Small Business Labs

Financially Challenges Millennials Changing Society

According to several recent articles the financial problems of millennials is leading to changing behaviors and purchase patterns as well as broader societal shifts.  

For example, the New York Times article No Picket Fence: Younger Adults Opting to Rent focuses on the shift away from home ownership and towards renting by young adults.  Key quote:

Since 2008, the year Lehman Brothers collapsed and home prices dropped precipitously, there has been a steady increase in the number of people ages 18 to 34 renting instead of buying homes. About 875,000 more households are now made up of young adult renters than would have existed if the 2008-era trend had held steady, according to an analysis of census data by Jed Kolko, chief economist at Trulia, a real estate marketing website.

HufPo's Are Millennials Too Poor for Parenthood presents a stark view of the financial condition of millennials and suggest they simply will not be able to afford kids. Key quote:

Massive student loan debt, stagnant wages, increased cost of childcare and a lack of adequate health insurance benefits may have brought an end to the American family as we once knew it.

The article goes on to list a series of depressing stats on millennial finances, including:

• Average Millennial student loan debt: $33,000. [USA Today]
• The Millennial unemployment rate is 11.5%, almost double the national average overall. [Generation Opportunity]
• Nearly ⅓ of Millennials have delayed marriage and children due to the recession. [Pew Research]
• Average childcare costs has risen to $12,000/yr [Pew Research], causing a dramatic increase in new stay-at-home moms, as it is more cost-effective for many woman to stay at home than work a part-time or full-time job.
• 42% of employers intend to hire temporary or contract workers as part of their 2014 staffing strategy -- a 14% increase over the past five years. [Career Builder] As a result of this staffing strategy, employees are left without health insurance coverage for their families.
• 50% of Millennials do not believe that Social Security will exist when they reach the age of retirement. [iOme Measure of Millennials]

The decline in marriage and birth rates, especially by millennials, are trends we cover in more detail in our Demographics section.  These shifts are real, pronounced and leading to major changes in family make-ups, housing patterns and many other aspects of American society.

The Emergence of Freelancer Management Systems

"Freelancer Management Systems (FMS)" is a term used to describe cloud-based systems that allow businesses to better engage and manage independent workers, freelancers and other contingent workers.

These systems allow users to search for contingent talent and then activate, manage and pay the independent workers they hire.  These systems also allow the creation of private talent pools that provide access to profiles of approved contingent workers. 

Freelancer management systems are different from online staffing platforms such as Elance, Odesk and Freelancer.com in that they go beyond just facilitating one-to-one engagements between indidviaul buyers and sellers of freelance talent. 

Instead, an FMS facilitates firm wide engagement and deployment model. They also provide tools and reporting functions that provide contingent talent buyers visibility and analytics related to an organizations contingent workforce scope and spend.  

Several organizations currently provide freelancer management systems including MBO Partners, Work Market, Elance-oDesk and OnForce.  They use names like "private talent cloud" and "private talent network" to describe their offerings.  

Freelancer management systems are targeted at large firms and provide 3 key benefits:

• access to curated and approved contingent talent.
• compliance services to guard against worker misclassification
• Contingent workforce program visibility, insight and control

We expect larger firms to quickly adopt freelancer management systems. This, in turn, will lead to greater usage of independent workers as larger firms become more confident in their ability to hire and management contingent workers in a legally compliant manner.

This is another example of technology leading to increasing demand for independent workers.  

Insight, Innovation and Finding Aha's

The Harvard Business Review article Where to Find Insight provides a good primer on how to spot trends and create business insight that can drive innovation.

The article defines insight as:

... an imaginative understanding of an internal or external opportunity that can be tapped to improve efficiency, generate revenue, or boost engagement. 

Insights can be about stakeholder needs, market dynamics, or even how your company works.

It describes 7 sources of insight:

1. Anomalies, or data that deviates from business as usual.

2. Confluence, when economic, demographic, and technological trends come together.

3. Frustrations or pain points, which lead to innovative work-arounds.

4. Orthodoxies, which can spark a search for alternatives.

5. Extremities, such as fringe members of stakeholder groups who push for solutions.

6. Voyages, whereby innovators leave their offices to visit colleagues or customers.

7. Analogies, useful ideas or systems in other teams, business units, companies, or industries.

We describe our work as finding aha's about small business and the future of work. Merriam-Webster defines aha as an interjection used when something is suddenly seen, found, or understood.

When we find something that has our clients saying "aha", we've done our job. 

We use all 7 of the insight sources listed above to do this. But we consider two to be of the greatest importance to us in our trend spotting and analysis work.

The study of emerging fringe groups or edge activities, called extremities by the authors, is one of our key research methods. For example, we started researching the coworing movement when it first started back in 2007.

Based on this research, we quickly realized coworking provided a window on the much broader topic of the future of work as well as the future of the independent workforce.  

The identification of converging trends, confluence in the language of the article, is another insight method we spend a lot of time on.  

We've long found converging and reinforcing trends drive major change. A good example is mobile computing, cloud computing and big data. Each is a powerful trend in their own right. But what's making them major drivers of change is they are converging and reinforcing one another.

Freelancers Hire Lots of Other Freelancers

We think one of the most important findings from the MBO Partners State of Independence research is that freelancers hire a lot of other freelancers.  

In 2014 38% of independent workers (self-employed, freelancers, independent workers, etc.) reported spending about $92 billion over the past year hiring other independent workers on a contract basis.

This is roughly the equivalent of hiring 2.2 million full-time workers via contract hiring.

Hiring of this magnitude has been consistently reported over all four years of this study, which suggests independent work is not just a source of income but also a source of jobs.  

The independent workers using contingent labor likely would have hired traditional employees in the past.

But using contingent labor has a number of advantages for solopreneurs. It provides increased business flexibility and agility and reduces risk.

Using contingent labor has also gotten easier and more effective due to improvements in collaborative technologies for managing non-employees and the growing numbers independent workers available for hire.

This is a major shift in how small and micro businesses acquire and use talent.  We expect this shift to continue and the number of solopreneurs hiring contingent workers instead of traditional employees to increase.   

Freelance Economy Supply and Demand Growing

I attended the Staffing Industry Analysts Contingent Workforce Summit a couple of weeks ago.

This show is targeted at contingent workforce managers at large companies and provides a forum to discuss best practices around the hiring and managing of contingent workers (freelancers, independent contractors, etc.).

As you can see from this write up on the conference, large corporations are forecast to increase their use of contingent workers over the coming years.  

It's not just the SIA forecasting this increase. Ardent Partners, a research firm focused on procurement issues, is also saying corporations are going to be hiring more contingent workers.  Key quote on this from the article "Is the Flex Economy Real":

... Ardent Partners finds that utilization of contingent, contract, and temporary workers (including freelancers) will grow by 30% over the next three years, a factor that is actively forcing business to reevaluate their existing strategies and approaches for managing this non-traditional talent.

Our work focuses more on the supply side of the freelance economy and it shows the supply of independent workers has been growing much faster than the overall labor force.

That both supply and demand for independent workers is growing is good news for the freelance economy.  We expect both sides to continue their growth for at least the next decade.  

HBR on Freelancers and Word of Mouth

The HBR's The Freelance Economy Still Runs on Word of Mouth covers data from the MBO Partners State of Independence study showing word of mouth is the dominant way freelancers and other independent workers find work.

The chart below describing this data is from the HBR article.

    

What is interesting is it's not just this study.  All of the studies we've done looking at this topic over the last few years shows word of mouth is not only the dominant source of work, but if anything is becoming even more important.  

The chart below is from the Freelancers Union's How to Live a Freelance Life study. It also shows the importance of networks in finding work.  

The results were also the same in a Career Advisory Board study of successful independent workers.

That study surveyed folks who had worked as independents for more than 8 years and had higher than average incomes.  This group also reported word of mouth was their dominant source of jobs.  

It's not surprising networks are important, but it is surprising how important.

Independent Work - Tastes Great, Less Filling

At first glance comparing independent work with a beer commercial doesn't seem to make sense.  But segmentation data from the MBO Partners 2014 State of Independence study indicates there are similarities.  

Miller's "Tastes Great, Less Filling" ad series, which they used to launch the lite beer segment in 1974, is considered one of the most successful ad campaigns of all time.  The goal of these ads was to communicate the two key consumer benefits of Miller Lite. 

As part of the 2014 State of Independence research we conducted a cluster analysis looking at why people become and stay independent workers (self-employed, freelancers, etc.).  Much like lite beer, there were two key motivations - flexibility and fulfilling work.  

Flexibility is more than just being able to take time off from work.

Independent workers value their ability to choose the type of work they do, when, where and how they work and who they work with.  

Independent workers see flexibility as a key benefit of the control they have over their work and their lives.  For many independents, flexibility is important enough that they're willing to accept lower incomes to have it.

Independent workers describe fulfilling work as work that engages them by matching their skills, interests and abilities. Many independent workers describe this as work they love, especially those in the creative fields. 

But most independent workers do not say they love their work. Instead they describe their work as something they enjoy, are interested in, motivated by or provideing a sense of purpose.  

Interestingly, our cluster analysis shows most independent workers who report being satisfied or highly satisfied with independent work are almost evenly split between the fulfilling work cluster and the flexibility cluster as their main motivation for being an independent worker.

I don't think a "flexible work", "fulfilling work" commercial would be successful. But like the Miller commercials, these two attributes describe the main benefits of independent work.  

5 Interesting Thought Pieces on the Future of Work

Really interesting set of thought pieces - they call them frameworks - from Society and Data on the future of work.  The 5 papers are:

• Understanding Intelligent Systems unpacks the science fiction stories of robots to look at the various ways in which intelligent systems are being integrated into the workforce in both protective and problematic ways. Much of what’s at stake in this domain stems from people’s conflicting values regarding robots, drones, and other intelligent systems.
• Technologically Mediated Artisanal Production considers the disruptions introduced by 3D printing and “maker culture,” as the very act of physical production begins to shift from large-scale manufacturing to localized creation. The implications for the workforce are profound, but there are other huge potential shifts here, ranging from positive possibilities like democratizing design to more disconcerting concerns like increased environmental costs.
• Networked Employment Discrimination examines the automation of hiring and the implications this has on those seeking jobs. The issues addressed here range from the ways in which algorithms automatically exclude applicants based on keywords to the ways in which people are dismissed for not having the right networks.
• Workplace Surveillance traces the history of efforts to using tracking technologies to increase efficiency and measure productivity while decreasing risks for employers. As new technologies come into the workplace to enable new forms of surveillance, a whole host of ethical and economic questions emerge.
• Understanding Fair Labor Practices in a Networked Age dives into the question of what collective bargaining and labor protections look like when work is no longer cleanly delineated, bounded, or structured within an organization, such as those engaged in peer economy work. Far from being an easy issue, we seek to show the complexity of trying to get at fair labor in today’s economy.

All the papers are full of insights and information and well worth reading. 

Wage Versus Education Gap

Their are two really interesting male/female gaps in the U.S.  The wage gap, where men make more money on average than women, gets a lot of attention.

The education gap, where women and girls out perform men and boys at all levels of education, gets less attention.

Also getting little attention is the fact that these two gaps are linked.

Over time those that are better educated will be paid better. And as we've written about before, women currently comprise about 57% of all college students and it is expected this will grow to about 60% by 2019.

Women also out number men in most grad school programs and 2013 was the 5th year in a row that women earned more Ph.Ds than men. As the chart below shows, there are about 1.4 women in graduate school for every man and women have clear majorities in most fields.

 

Yes, men still dominate in math, computer science, physical science and business, but even in those fields the gap has been closing over the last decade.

Also, trends suggest the number of women studying business in grad school will pass the number of men over the next 5-7 years.  

So what about the wage gap?

It still exists with men continuing to earn more, on average, than women. The Washington Post's The Wage Gap - A Primer provides a detailed look at the current state of the wage gap.  

But the wage gap is closing, especially for Millennial women. There are multiple reasons for this, but the big one is women's growing education advantage.

Because of this, we continue to forecast wage parity between men and women in the 2020 time frame. 

We also continue to worry about the state of men and boys. We suspect today's wage gap will be reversed within the next decade or so.  

Most Small Businesses are Started with Less than $10,000

Intuit recently did a survey of small business owners. A key finding was 64% of small business owners surveyed said they started their business with less than $10,000 in invested capital.  

Equally interesting is that only 13% said they spent more than $50,000 starting their business.  

Our surveys of independent workers who work on their own as freelancers, independent contractors, etc. consistently show most of these solopreneurs spend even less. These solopreneurs report on average that spend $5,000 or less getting their businesses going.

The Internet, cloud computing and the general cost declines associated with technology have made it much cheaper to start a business. This, of course, means it's also much less risky and easier.

Easier, cheaper and less risky = more people becoming independent workers and starting small businesses.

For more on this, see the 2014 MBO State of Independence report which covers the growth of the independent work force.