Small Business Labs

Feedback Loops, Forecasting and Peak Oil

One of the most important things to consider when developing a forecast is feedback loops.  These are reactions to an event that either enhance or buffer the event's impact. 

Feedback loop impacts often cause unexpected results, unintended consequences and failed forecasts.   

The debate around Peak Oil is an interesting example.  According to Wikipedia, peak oil "is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline."

Depending on which source you reference, peak oil has: (1) already occurred; (2) will occur in the next few years; (3) will occur roughly in the 2020 time frame; or (4) will occur later than 2020. 

There are many forecasting that in the next few years post peak oil declines in oil supplies will lead to substantial economic dislocation.  For example, most of 2010's top 10 peak oil books forecast major problems in the next couple of years. 

Some of the forecasts are quite dire.  My favorite comes from Wikipedia.  One of their scenarios is:

"... a global depression is predicted, perhaps even initiating a chain reaction of the various feedback mechanisms in the global market that might stimulate a collapse of global industrial civilization, potentially leading to large population declines within a short period."

But a funny thing is happening on the way to the end of civilization as we know it. Technology is improving energy production. 

The AP's New drilling method opens vast oil fields in the U.S. covers the use of horizontal drilling techniques to substantially improve oil field recovery rates.  Key quote:

"This new drilling is expected to raise U.S. production by at least 20 percent over the next five years. And within 10 years, it could help reduce oil imports by more than half ..."

This is the same technology that recently more than doubled the world's natural gas reserves, turning an expected U.S. natural gas shortage into a natural gas glut. 

While peak oil will happen some day, it now seems unlikely the world will see a peak oil scenario come true for many decades. 

The doomsday peak oil forecasts failed to consider feedback loops.  In this case, rising oil prices encouraged the development of new and innovative drilling and energy production methods.  

Rising prices also resulted in increased energy conversation and greater investments in alternative energy sources.  These also push out when peak oil is going to happen and reduce its impact.    

Hopefully well before peak oil really does happen, feed back loops caused by environmental, sustainability and climate concerns will result in a shift to cleaner, renewable energy sources. 

So remember when doing a forecast - or evaluating a forecast - to think through the potential feedback loops and how they may impact the forecast. 

For those interested in learning more about peak oil and energy, my favorite sites are The Oil Drum and The Energy Collective. 

Incorporated Self-Employment Included in Monthly BLS Reporting

The Bureau of Labor Statistics (BLS) added data on the number incorporated self-employed to their monthly employment indicators release.  It's on the bottom of Table A-9.  Until January, the BLS only reported unincorporated self-employment in their monthly release. 

Why does this matter? 

Incorporated self-employment is 37% of total self-employment.  In January, for example, there were 14.5 million self-employed workers in the U.S. with 5.2 million incorporated and 9.3 million unincorporated. 

But since prior to January only unincorporated self-employment data was in the monthly release, people often mistook this for total self-employment.  This resulted in many believing U.S. self-employment is much lower than it really is - and much confusion around the size, role and importance self-employment plays in the U.S. economy. 

The BLS has collected incorporated self-employment data since 1967 and it has been available by request.  But it hasn't been included in the monthly Employment Situation release because when the BLS started collecting self-employment data, almost no one was self-employed and incorporated. Forming and maintaining a corporation was simply too complex and expensive for the self-employed. 

This changed with the development of the Limited Liability Company (LLC) in the 1970's and 1980's and IRS changes in the 1990's that made them much more attractive to soloprenuers.  Because of LLCs, the use of incorporated self-employment has grown rapidly over the last decade. 

Emergent Research was one of the the groups who lobbied for this change, and kudos to the BLS for doing it.  The monthly Employment Situation report is probably the world's most watched and analyzed statistical release.  Making changes to such an important publication is not easy, and our thanks go to everyone at the BLS who helped make this happen. 

Germany's Amazing Mittelstands

Good coverage in the Christian Science Monitor of Germany's famous Mittelstands - the 3 million small and mid-sized businesses that form the backbone of Europe's largest economy.  Key quote:

"The Mittelstand account for more than half of German exports and 70 percent of its workforce."

Mittelstands tend to be concentrated in 4 sectors: machine tools, auto parts, chemicals, and electrical equipment.  They also tend to be family-owned or controlled, focused on long term performance and employee oriented. 

Because they are mostly industrial companies, most Mittelstands aren't well  known.  One exception is Mont Blanc pens, which like most Mittelstands does most of its manufacturing in Germany.      

The article also covers the rise of Berlin, often called the new Paris or New York, as a growing center for the arts and entertainment.  Key quote:

"Low costs have made the city a magnet for artists and writers. By some estimates, more than 65,000 artists reside here. It is also an unofficial playground for the under-30 "globorati" who fly in on cheap flights from Barcelona, Spain, and Rome."

Our recent trip to Europe confirmed this.  Berlin is amazing. 

What is Gamification?

Gamification is one of the hottest buzzwords in Silicon Valley these days.  Simply put, the term refers to incorporating game elements and mechanics into non-gaming websites and software. 

***Update: A reader pointed out that gamification was recently the topic of a Steven Colbert interview***

Pretty much every startup we meet with these days has some form of game functionality included in their product.   

Examples of gaming elements being used outside of traditional games include leader boards, badges, progress bars and virtual prizes. 

LinkedIn, for example, provides a progress bar that indicates how much of your LinkedIn profile you've filled out.  They've found adding the progress bar greatly increased the number of people who filled out their entire profile.  Mine's at 85%. 

Another example is the location services company Foursquare.  They use badges and other game like rewards to increase the number of times users enter their location data. 

There's even a site that tracks the hundreds of Foursquare badges that are available.  Their blog helps Foursquare users keep up with new badges. 

The gamification trend is not new - it's been going on for years.  But the growth of social media and the success of casual game like Farmville  (it has several hundred million users) has led to a surge of interest in bringing gaming UI's and engagement methods to a broad range of products.   

For more information on gamification, visit the NewsTopiaVille site.  It is explores the use of game elements in delivering the news, but is also a great general resource on the gamification trend. 

Who Speaks for Small Business on Health Care?

The WSJ's Business Groups Welcome Health Law Set Back covers the recent ruling by a federal district judge that the Obama administration’s health-care law was unconstitutional.

The suit against the bill was led by the National Federation of Independent Businesses(NFIB).  Obama Care was also opposed by a number of business groups, including the U.S. Chamber of Commerce.

Supporting Obama Care is the Main Street Alliance, which interestingly enough is described in the article as "an organization founded in 2008 that focuses on supporting the health-care law."  Generally it's described as a small business trade association.

Earlier this week I posted on the partisan nature of trade associations and other DC-based groups.  This article nicely illustrates this, with the right leaning NFIB opposing Obama Care and the left leaning Main Street Alliance supporting it.

Our view is both groups speak for a segment of small businesses and small business owners - and neither group speaks for all.

The Future of Accounting = The Future of Work

Over the past year Emergent Research, in collaboration with Intuit's Accounting Professionals Division, has been conducting a deep dive on the future of the accounting profession.  

This work is summarized in the just released Intuit 2020 Report - The Future of the Accounting Profession. 

It may be hard to believe, but this is one of the most interesting research and forecasting projects we've worked on. 

The reason?  

The accounting profession is facing the same transformational forces impacting knowledge work in general.  Because of this, the accounting profession provides an excellent case study on the future of work. 

Another reason this project was so interesting was the extensive use of crowdsourcing as part of the research process. 

Intuit and Emergent Research, with help from the global design and innovation firm Ideo, conducted a series of forecast workshops, exercises, and interviews with accounting professionals, academics, industry analysts and the media.  These sessions identified the important trends and implications that will affect the accounting industry.

The report examines the four broad trends areas surfaced during this project and their impact on the accounting profession:

1. Shifting Business Environment Creates New Opportunities – Specialization and collaboration will lead to increased opportunities for accounting and tax professionals who will work across global borders to meet their client needs, made possible by advances in technology.

2. Demographic Shifts Change the Face of Professionals and Clients – Demographic shifts and a growing U.S.-based minority population will have broad implications for firms and their clients, influencing how, when and with whom they do business.

3. From Data to Decision Making, Technology Changes the Accounting Profession – As technology expands and the automation of data collection rises, the focus of accounting will shift from computation to consulting as clients increasingly rely on their accounting professionals to analyze business information, support decisions and provide strategic advice.

4. High-Tech Enhances High-Touch Client Outreach, Relationships and Service – Social media and ubiquitous mobile technologies will become even more pervasive, changing the way accounting and tax professionals conduct business and attract new clients. It will be imperative for practitioners to manage their web and mobile presences to establish firm reputation and brand.

Over the next few weeks we'll have more on this project and what these trends mean for the future of work. 

Profile of U.S. Coworkers on Deskmag

Emergent Research's Deskmag article, Profiling Coworkers in the United States, provides an overview of who is using U.S. coworking facilities. 

The quick summary: the average U.S. coworker is young, male, well educated, works in tech, lives close to the coworking facility and is quite satisfied with coworking.

Deskmag is a German magazine focused on how and where we work.  The recently sponsored the 1st Global Coworking Survey and graciously shared the survey data with us.  Deskmag is available online in English and German. 

Two very interesting trends emerged from the U.S. coworking survey data:

1.  Over half of the U.S. survey respondents work for a company or run a company with employees.  This surprising finding fits with what we've been seeing in our field work and interviews. Coworking facilities are increasingly being used to start, incubate and house small businesses. 

2.  8% of the respondents worked for companies with more than 100 employees.  This again fits with what we're seeing in the field.  Larger companies are starting to discover and experiment with coworking facilities to support distributed and mobile employees. 

For more information on the survey results and coworking in general, visit Deskmag's website.

Notes on the Survey, Methodology and Results

Due to the newness of coworking, a lack of an established U.S. coworking population estimate, the number of U.S. survey respondents (115) and other technical issues, the potential statistical error rates associated with the survey results are high. 

Using Emergent Research's estimate of the current U.S. coworking population (15,000), the results indicate a 95% confidence level with a 9% margin for error, which is higher than the generally accepted 5% error margin. 

However, we find these results acceptable and valid because: (1) they are in line with the results from our coworking fieldwork and interviews; and (2), adjusting for high error margins doesn't change the key results.