Small Business Labs

The On-Demand Economy Driving Growth of Nonemployer Businesses

The U.S. Census released their 2015 data on non-employer businesses last week. 

Overall, the number of U.S. nonemployer businesses continued it's steady growth, increasing by 2.1% to 24.3 million from 2014 to 2015. Since 2003 the number of nonemployer businesses has increased by about  5.2 million. 

Nonemployer businesses are businesses that have a business owner, but no traditional employees. Most nonemployers - 86% - are sole proprietors. In 2015 they generated over $1.1 trillion in gross receipts. 

The average nonemployer business is small - the median nonemployer falls into the $10,000 to $24,999 gross receipts bracket. 

But about 2.8 million gross over $100,000 and about 36,000 gross over $1 million. 

These numbers, by the way, are very similar to findings from the MBO Partners State of Independence research series on independent workers who earn more than $100k. See their reports for more on high earning independent workers.

The U.S. Census press release this year focused on the  fast year over year growth of nonemployers in transit and ground transportation.

This is, of course, due to Uber, Lyft and the broader ride share industry.

Key quote from the release:

Nonemployer businesses, establishments without paid employees, in the Transit and Ground Passenger Transportation subsector (North American Industry Classification System (NAICS 485) increased by 59.4 percent from 362,445 in 2014 to 577,809 in 2015, according to U.S. Census Bureau statistics released today. Receipts in this subsector increased 21.9 percent from $11.7 billion in 2014 to $14.3 billion in 2015.

The U.S. Census chart below shows the 10 states with the largest growth in the number of nonemployers working in transit and ground transportation.

The rapidly growing on-demand economy is  also likely driving the overall growth in nonemployer businesses. 

We've long tracked the nonemployer business statistics.

They tend to get less attention than other government data on self-employment. This is because they are messy and include a hodge podge of business entities including passive businesses, firms no longer in business and LLCs owned by major corporations.

But we find this data a useful general indicator of U.S. self-employment. 

The Rise of Smart Farms

Tech startups are increasingly targeting agriculture. This is leading to a range of new companies and technologies focused on improving farm efficiencies and creating smarter farms.

CB Insights The Ag Tech Market Map: 100+ Startups Powering The Future Of Farming And Agribusiness covers the companies creating the future of farming.

They break up agtech companies into 9 catagories:

• Farm Management Software: Software that allows farmers to more efficiently manage their resources, crop production, farm animals, etc.
• Precision Agriculture and Predictive Data Analytics: Tools and technologies that focus on using big data and predictive analytics to make better farm-related decisions.
• Sensors:  Smart sensors that collect data and help farmers monitor crop health, weather, and soil quality.
• Animal Data: Software and hardware specifically aimed at improving livestock management.
• Robotics and Drones: That cater to agricultural needs.
• Smart Irrigation: Systems that help monitor and automate water usage.
• Next Gen Farms: Technology that enables farming in locations and settings that cannot support traditional farming.
• Marketplaces: That are relevant to agriculture.
• Plant Data/Analysis: systems that help farmers understand plant composition (microbial makeup, genetic expression, etc.) and/or analyzing that data to improve seed research and development

The CB Insights chart below (click to enlarge) highlights many of the companies active in agtech by sector. 

Anyone who's interested in technology trends, tech startups or venture capital should subscribe to the CB Insights newsletter. It's an amazing resource, especially since it's free. 

The Rise of Intermarriage and Cultural Fusion

In 2015 one-in-six U.S. newlyweds (17%) were married to someone of a different race or ethnicity. 

This is up from just 3% in 1967. The reason 1967 is the comparison date is that's the year the U.S. Supreme Court ruled that interracial marriages were legal. 

These stats comes from Pew Research's In U.S. metro areas, huge variation in intermarriage rates. 

Not surprising given the sharp increase in intermarriage, the U.S. Census is projecting that the "two or more races" population will grow the fastest of any demographic cohort over the next 40 years. 

And while we are on the topic of the changing racial and ethnic make-up of the U.S., here are several more interesting stats from the U.S. Census:

• Babies of color already outnumber non-Hispanic white babies (1 year or younger)
• By 2020, more than half of the nation's children are expected to be part of a minority race or ethnic group
• Sometime around 2040 America will be a minority majority nation
• By 2060 the minority population is projected to rise to 56 percent of the total, compared with 38 percent in 2014.
• By 2060, the nation's foreign-born population will reach nearly 19 percent of the total population, up from 13 percent in 2014.

The shifting racial and ethnic make-up of the U.S. is driving the trend towards cultural fusion. This is the blending and mixing of different cultures and their practices. 

A simple example of cultural fusion is the nationwide popularity of Korean Tacos, which were introduced in 2008 by LA's Kogi BBQ food truck. 

The numbers presented above make it clear the racial,ethnic and cultural blending of America will continue - as will cultural fusion. 

Yes, there will be friction and push-back from those who feel threatened by these shifts. But the reality is the blurring of cultural, ethnic, social and racial lines is too far along and powerful to stop. 

Small businesses who embrace cultural fusion will find a variety of market opportunities. 

Most American consumers are embracing innovative products and services that are inspired by the mesh of cultures. Small businesses who can create these products and services will - like the Kogi Barbecue truck - benefit. 

Aging Baby Boomers Providing and Utilizing On-Demand Economy Services

Older Americans are increasing turning to the on-demand economy for both work and access to services.

The New York Times article Baby Boomers Look to Senior Concierge Services to Raise Income nicely covers where these two intersect - older Americans earning money by helping other older Americans. 

Key quote:

Elder concierge, as the industry is known, is a way for the semi- and fully retired to continue to work, and, from a business standpoint, the opportunities look as if they will keep growing. Around 10,000 people turn 65 every day in the United States, and by 2030, there will be 72 million people over 65 nationwide.

Elder concierges provide a wide range of services.

Everything from "driving older clients to doctor’s appointments, playing cards, running errands or just acting as an extra set of eyes and ears for family members who aren’t able to be around but worry about their older relatives being isolated and alone."

Another interesting quote comes from Nancy LeaMond, AARP’s executive vice president and chief advocacy officer:

“Everyone assumed the on-demand economy was a millennial thing. But it is really a boomer thing.”

Ms. LeaMond noted that while people like the extra cash, they also appreciate the “extra engagement.”

AARP sees the advantages of working the on-demand economy for aging boomers. They even have a partnership with Uber.

The data from the 2017 Intuit On-Demand Economy (ODE) study certainly supports the view that boomers are active in the ODE. 

About 25% of all ODE workers are aged 52 or older. This equals about 1 million Americans. 

The top reason older Americans are working in the on-demand economy is to supplement their income. But it's not just about income.

Of those 55 and over, 32 percent cited “like being around interesting people” as a motivating factor, compared with only 15 percent for the population at large. And 35 percent of those over 55 cited “doing what I love” as a reason.

For aging boomers working in the ODE, it's about staying engaged, doing work they enjoy and/or is meaningful to them and supplementing their income.

For aging boomers and seniors accessing ODE services, it's about aging in place and having easy access to support services. 

The ODE is win-win for aging boomers and for the relatives and friends helping with their care. 

The Expanding High Skill Gig Economy

More and more professions that require advanced degrees or highly specialized skills are joining the gig and/or on-demand economy.

A good example is law. 

Crain's The gig economy comes to law covers the expanding use of contract lawyers. Key quote:

"Three-quarters of law firms with more than 250 lawyers use contract attorneys, says a 2016 report from legal consultancy Altman Weil."

The article chart below also illustrates this growth.

You can even hire lawyers online for fixed fees. The online site legal site Avvo recently announced a new service that covers routine legal scenarios for business, family and immigration, with fixed-price offerings starting at $39 for a 15-minute advice session or $149 for a document review.

It's not just lawyers. Doctors are also joining the on-demand economy.

Doctor on Demand, for example, provides video medical consultation service. 

Nomad Health is another example. They connect freelance doctors with temporary clinical positions. In the healthcare world, these are called locum tenens positions. 

As Nomad Health points out, there are a number of reasons doctors go freelance:

"Many doctors work locum tenens in addition to their full time position. Younger doctors may want to earn extra income or experience different clinical environments, while older doctors may use it as a means of maintaining a part-time schedule."

Consulting, of course, is another field with growing numbers of independent workers. The Boston Globe's Consultants get in on the gig economy nicely covers Catalant, the online site connecting consultants with clients. 

And if you want to hire data scientists on a project basis, Experfy is the place to go. They have thousands of freelance analytics experts. 

Or if need gig scientists to help you with genomics or synthetic biology, head over to Scientist.com. They just raised $24 million to help them "Uberize" biomedical research. 

The same thing is happening in many other professions. This is why the number of independent workers making more than $100k per year has been growing so rapidly (see chart below). 

As with other types of freelance work, not all highly skilled gig workers are happy with this type of work. Key quote from Crain's:

But as the industry has grown more competitive, with staffing agencies jostling for clients, contractors are worried about wage stagnation and amassing enough hours to pay the bills, which often include ​ law school debt. While some contract attorneys are retirees, parents or avid travelers who enjoy the flexibility of temporary work, Volz says, more would appreciate the stability of a full-time job. Jobs expected to last months can end in weeks or days. Lawyers look at the current market, where law school graduates outnumber legal jobs, and see "a bidding war where they don't have too much leverage."

We're working through the 2017 data from the MBO Partners State of Independence study and the number of higher earning independents has again increased.

We'll have more on this in the coming weeks after we release the study report.

Have We Reached Peak Gig Economy?

Last week's always excellent O'Reilly Next Economy newsletter asked the question Have We Reached Peak Gig?

They asked this in response to a number of recent negative press articles on the gig economy.

The negative press includes, but hardly limited to, the New York Times editorial The Gig Economy's False Promise, Quartz's The on-demand economy is a bubble—and it’s about to burst and The New Yorker's Is the Gig Economy Working? 

So is this true? Is the gig economy on the verge of collapse? Are on-demand services about disappear?

The quick answer is no.

There's no doubt that the gig/on-demand economy has issues, problems and growing pains. But it's also large, increasing in size and going to continue to grow. 

What these articles miss is the trends driving this growth are powerful and, if anything, getting stronger.

They also focus on almost exclusively on gig/on-demand economy startups serving consumers. They don't seem to aware of how extensively gig/on-demand economy services have permeated the economy.

The trends driving the growth of on-demand/gig services include: 

Consumer demand: It's clear consumers like services like Uber,Lyft and Airbnb. According to the National Technology Readiness Survey, in 2015 22.4 million Americans spent $57.4 billion in the on-demand/gig economy.

Other studies have found even larger numbers of consumers use gig/on-demand services. Pew Internet, for example, found that 72% of adult Americans have used some type of shared or on-demand service.

Consumer demand for on-demand services is not going to go away, which means a large market for these services will continue to exist.

Business demand: Literally dozens of studies over the past couple of years show that businesses large and small are increasing their use of contingent labor. And not just gig economy companies - it's businesses in almost every industry. 

A good study example is big 4 accounting firm EY's Is the gig economy a fleeting fad, or an enduring legacy? It found that by 2020 about 1-5 workers at mid to large sized corporations will be contingent, up from 1 in 7 in 2016. 

Also see Spend Matters New Study Dissects Organizations’ Ongoing and Future Use of Contingent Workforce. Key quote:

"The overall findings — many of which may not be a surprise for contingent workforce management services procurement practitioners — indicate that the use of contingent work, in various forms, is widespread and increasing ..."

In addition to hiring more gig workers, a wide range of B2B on-demand services are emerging. While the media focuses on consumers, the growing gig/on-demand B2B industry has become very large in it's own right. 

Worker supply: Our studies indicate most Americans don't want to be self-employed and/or gig workers. They prefer the predictability and stability of traditional employment.

But the number of Americans who want, or at least are willing to be self-employed is large and growing. 

Based on our research, about 60 million Americans are open to and/or want to be self-employed. This is about 1 in 4 adult Americans.

Other studies show larger numbers.

For example, MetLife's recently released 15th Annual Employee Benefit Trends Study found that 51% of employees (about 80 million) are interested in contract or freelance work. This is the highest percentage in the 15 years MetLife has been doing this study. 

So there is clearly a large enough supply of potential gig workers. 

Gig Economy Business Models Work: One of the main lines of attack on the gig/on-demand economy is the industry is losing lots of money. The implication is the industry's business models are flawed and these companies can't make money. 

This argument seems mostly driven by Uber's massive losses, but the food delivery industry is also highlighted as an example of flawed business models. 

Our answer to this is GrubHub, which is one of the few public on-demand economy companies. It also happens to be in the food delivery business. As the chart below shows, GrubHub is growing rapidly and is solidly profitable.

Much of the confusion around business models is due to many VC backed on-demand/gig companies losing money and/or shutting down. 

What the articles are missing is this is how industries with heavy VC investments evolve. Lots of companies are funded, most lose money and eventually disappear, but a few grow into successful businesses. 

A good example is Internet search.

In the late 90s and into the early 2000s there were dozens of VC backed search companies. Almost all of these companies failed. But we doubt anyone today would argue that Internet search isn't a viable industry. 

The bottom line is the gig/on-demand economy is here to stay. It will also continue to grow. 

GM Drives into the Gig Economy

General Motors recently announced a program called "Gig" that rents their new all electric car, the Bolt, to freelance drivers for $229 per week. 

Part of GM's Maven set of of car sharing options, this offering is aimed at independent drivers working for the various ride-hailing and delivery services.

The $229 rate includes maintenance, insurance, and free electric charging at EVgo stations and is designed to make it cheaper and easier for drivers to work for multiple services.

Key quote Car&Driver"s GM Launches New Program to Capitalize on Growth in Freelance Economy:

GM’s research shows demand is greatest for ride-hailing services at different times of day than it is for delivery services, so the company believes Gig can be a way for drivers to maximize their earnings and stay busy throughout their desired work period. Further, the program’s weekly rates can help drivers schedule vacations or other time off without having to commit to a rental vehicle for an extended period of time.

Gig launched last week in San Diego and will soon be available in San Francisco and Los Angeles. GM expects it will be in many more markets by year end.

The $229 price per week is quite aggressive, especially since it only requires a week by week commitment and includes maintenance, unlimited mileage and access to free fuel via electric charging stations. This will no doubt be attractive to people who drive full or near full time, especially if they work for multiple services.

GM's Maven division is charged with exploring how car sharing is changing car ownership and usage. Gig is a natural extension of their efforts. Ford, BMW and other auto companies are also experimenting with car sharing and on-demand car services. 

This service illustrates the growing range of services and products designed to support independent workers. This is a clear signal that the gig economy is both growing and maturing.

It's interesting us is that Car & Driver covered this story. Yes, it's a car story. But it wasn't that long ago that consumer oriented pubs would not have run an article on the freelance economy. This is another clear signal that the sharing/gig economy is maturing. 

Hamilton, Jefferson and Trumpcare's Impact on the Self-Employed

First off, the most important thing to know about American Health Care Act (AHCA or Trumpcare) is it will almost certainly be changed in major ways by the Senate. 

So there's no reason to get too worked up about this bill for now.

The second thing to know is the wild claims being made by both sides - such as healthcare costs will drop dramatically or it makes rape a pre-existing condition - are just that, wild claims that do not reflect what's actually in the bill.

Our March article How Trumpcare Will Impact Self-Employment covered the major differences between Obamacare (The Affordable Care Act) and Trumpcare. Most of what we say in that article is still true.

The quick summary from that article is:

.. self-employed who are younger or have higher incomes will likely be better off under the Republican proposed American Health Care Act (AHCA, a.k.a. Trumpcare). Self-employed who are older or have lower incomes will likely be worse off.

Poor people - and particularly older poor people - continue the big losers in this bill. Their subsidies are cut and in many cases their insurance costs will go up.

Trumpcare also substantially reduces Medicaid support for states. This will almost certainly mean state cuts in health programs that support the poor. 

Older people (roughly aged 45 to 64) in general are also losers. The ACHA allows insurance companies to charge older people more than Obamacare does. 

The winners are younger people and healthy people. They should see their insurance costs go down.

This is especially true if these people make too much money to qualify for Obamacare subsidies, but don't make so much they don't qualify for Trumpcare tax credits. If you make between roughly $50,000 and $150,000 you fit into this category (varies by location and filing status). The credits phase out for those making above $150,000. 

But don't feel bad for the rich. 

The bill eliminates two taxes on individuals earning more than $200,000 or couples earning more than $250,000: a 0.9 percent increase on the Medicare payroll tax, and a 3.8 percent tax on investment income. So they are winners too. 

There's a huge outcry by opponents of Trumpcare that pre-existing conditions aren't covered in the bill. This is incorrect.

Almost everyone with pre-exiting conditions will be covered pretty much the same way they are under Obamacare. 

The rules around pre-existing conditions are complicated, will likely vary by state and, yes, there are cases where having a pre-existing condition means higher insurance rates. But those cases will likely be unusual.

Those wanting to know more about pre-existing conditions under Trumpcare should read the Washington Post's Here’s what you need to know about preexisting conditions in the GOP health plan. 

Also, the New York Time's Who Wins and Who Loses in the Latest G.O.P. Health Care Bill provides a nice, general summary of the bill. 

The bill hasn't changed enough to change our view that the overall impact on self-employment will be modest. This is because the bill has self-employed winners and losers.

Having said that, overall we think Obamacare is better for the self-employed than Trumpcare.

The main reason is Obamacare better covers older and lower income self-employed. Self-employment is often the only or best employment choice these folks have. Because of this, they need to supported. 

While we prefer Obamacare, it has problems. We think a bipartisan effort to fix these problems would be the best solution. But that's not going to happen. 

On a broader philosophical level, Trumpcare versus Obamacare is a continuation of the debate between Alexander Hamilton and Thomas Jefferson over the role of the federal government.

Trumpcare is Jeffersonian in that it reduces the role of the federal government and gives more power and choice to the states and individuals.

Obamacare fits with Hamilton's Federalist views, in that it gives more power to the federal government. 

The hit Broadway musical, Hamilton, nicely covers this debate - which was as fierce when our country was founded as it is today. 

1.1 Million Work in Great Britain's Online Gig Economy

According to a study released by the UK think tank The Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA), there are about 1.1 million gig workers in Great Britain.

Here's how the study defines the gig economy:

"When we refer to the ‘gig economy’, we are discussing the trend of using online platforms to find small jobs, sometimes completed immediately after request (essentially, on-demand). Much like an actor or musician goes from ‘gig to gig’, workers in the gig economy are sourcing one job at a time, but by logging into an app or clicking through to a website. Each ride an Uber driver accepts is a ‘gig’ or a single job, as is each booking a Hassle cleaner makes to tidy a flat or every errand run through TaskRabbit."

This is quite similar to the definition used in the Intuit On-Demand Workforce study series, which covers the U.S. 

The findings are also similar.

The RSA study shows that about 2% (1.1 million) of Brits are working with online platforms. The Intuit study shows about 3.9 million Americans (about 2.6% of the workforce) do this type of work.  

The attitudes, motivations and demographic findings are also pretty similar. As the study charts below show, Britain's gig workers mostly work part-time to supplement their income. 

And both studies report the majority of gig workers are satisfied with gig work and plan to continue. Not surprisingly, most are satisfied because they like the flexibility and control gig work provides.

This, of course, echos the findings of almost all gig worker studies.

And, of course, despite these findings the press coverage of the study is mostly quite negative about the gig economy.  

The On-Demand Economy and the "Plight of the Sometimes Poor"

We consider the U.S. Financial Diaries study to be one of the most important economic research projects of the last decade. The reason is this study covered several very important, growing trends:

1. Income instability, volatility and uncertainty are causing problems for a wide range of Americans
2. People turn to 2nd jobs and side gigs to help moderate the impacts of these problems

Conducted in 2012 and 2013, the study tracked the finanical lives 235 low- and middle-income households.

This was no easy feat.

The 12 person research team visited each household on a weekly basis and attempted to track every dollar earned, spent, saved, borrowed, loaned out or given away. They also kept track of life events to help explain the undulating cash flows that characterized almost every household they studied.

That amount of effort, by the way, is why diary projects are rarely done. They are very expensive and very hard to do. 

The research team recently released a book based on the study: The Financial Diaries - How American Families Cope in a World of Uncertainty. It's on our required reading list.

NYU's The Plight of the Sometimes Poor provides an excellent book review. Key quote:

The Diaries households were diverse, representing different races, ethnicities, immigration statuses, and jobs ranging from street vendor to tax preparer. None of the families were the richest or poorest in their communities, and while a quarter of them fell beneath local poverty line, others earned up to twice that much. Crucially, a close look at their daily transactions revealed that their annual income—the traditional measure for how well off someone is—didn’t tell their whole financial story. As the authors write, “The Diaries make salient the critical distinction between not having money at the right time versus never having the money, or in more academic terms, illiquidity versus insolvency.”

Surprisingly, this illiquidity was a problem even for families who would by other measures be considered middle class.

One of the ways these families try to deal with income volatility is side gigs.

As the study chart from one of the original Financial Diaries research paper shows, about 37% of households studied had an adult with multiple jobs. 

After reading the Financial Diaries study results in 2014, we started working on trying to understand what role, if any, work in the on-demand economy played to help ease income volatility and illiquidity. 

We found that many of those working in the on-demand economy are doing so to help them weather a financial hardship or get them through a period of time when their income had dropped.

Our findings are summarized in The Aspen Institute's New Findings Reveal the On-Demand Economy Plays Key Role in Improving People’s Financial Stability.

The on-demand economy is often attacked for creating "precarious jobs" that lack benefits and don't provide financial security. This is certainly true in many cases.

But the on-demand economy also provides access to highly flexible, low friction, income earning opportunities for those in need of supplemental income. As the Financial Diaries study showed, there are a lot of Americans with that need. 

See the Intuit On-Demand Workforce study report for more on this topic.