Small Business Labs

The Growing Numbers of Not Working

The most recent BLS jobs report showed that almost 500,000 Americans left the workforce in March, resulting in the workforce participation rate falling to 63.3%.  This is the lowest its been since 1979.  

There's a pretty active debate over what's driving this decrease. We covered this last year in our article Workforce Participation: Where's Everyone Going?

We now have more data than last year and the answer is people are leaving the workforce for a variety of reasons, including:

• Younger Americans are staying in school longer
• The number of people on disability is up substantially over the last past decade
• Aging baby boomers are starting to retire
• The number of people on food stamps and other government support programs is up

Even more troubling than the overall decline in the workforce participation rate is the decline among people aged 25-54. These are the prime work years when people generally aren't in school, retired or disabled.  

As the chart below - from the always informative New York Times Econmix blog - shows, for this age cohort the reduction in the unemployment rate is almost fully explained by the decline in workforce participation.

   

This is a huge problem for America. Not only does lower workforce participation mean lower economic growth, it also raises government spending on support programs and leads to greater participation in the informal (meaning illegal) economy. It's also bad for the people who aren't working.

Unfortunately, there are no easy answers to this problem. 

Making Serendipity Happen

Greg Lindsay's NY Times article Engineering Serendipity is a fascinating look at how companies are trying to increase the amount of serendipity that happens at their firms.

It includes a good description of serendipity:

The term, coined by the British aristocrat Horace Walpole in a 1754 letter, long referred to a fortunate accidental discovery. Today serendipity is regarded as close kin to creativity — the mysterious means by which new ideas enter the world. 

"Accelerated serendipity" is a term you hear often in the coworking community. They believe coworking increases the generation of business ideas and productivity by bringing together diverse groups of smart people. 

We agree.

But having said that, serendipity is not easy to measure and because of this there's very little proof you can engineer or accelerate it.

Lindsay's article points out the promising areas of serendipity research, with social network analysis likely the best way to attack this problem.

Last year we took this approach to measure the impact of coworking on a member's weak tie network.

Weak ties – links among people who are not closely associated - have been shown to play a powerful role in spreading ideas, finding jobs and helping people join together for action. 

We found that joining a coworking facility increased the number of weak ties and makes it easier to tap weak tie networks.

While we think this is a powerful finding that shows coworking facilities add value to their members, larger and better weak ties does not guarantee increased serendipity.  Instead, it's a precursor to increased serendipity.

But despite this limitation we believe stonger weak tie networks lead to more serendipity. And, as the article points out, there is broad agreement this is true. How this exactly happens is still a bit of mystery, but every day we come closer to figuring it out.

Profiling Mature (Aged 67+) Independent Workers

Older workers - those over the age of 65 - don't get much attention from researchers or the media. The reason is pretty straight forward. Historically the vast majority of older people were not in the workforce. 

But that's changing. Over the last decade the workforce participation rate for Americans 65+ has consistently risen even as the overall workforce participation rate has fallen to levels not seen in several decades.

Increased longevity, better health and financial need are the primary drivers of the increases. And now that baby boomers are entering this life stage, expect to see even greater numbers of workers past the age of 65. 

To better understand this age group, as part of the MBO Partners State of Independence study we surveyed and interviewed a group of independent workers (self-employed, independent consultants, freelancers, etc.) aged 67 and older.  We chose 67+ because the oldest baby boomers are 66 and we wanted to exclude the boomers from this study.  

Some of the findings of the research include:

There are about 1.35 million Mature independent workers in the U.S: This is about 8% of all independent workers. We expect this percentage to grow as aging baby boomers enter this age cohort.

Mature independents are highly satisfied with independent work: 89% said they were either highly satisfied (80%) or satisfied (9%) with independent work.  Only 3% said they were dissatisfied.

Mature independents plan to stay independent or retire: 77% plan to continue working independently over the next 2-3 years and 14% plan to retire. Only 4% plan to seek full or part-time traditional employment.

Mature independents often did not choose independence: 50% of matures chose independence versus 58% of non-matures. Also interesting is 26% said job loss played a part in them becoming independent versus 19% for non-matures.

Most are not working due to financial need: Only 24% reported working because they had to for financial reasons. 38% reported they worked because they wanted to and 26% said they became independent because they had the financial security to do so. 

Our interviews with Matures provide some more details. Like younger independents, Matures value the freedom, flexibility and control independence provides.

Most (54%) report working less than 35 hours per week (to be included in the study respondents had to work, on average, 15 hours per week or more) and in interviews tell us they often take multiple vacations a year.

But a major difference is their view of their job and career options.

While most independent workers tell us they are confident they could get a traditional job, few Matures tell us that. The vast majority of Matures believe companies will not hire them in traditional jobs and their only choice is independent work.  

They also tell us even if companies were willing to hire them, they wouldn't want to work on the employment terms required by most companies.  

We'll have more on Mature independents in the coming months as we finalize our research.  

What are Bitcoins?

Bitcoin is an online digital currency. It was introduced in 2009 as an electronic alternative to traditional money. Because of this, Bitcoin is a truly decentralized currency totally independent of any government entity.

Bitcoins can be used just like any other currency (at least online). You can buy things with them and use them settle debts - assuming the other party in the transaction accepts Bitcoins.

There's even a magazine dedicated to Bitcoins.  It has a directory of places that accept them as payment.

Like any other currency, the value of Bitcoins fluctuates depending on demand. Bitcoin has gotten a lot of attention lately because it's value has skyrocketed. They are currently worth about $140, up from lesss than $5 a few months ago. 

Most consider the recent price increases unsustainable and a Bitcoin bubble. I agree and even put my money where my mouth is by spending half of my Bitcoins this week (I only had 40). But since I bought them for $11 and their value when I spent them was $123, I made quite a profit - at least in percentage terms.

This brings me to one of the features of Bitcoins. Because the currency is virtual and independent of government regulation, my Bitcoin gains are not traceable by the IRS or any other government agency.

This makes Bitcoins a potentially good choice for tax evasion, money laundering and other illegal activities. Governments around the world are aware of this and studying how to deal with this aspect of alternative currencies.

Bitcoins have become one of the most popular forms of alternative currency with more than $1 billion in circulation around the world. Many believe it will become widely used and some VCs are betting big on Bitcoins and the emerging ecosystem of companies supporting their use.

Our advice to small businesses is to ignore the hype and Bitcoins for now. Too few people know about them or use them to bother with them at this time.  

But if you find Bitcoins interesting and want to learn more, The New Yorker has a good article covering Bitcoins in more detail.

Media a Barbell Industry

Paid Content has an interesting article on media becoming a barbell industry.  

Barbell industry structures consist of a relatively few giant corporations on one end, a narrow middle consisting of a shrinking number of mid-sized firms, and a large and growing number of small, micro and one person (solopreneur) firms on the other end.

We've looked at dozens of industries and all have this structure or are moving to it.  

The Paid Content article points out that large media firms like New York Times and the Wall Street Journal are going to survive and even thrive. The article is also positive about "ultra-small" media companies.

But they're very negative about the prospects of mid-sized media companies and describes their future as "uncertain at best".

Our article Industry Structure - Big Get Bigger, Small Get Smaller goes into more detail on this topic and links to other information sources on the barbell economy.  

California Small Business Crowdfunding Initiative

The California Association of Micro Enterprise Organizations (CAMEO) is partnering with microlending pioneer Kiva to bring more crowdfunded microloans to small businesses in California.

CAMEO is already the largest microlending network in California. CAMEO network members provide entrepreneurs with small and micro-business financing as well as technical and advisory assistance and business management training. As part of this new partnership, CAMEO network members will identify potential partners, provide them with business advisory services and post their profiles to Kiva. Visitors to Kiva can then choose among the posted small business and lend as little as $25 to crowdfund the loan. Combining CAMEO's network with Kiva's powerful microlending platform will create new financing options for California's small and micro businesses.  For more on this partnership, see this article in the San Jose Mercury News. For more on small business crowdfunding, see our recent article The Rise of Small Business Crowdfunding.

The Rise of Gen X Independents

Generation X (ages 33-48) encompasses roughly 50 million Americans born between 1965 and 1980. This generation is sandwiched between two much larger generations - the Baby Boomers and Gen Y.

There are almost 80 million Baby Boomers (born 1946 to 1964) and bit more than 75 million Gen Yers (born 1980 to 2000).  

We often refer to Gen X as the Rodney Dangerfield generation. Because it's relatively small, it gets no respect.

Both Baby Boomers and Gen Y get a lot more attention from researchers and the press. Which is one reason why we recently worked with MBO Partners on a study of Gen X Independent Workers (freelancers, temps, self-employed, etc.).

America's Gen X Independents: Working to Live, Not Living to Work examines the motivations and challenges of America’s Gen X independent workers. The key findings include:

Gen X Independents Chose This Path: 70% are independent because they want to be, and 90% are satisfied with the independent work path. Only 8% are independent due to the inability to find permanent work and 88% plan on staying independent.

Gen X embraces the control and freedom independent work provides: 57% listed work/life flexibility as a reason for being independent, 60% said to control their career and 64% listed "to do work I love". 

Gen Xers are creative: About half of all creative independent workers (those that self describe as artists, writers or performers) are Gen Xers. They also are much more likely to work in the media and entertainment industry than other cohorts.

Gen X is the mid-career cohort and reaching their peak earnings and influence years. For more on this important but often overlooked group, click here.

Word of Mouth is How Freelancers Find Jobs

It's not surprising that independent workers (freelancers, temps, self-employed, etc.) rely on word of mouth/referrals for getting business.

What is a bit surprising is just how important word of mouth is compared to other methods.

Survey data from the MBO State of Independence study shows that 67% of independent worker respondents listed word of mouth as the most important source for getting assignments.

Via agencies and brokers came in 2nd with 17% and former employers came in 3rd with 9%.

  

Social media was distant 4th, with only 3%.

But this understates the role of social media. 22% of the respondents listed it in their top 3 methods for getting assignments and 32% listed in their top 5. 

In interviews, independent workers who invest in social media tell us they see social media as a tool for building their reputation and brand.

So while few see social media as their most important source of business, many see it as an important reputation/branding tool and a source of leads.