they need to.

Because of this, a growing number of Americans are turning to gig work to help them work through a financial hardship or smooth volatile income streams.

In other words, the gig economy is being used as an alternative safety net for many gig workers.

This is not to say there aren't income volatility issues with gig work. There clearly are, especially for those working full-time in the gig economy.

But for the majority of gig workers who work part-time or occasionally in the gig economy, the gig economy reduces instead of causes income volatility.

Economic uncertainty has a number of effects. It leads people to avoid long term or major commitments, both in their personal lives and as consumers.

Examples include delayed and lower rates of marriage, having children and home ownership. It also leads to a resistance to large purchases of all kinds. All of these have major impacts on the economy.

See our Economic Uncertainty section for more on this trend.

The Business of Work/Life Integration

A growing number of firms are offering services and products based on the trend towards work/life integration. This is the shift towards work, home and life becoming increasingly blended.  

An interesting example comes from the popular dating site Bumble (tagline: Find Your Honey). They are opening a pop-up community center in New York not surprisingly called The Hive. 

It's part of Bumble's plan to expand beyond dating and help users in their professional lives.

As the Bumble chart below shows, the planned activities at The Hive blend professional and social events.

    

This trend towards work/life integration is very apparent in our coworking research.

This shows that while coworking spaces are workspaces, they are also places where members socialize together. 

In fact, our findings indicate that most coworking members consider the social side of coworking to be at least as important as the work side. 

The blending of work and life is leading to growing numbers of services, places and activities that also blend work and life.

We see this shift in much of work:

• digital nomads are blending work and life in their quest to become "temporary locals".
• "Bleisure" travel" and "bizcations" have become more popular as people combine work and pleasure travel. 
• We consistently hear about work/life flexibility and integration as a reason people choose to be self-employed and small business owners.
• Corporations are exploring how to promote employee "wholeness", another term for work/life integration

None of this is a new. 

New York University sociologist Dalton Conley coined the term "weisure world" about a decade ago to describe this shift.  

According to Conley, activities and social spaces are becoming work-play ambiguous and work and personal time are blurring together.

The 2013 Harvard Business Review article Work-Life Balance Isn't the Point nicely covers this shift. Key quote:

... work and personal life should be allies and that participation in multiple roles, such as parent, partner, friend, employee, can actually enhance physical and psychological well-being — especially when all of the roles are high quality and managed together.

The shift towards work/life integration shows no signs of slowing down.

Expect to see more products and services designed for this market.