Small Business Labs

Key Findings from 10 Years of Studying the Gig Economy: The Rise of Microbusiness Exporters

Despite trade wars, tariffs, and the erection of other barriers to cross-border commerce, the past decade has seen a substantial increase in the number of U.S. microbusinesses and freelancers who export goods and services.

As the chart below (click to enlarge) from the MBO Partners State of Independence study series shows, the share of independent workers (freelancers, independent contractors and other microbusinesses) providing goods and services to customers outside the U.S. more than doubled since 2011.

The increase in exports is being driven by several factors:

• Online marketplaces have made it much easier to find and service customers outside of the U.S. They also simplify and facilitate transactions and payments.
• Collaboration software has reached the level where communicating with remote customers is easy and efficient. This has greatly increased the ability of service providers to serve customers outside of the U.S. 
• Improvements in outsourced logistics services have reduced the costs and greatly simplified the process of delivering physical products to pretty much any global destination.
• Global markets are enormous, with 95% of the world's population and 84% of the world's economic activity taking place outside of the U.S.

Most U.S. independent workers and microbusinesses who sell to customers outside of the U.S. start out as "accidental exporters".  This happens when a customer outside of the U.S. finds and buys from a U.S. based independent worker or microbusiness.

Often these first exports are done via online marketplaces like Amazon, Etsy, eBay or Upwork. 

Once exporting has occurred, it tends to lead to more exports. For example, according to eBay's 2020 United States Small Online Business Report:

"... 96 percent of small businesses on eBay in the United States export internationally, sending goods to an average of 17 foreign countries. Additionally, nearly 60 percent of eBay entrepreneurs ship goods to customers across four or more continents."

Not surprisingly, independent workers and microbusinesses who sell goods are much more likely to be exporters and those who sold services.  Almost half (48%) of those producing goods reported being exporters in 2020 compared to 16% of services firms.

Despite attempts to rein in or reduce global trade, the rise of microbusiness exports will continue.  The drivers and market opportunities behind this trend are simply too powerful for it not to continue to grow.

Happy Holidays!

We'll be back next week.

Key Findings from 10 Years of Studying the Gig Economy: Freelancers Happier and Healthier

One of the clearest findings of the decade-long MBO Partners State of Independence study is full-time Independent workers (freelancers, independent contractors, the self-employed) consistently report that they believe they're happier and healthier because they are independent workers.

In 2020, 83 percent of full-time independents said they are "happier working on my own," and 71 percent said that "working on my own is better for my health."

These results are not surprising.

Numerous academic studies show that having work autonomy and control leads to better mental and physical health and higher levels of happiness.

And most full-time independent workers report having high levels of work autonomy and control.

One of our favorite studies on this topic - This Job Is (Literally) Killing Me: A Moderated-Mediated Model Linking Work Characteristics to Mortality – found that mental health and even mortality strongly correlate with the amount of work autonomy and control.

In other words, low levels of work control and autonomy not only makes you less likely to be happy; it also increases your risk of dying.

Dan Pink's book Drive also points out that autonomy is one of the three keys to intrinsic motivation. 

According to the book (which is based on extensive research), when people are allowed to choose what they work on, when they work on it, how they accomplish it, and who they work with, they're more motivated and perform much better. 

And those who are motivated and perform well at their work tend to be happier than those who are unmotivated or perform poorly.

The State of Independence study series has also found autonomy, control and flexibility are linked to work satisfaction.   Independent workers who report having these work attributes report much higher work satisfaction than those who don't. 

We've often pointed out that work/life flexibility, control, and autonomy are key reasons people become and like being independent workers.

The science of happiness (yes, there is such a science) provides evidence that these are good reasons.

Key Findings from 10 Years of Studying the Gig Economy

Last week, MBO Partners released its 10th annual report in the MBO Partners State of Independence research series. Emergent Research (that's us) worked with MBO Partners on this ongoing study across all 10 years.

The research was based on surveys of over 23,000 independent workers, gig workers, and micro-business owners and was augmented by 1,500 in-person interviews throughout the decade. 

Over the next couple of weeks, we'll be highlighting some of the key findings and insights from this research. 

And we're starting with one of the most interesting and surprising findings: 

Most full-time independent workers now consider independent work to be more secure than traditional jobs.

As the study chart below shows, the percent of full-time independent workers reporting that independent work is more secure than a traditional job has grown from a minority share of 32% to a solid majority of 56% over the past decade (2011-2020).

This is interesting both from a sentiment perspective as well as the magnitude of growth. Its' also interesting the growth was relatively steady across the study timeframe.

When we ask in interviews why independents feel more secure, we hear three common themes:

1. Because they control their work and business, they feel more secure than being at the mercy of an employer and a boss. 

2. They feel that having multiple clients and diversified income streams is more secure than relying on a single income source.

3. Due to layoffs, company failures, changes in corporate directions, and a broader lack of corporate loyalty to their employees, they report that traditional jobs are no longer as secure as they once were. This makes independent work feel more secure on a relative basis.

The pandemic has amplified all three themes, and the third in particular.

Even though independent workers have been hit hard economically by COVID-19, most believe they are better off than those who have lost their traditional jobs and their entire income source.  

There are several other reasons why independents feel more secure.

Over the ten years of this study, there's been a growing array of products and services that make it easier to be a successful independent worker. These include low-cost, Internet-based tools, services, and online marketplaces for everything from billing and project management to marketing and sales. 

The ACA (Obamacare) was rolled out early in the study series, making it much easier for independents to get health insurance. Health insurance is often considered the most important job benefit, and prior to the ACA the lack of affordable health insurance options for independent workers was a major problem.  

Independent work is also viewed much more positively than it was a decade ago. Because of this, consumers and businesses are more open to hiring independent workers, making it easier to find and retain customers than a decade ago. 

One of the biggest reasons people don't pursue independent work is that they consider it too risky - and much riskier than a traditional job. And while most non-independents will continue to see it that way (we'll have more on this topic in the near future), more people now realize that independent work can be as secure, or even more secure, than having a traditional job.

Because of this shift, more people will likely choose to become independent workers in the coming years.

The Stunning Financial Success of Gig Economy Marketplaces

Last week Airbnb and DoorDash went public with breath taking valuations.  Airbnb closed Friday with a market capitalization of $83 billion and DoorDash's came in at $55 billion.

As the chart below shows, they aren't alone.  Other gig economy online marketplaces have also achieved huge financial success.

To put these numbers in perspective, Airbnb is worth more than Marriott ($42 billion) and Hilton ($29 billion) combined. 

Other notable firms to compare with include the global chemicals giant Dupont ($47 billion), the large financial institution Capital One ($41 billion) and the food and cereal giant General Mill ($36 billion).

Interestingly enough, the much maligned Uber ($92 billion) tops the list.  While their core business of rides has been hit hard by the pandemic, their food delivery business has benefitted. 

As the Financial Times article Airbnb and DoorDash IPOs leave gig economy issues unresolved points out, most of these firms are still not profitable.  Key quote on the combined losses of Airbnb, DoorDash, Uber and Lyft: 

But that has not translated into profits. Even the flattering financial metric these companies prefer to be judged by — adjusted earnings before interest, taxes, depreciation and amortisation — showed all four to be lossmaking in the 12 months leading up to their listings, with some $3.3bn in red ink between them. So are their business models half-baked, or just half-evolved?

And the Wall Street Journal article Sizzling Tech IPO Market Leaves Investors Befuddled also points that even the companies themselves are stunned and concerned about their valuations.

Stock prices and market caps are subject to rapid change (to say the least), and as the financial ads say, past performance is not an indicator of future results.

But the rapid rise (most of the firms on the chart above are less than 10 years old) and financial success of online gig marketplaces show how big and important the gig economy and independent work have become.

The Pandemic Accelerated Rise of Ghost (Cloud) Kitchens

The global marketing agency Wunderman Thompson's article Ghost Kitchens covers the growing popularity of delivery-first dining and the related growth of ghost kitchens, which are also called cloud kitchens.

Ghost restaurants are delivery only, online restaurants that skip storefronts and deliver food straight to the customer. 

And one reason we're covering this topic is yesterday the food delivery firm Door Dash went public in spectacular fashion, ending the day worth a stunning $60 billion.

The food delivery business has been growing for about a decade and the rise of ghost kitchens was already a trend prior to the pandemic.  But COVID-19 has massively accelerated this trend and greatly expanded the market.

And according to Euromonitor, the growth trend will continue. They're predicting food delivery will be $1 trillion global business by 2030.  Key quote from a Restaurant Business article on the forecast:

The firm predicts that by 2030, food delivery could account for up to a third of consumers’ $3 trillion food spend globally. That includes roughly 50% of drive-thru business, or $75 billion, and 50% of takeout, or $250 billion. It will also take share from frozen meals (35%),  packaged cooking ingredients (30%), dine-in (25%) and packaged snacks (15%).

The Wunderman Thompson article does a nice job of covering the trend, so we'll not bother rehashing their article.

But they end with a very positive view of the long term outlook for ghost kitchens:

Global head of food and beverage research Michael Schaefer predicts that ghost kitchens will define the restaurant industry over the coming years in the same way that third-party delivery services have marked the industry over the past 10 years.

A Third Way to Classify Workers Gains Momentum

In the recent election, California voters overwhelmingly passed Proposition 22.

The passage of Prop 22 means that firms like Uber and Lyft can legally classify their drivers as contractors instead of employees.  And it has also effectively created a new, 3rd way to classify workers.

The reason is Prop 22 requires firms like Uber and Lyft to provide their drivers with benefits not normally given to independent contractors. 

Other countries have long had third ways to classify workers.

Most countries refer to them as "dependent contractors" and they get some, but not all, of the benefits and legal protections associated with being a traditional employee.

But the U.S. has only had two classifications (with some minor exceptions).  By law you are either an employee or a nonemployee.  And nonemployees don't receive many of the benefits and labor protections that those classified as employees get. 

To comply with Prop 22 - which only applies to "app-based drivers" retained by "network companies" - hiring organizations (such as Uber and Lyft) must provide a set of benefits normally not provided to contractors or gig workers.

J.D. Supra's article Reconciling the Gig Economy in California: Changes to Worker Classification Laws Since AB 5 nicely covers these. Key quote:

Proposition 22 provides several legal employment benefits and protections that are required in California for workers classified as employees. For example, app-based drivers now have a guaranteed "net earnings floor" comprised of 120 percent of the applicable minimum wage of the worker's "engaged time," guaranteed tips and gratuities, and a guaranteed quarterly healthcare subsidy. Proposition 22 also requires the applicable companies to provide occupational accident insurance to cover at least $1 million in medical expenses and lost income resulting from injuries suffered while a driver is online, and disability payments of 66 percent of a driver's average weekly earnings before the injuries suffered. Proposition 22 further requires the applicable company to provide accidental death insurance for the benefit of a driver's spouse, children, or other dependents when the driver dies while using the app.

Under current worker classification laws, companies effectively cannot offer nonemployees benefits like those described above. The reason is providing these benefits would be seen by regulators and the courts as evidence that a nonemployee should be classified as an employee. 

So offering these types of benefits would lead to companies being forced to classify the workers as employees and would also expose them to very expensive legal actions.

But under Prop 22, they have to be offered, which is why Prop 22 has effectively created a 3rd way to classify workers - at least in California for a relatively small subset of gig workers (rideshare and delivery drivers).

But we think other states will adopt laws that create various forms of 3rd ways to classify workers. 

The reasons are our current classification laws clearly aren't working, the gig economy continues to expand, and attempts to modify existing laws - like California's AB5 - have been a mess.  

We've not been in favor of a 3rd way to classify workers. 

Our view has been it would lead to greater confusion and even more lawsuits and legal issues than we currently have. 

We're also concerned that a 3rd way to classify workers will lead to more workers losing out on the benefits and protections that come with traditional employment status.

But AB5 has shown that trying to fit gig work into our current laws simply doesn't work.  And because of that, we now think a 3rd way to classify workers is the best way to move forward.

COVID-19 Accelerating the Trend Towards Vertical and Indoor Farming

The interest and investments in vertical and indoor farms has been growing steadily for several  years.

This is due to the advantages of indoor farming. By taking plants out of their outdoor environments and moving them inside to a controlled environment you can eliminate the problems associated with drought, pests, weeds and extreme weather.

You can also locate farms closer to urban areas, which means fresher produce for consumers and lower transportation costs. 

But COVID-19 has added another advantage.

Urban farms provide greater levels of food security because they don't rely on far away crop production and related supply chains.

MIT Technology Review's Inside Singapore's Huge Bet on Vertical Farming covers the island nation's decision to invest heavily in indoor vertical farming.  A key reason is control over food production and its supply chain.

One of the leaders in vertical farming is Berlin-based Infarm.  They recently raised $170 million in funding and signed a major agreement to supply produce in Japan. 

Another vertical farming firm, Plenty, recently showed a 2 acre vertical farm could grow as much produce as a 720 acre flat farm, and match the costs of a flat farm.

The main reason they can be cost competitive with traditional farms is vertical farms use much less water and pesticides, have higher crop yields thanks to the controlled environment and have reduced supply chain costs.  Vertical and indoor farming is also more environmentally sound.

And with COVID-19 showing that food supply chains can be unexpectedly disrupted, food security programs like Singapore's will lead to greater investment and use of vertical farming.

Because of these reasons, expect vertical and indoor farming to become increasingly common.  

Marie Claire and the Mainstreaming of Freelancing

The magazine Marie Claire was first published in 1937 and describes itself as "the site that women turn to for information on fashion, style, hairstyles, beauty, women's issues, careers, health, and relationships."  

The magazine has long targeted working women, so it's not surprising they are covering freelancing.

But what's a bit surprising is the extent they are covering it. 

Marie Claire is currently featuring a multi-article Guide to Going Freelance as its top content offering right now.  

The guide starts with The Grey Area Economy, which covers the growing role freelancers are playing in the economy and some of the issues they face.  Think of it as an overview of freelancing.

The guide continues with three other articles, each of which covers a specific freelancer-related topic.  These are:

• How to Afford the Freelance Life
• Maximize Your Productivity as a Freelancer
• Freelancing With Benefits? You Bet.

All the articles are well done and contain useful information, especially for those thinking about becoming a freelancer or new to freelancing.

But what makes this interesting from a trends perspective is this coverage is a clear sign of how mainstream freelancing has become.  It's now a major topic in general interest publications.

It wasn't that long ago when this was not the case.