Small Business Labs

The Rise of Handmade Bike Manufacturing

Barron's The $22,500 Bicycle covers the growing demand for handmade, customized and high end bicycles. The title refers to an expensive custom bike made by bike studio Signature Cycles - and yes, it costs $22,500.

Of course most custom bikes are a lot cheaper than $22,500.  Prices in the $5,000 to $7,000 range are common and entry level custom bikes can be found in the $2,000 to $3,000 range.  

The demand is coming primarily from aging baby boomers and Gen Xers with disposable income who have discovered biking is a great, low impact way to get exercise that also provides sustainable transportation.  

My favorite example from the story is bike frame maker Richard Sachs. Key quote on this artisan maker: 

Today’s base price for a Sachs frame, which is all he makes, is $4,400, exclusive of the $400 fee required to put your name on his list. For that privilege, customers wait up to eight years. 

The handmade bike industry is large enough that it has its own trade show with hundreds of exhibitors. This year's show had 22 new handmade bike companies that exhibited at the show for the first time. Most of these are very small shops or solo bike artisans.  

One of the new exhibitors this year was A*Train Cycles, a one man shop in Minneapolis. One of their bikes is pictured below. Not surprisingly given their location, it's a combo mountain-snow bike.

     

One of the leading cities for artisan bike manufacturing is Portland.  It's the most biking oriented city in the U.S. and home to many artisan bike manufacturers. 

But this trend is not limited to the U.S. According to the BBC, handmade and custom bike manufacturing is also growing in the UK.  

The growth of handmade and customized bikes is a great example of the growth of small manufacturing and new artisan economy trends.  

The End of Work - Or the Beginning of an Independent Economy?

Well known tech journalist and analyst Tom Foremski's Futurists ... and the 'End of Work' looks at the employment disruption being caused by digital technologies.

He argues that technology is destroying more jobs that it's creating, leading to a potential future where there simply isn't enough work to go around.  Key quote from the article:

We face a future that will be defined by the end of work - it can become a golden age or one of horrific consequences. Horrific because we have no means of dealing with this type of future. We have nothing that has prepared us for it. We only know how to punish and ridicule those that don't work. But what if there is no need to work? 

A good example of this is Yobot (shown in the 30 second video below), the luggage storing robot at the Yotel Hotel in New York city.  It replaces a bell boy by automatically storing your luggage.

 

We're more optimistic about the future of work than Tom appears to be.  But we agree automation, technoloy and global competition means work will be very different in the future.

We think more people are going to have to create or invent their own jobs. This is why we are focused on studying the growing role of the independent worker and independent economy.  

We admit the jury is still out on whether or not the independent path will be successful for most people. But based on our research, we're cautiously optimistic many can achieve success this way.

We'll have more on the independent economy in the coming weeks.

The Rise of the Underground Economy

Last year we suggested growth in the underground economy is likely a key reason workforce participation has fallen so much in the U.S. 

Others are starting to also suggest this.  Noted author James Surowiecki's New Yorker article The Underground Recovery points out:

Ordinary Americans have gone underground, and, as the recovery continues to limp along, they seem to be doing it more and more.

One indicator is retail sales, which have held up quite well given the high level of unemployment and historcially low workforce participation rate.  Key quote:

Bernard Baumohl, an economist at the Economic Outlook Group, estimates that, based on historical patterns, current retail sales are actually what you’d expect if the unemployment rate were around five or six per cent, rather than the 7.6 per cent we’re stuck with. The difference, he argues, probably reflects workers migrating into the shadow economy. 

The Washington Post also looks at this topic and cites an academic study on the size of the underground economy:

Is there any hard data on the underground economy? Some. A 2011 by Richard Cebula and Edgar Feige estimated that as much as “18-19 percent of total reportable income is not properly reported to the IRS.” That’s as much as $2 trillion in underground economic activity, with about $500 billion in taxes that aren’t being paid to the government.

For obvious reasons data on the underground economy (also called the informal economy) is hard to come by.  But it's becoming increasingly clear this segment of the U.S. economy is growing.  

The Growing Independent Worker Ecosystem

The growth of the independent workforce (freelancers, temps, self-employed, etc.) has also led to a growing ecosystem of companies supporting independent workers and the firms that hire them.

This ecosystem includes a wide range of firm types, including:

Talent marketplaces: firms like Elance, Odesk and Freelancer.com that connect independent workers with those interested in hiring them.

Crowdsourced Services: firms/services like CrowdFlower, Mechanical Turk, Live Ops that crowdsource large numbers of independent workers for buyers.

Micro-Task marketplaces: firms like Task Rabbit, Fiverr, Rev.com, that allow buyers to hire independent workers to do even the smallest of tasks.  

Peer to Peer Commerce Companies: firms like Airbnb, Uber, Poshmark that allow anyone to become an independent businessperson by selling a good or service.  

Technology companies catering to independents: firms like Intuit, Square, 37 Signals that have built products specifically for independent workers and micro business owners.  

Coworking facilities offering office space, community and activities oriented to the needs of independent workers. 

The list goes on and on and, of course, includes Emergent Research client MBO Partners.  They provide back office infrastructure services for independent workers.  

This growing ecosystem of companies is a clear indicator that the independent workforce is growing both in terms of numbers and importance to the economy.  

TV Show on Spoiled Pets

Regular readers know we like pet trends. And in particular, anything related to the trend towards "pet humanization" tends to catch our eye.

This is the trend towards pet owners viewing themselves as "pet parents" and treating their pets as full-fledged family members.  

Spoiled Rotten Pets is a new TV series that covers the world of "outrageous pet pampering and meets some shockingly over indulgent pet owners who wouldn't have it any other way". 

Included in early episodes are a visit to a pig spa, a session with a dog psychic and a story about rats wearing tuxedos.  

And no, I'm not making this up. 

The pig spa is my favorite.  

According to an MSN article, it offers:

"38 swine suites with private pools and lanais, concierge service, exercise facilities, room service, and, of course, maid service (because these guests are total pigs)." 

This raises the question of what does a pig concierge do?  Theater tickets?

That this show exists is a clear signal of the growth of the pet humanization trend.

We expect this trend to increase in importance due to aging boomers looking for companionship and the growth of households without kids.  

I'm somewhat depressed to tell you that National Geographic is the show's producer. One of the world's largest and best known non-profit organizations, their tagline is "Inspiring People to Care About the Planet".

It's good to see they aren't willing to dilute their brand and mission just to make a few bucks of advertising revenue.  

Can Entrepreneurs Save Detroit?

In case you haven't heard, Detroit's a mess. It has acres of empty buildings, frightening crime rates, crushing public debt and sky high unemployment.

Despite these problems, there's been a flurry articles on entrepreneurs partnering with foundations and grassroots organizations to rebuild the once great city.  

These include:

How a Young Community of Entrepreneurs is Re-Building Detroit: from Fast Company, it covers some of the many entrepreneurs attempting to build businesses in Detroit.  

My favorite quote from this article is:

"Where everything's broken, anything's possible."

This article also provided the chart on the right.  

A Missionary's Quest to Remake Motor City: from the NY Times, it covers the extensive investments and efforts being made by Quicken Loan founder Dan Gilbert to revitalize downtown Detroit. Gilbert has spent over $1 billion buying and renovating downtown commercial space.

An urban affairs expert says his efforts "amount to one of the most ambitious privately financed urban reclamation projects in American history."

Detroit Shows Way to Beat Inner City Blues: authored by the noted cities expert Richard Florida, this Financial Times article says Detroit could be a model for future urban turn arounds.  Key quote:

The nascent turnround is driven by a coalition of profit-led entrepreneurs, philanthropic foundations and grassroots groups unhindered by city government. They offer a distinctive model of revival from which cities in the US and beyond can learn.

Struggling Cities, From Detroit to New Orleans, See Startups as Saviors: from Business Week, covers how a variety of cities are turning to entrepreneurs, startups and small businesses to help revitalize downtown cores.

It's of course way too early to know if Detroit can recover. But it's exciting to see private industry and entrepreneurs working to revitalize this city. 

Hotels Providing Office Space

CNN's Hotels vie to become the offices of the future looks at the growing trend of hotels offering office and meeting spaces as well as coworking-like lobbies.  

The key quote comes from Mark Gilbreath, CEO of workspace marketplace LiquidSpace:

"Hotels implicitly are in the business of space; they are extraordinarily efficient at providing space on demand. The next logical step is to broaden the brand as a place to work, not just a place to sleep."

The article mentions two chains.  Marriott has introduced Workspace on Demand, an online collaboration with LiquidSpace that allows users to book Marriott workspaces across the country on an hourly basis. 

Marriott is also testing a concept called Workspring in collaboration with furniture company Steelcase. Currently only available in a couple of hotels, Workspring provides a sophisticated set of meeting spaces with high end furniture and amenities.

Westin is also testing an office concept called Tangent at Westin. Currently only available at two locations, Tangent provides upscale meeting space for small groups.  

Many other hotel chains and independent hotels are also starting to cater to mobile workers and those in need of meeting spaces - which is good news for the growing number of mobile workers.

What is a Spurious Correlation?

This is a bit more geeky than we like to get here at Smallbizlabs, but the rise of big data is resulting in growing numbers of people being exposed to statistical data and jargon.

A spurious correlation is a statistical term that describes a relationship between two variables that seem to be related (correlated), but happens just by chance or due to an unseen third variable.  

A good example of an unrelated spurious correlation is skirt length theory. This is the belief that stock market trends follow the length of women's skirts. Followers believe when skirts get shorter, the stock market goes up.  When they get longer, it goes down. 

Skirt length theory has been proven to be wrong, but since it works some years (it has a 25% chance of being right in any given year) it continues to have followers.  

An example of a spurious correlation caused by a third variable is the fact that ice cream sales and accidental drownings are highly correlated - they tend to both move up and down in a consistent pattern. 

In this case a 3rd variable - temperature - is the driver. Hotter days result in higher ice cream sales and more people swimming - and, unfortunately - more people drowning.  

Why does this matter?

If you make decisions based on spurious correlations or assume statistical significance where there is none, you will quickly get in trouble. Since there is no causal linkage, the relationship can break down at any point. Going back to skirt length theory, if you bet on the stock market using it you're going to get wiped out.  

It's beyond the scope of this blog to fully cover this topic, but there are two new books well worth reading that do cover it:

Naked Statistics: Stripping the Dread from the Data does an excellent job of describing the basics around statistical causation and the limitations of statistical analysis in layman's terms.

The Signal and the Noise: Why So Many Predictions Fail - but Some Don't is from NY Times rock star statistician Nate Silver. He successfully called the last presidential election and his book covers nicely covers the strengths and weaknesses of statistical analysis.  

In addition to these books, Hubspot's article A Marketer's Guide to Understanding Statistical Significance covers A/B testing, which is widely used (and mis-used) in online marketing.  

Basic statistical skills and understanding is becoming a business requirement. This does not mean you have to be an expert in the field, but if you don't know a mean from a median it's time to learn.  

Flexibility is Why Companies Hire Contingent Workers

Staffing firm Allegis and the Human Capital Institute teamed up on a study on how corporate procurement and HR departments view the growing contingent workforce.  

It's a broad based study looking at a number of issues related to the contingent workforce. But I most liked the chart below, which shows the reasons companies use contingent talent.

As is clear from the data, flexibility is one of the key reasons firms use contingent workers. They allow firms to quickly and easily staff up and down as needed. Contingent workers also don't add to fixed costs.

This last point - that traditional employees add to fixed costs - is a relatively new issue. It wasn't that long ago when employees were not considered fixed costs.  This is no longer true.

Because business conditions shift a lot quicker than they used to, cost committments that last more than a year are now considered fixed costs (5 years used to the norm for fixed costs). And because it's gotten harder to fire or lay-off traditional employees - especially quickly - more firms are viewing employees as fixed costs.

This is an important shift because businesses large and small are increasingly focused on reducing their fixed costs.  We call this the shift to a variable cost economy.  

The trends driving the growing interest in contingent workers are accelerating, which is a key reason we're forecasting that roughly 40% of the U.S. private workforce will be contingent by 2020.

The Emerging Gender Gap Favoring Women

Wayward Sons: The Emerging Gender Gap in Labor Markets and Education is a fascinating study by noted MIT economist economist David Autor and MIT PhD student Melanie Wasserman. 

They suggest that an emerging economic gender gap favoring women is developing. This gap is being driven by the underperformance of boys and men in school.

Key quote fron the study:

" ... the stagnation of male educational attainment bodes ill for the well-being of recent cohorts or U.S. males, particularly minorities and those from low income households. Less-educated males of recent cohorts are likely to face diminished employment and earnings opportunities and other attendant maladies , including poorer health, high probability of incarceration, and generally lower life satisfaction."

In other words, men and boys are in trouble.  

The key chart illustrating this point is below. It shows that women's wages have increased substantially more than men's over the last couple of decades. More importantly, men without college educations have seen their wages fall over this time frame.

Before you send me an email, yes - men still out earn women on average. 

But the gap has significantly closed over the last 2 decades and we are forecasting earnings parity between the sexes will occur within the next decade.  We also believe women's earnings growth will outperform men past that point and by the 2030 time frame women, on average, will substantially out-earn men.

The study points out that the social and economic costs of the decline of men are substantial. As we wrote in our article Missing the Point on the End of Men, we need to recognize the problems facing boys and men and start fixing them. 

Our category on Women has a lot more posts, data and links on both women advancing educationally and economically (which is good), and the decline of boys and men.