Small Business Labs

Professional Services Business Applications from Freelancers Continued their 2020 Surge in January.

In 2020 professional services applications from independent workers (freelancers, independent contractors, etc.) increased by 21% over 2019.

Most of the 2020 increase came in the second half of the year and continued into 2021, with professional services applications from independents increasing in January by a stunning 51% over January of 2020.

This data comes from Independent Workers Lead Recent Surge in Professional Service Business Applications, a research brief from MBO Partners that is based on an analysis of U.S. Census Business Formation Statistics.  

The recent increases are a continuation of a long-term trend towards growing numbers of new professional services business applications from independent workers.

As the chart below (click to enlarge) shows, professional services applications from independent workers (in blue) almost tripled over the past 15 years, growing from 140,365 in 2005 to 419,073 in 2020.

Another long-term trend is the shift away from employer business applications and towards applications from independent workers.

In 2005 over half (55%) of professional services business applications came from businesses planning to hire traditional employees, while only 45% came from independent workers. 

But by 2020, independent worker business applications had increased to 76% of all professional services applications, with only 24% coming from businesses planning on hiring traditional employees.

The research brief goes into more detail on this data and the trends driving these shifts.  A key reason, of course, is the pandemic has more considering becoming independent workers.

Professional Services (NAICS 54) is comprised of businesses that specialize in performing professional, scientific, and technical activities for others. See the research brief for more details.

Emergent Research worked with MBO Partners on this study.

Creative Boom on What They Never Tell You About Becoming a Freelance Creative

There's lots of articles these days covering how to become an full or part-time independent worker (freelancer, independent contractor, gig worker. etc.).  

One of our recent favorites is What they never tell you about becoming a freelance creative from Creative Boom.

The reasons we like it so much is the article's 8 insights for freelancers are all things we regularly hear in our interviews and survey research.

We also like that the insights are effectively and succinctly described.   

The 8 are:

1. You're running a business
2. Your income won't be consistent
3. The need for self-promotion never ends
4. Big clients aren't always the best clients
5. It helps to find a niche
6. You can quickly burn out
7. It can get lonely
8. You need to play the long game

See the article for the descriptions. 

There's really nothing new in this list. 

But based on our research, even many experienced independent workers are either unaware of these insights or choose to ignore them.

Back in 2008 we studied independent artists who were successful both artistically and commercially.  One of the key findings of the study was successful independent artists understood they were running a business and invested the time and effort running a business requires.  

This finding is still valid today.  

Will Coworking Be One of the "Big Winners in the Age of Remote Work"?

Business Insider has an excellent interview with Richard Florida, a leading expert on cities and urbanism and the author of The Rise of the Creative Class.

The interview covers a lot of interesting ground, and it’s well worth reading.

But one quote from Florida really jumped out at us:

Human beings are social animals. We require connection, we require human interaction. Remote workers who are by definition working outside of the office will require more of this.

People will gravitate to places where they can meet and interact with others outside of the home and outside of the office.

The big question of our time, which we are just beginning to engage, is what is the ecosystem that is required for remote work?

That ecosystem is a community, not just a technology equipped home-office. The places that can build that ecosystem or where that ecosystem arises organically will be the big winners in the age of remote work.

This reads like a sales pitch for coworking. 

And we believe coworking will become a key part of the remote work ecosystem and one of the big winners in the age of remote work.

Book Review: Building the Business of You

Building the Business of You aims to help people "navigate the uncertain, post-pandemic world of work, while aligning personal purpose and professional advancement." 

And it hits the target with practical, actionable advice on taking charge of and building a career in the new world of work.

The central concept of the book is what the author calls the "career mashup". 

This is a career where workers merge their skills, interests, passions, and experiences in a way that fits a person's whole self.

While this sounds a bit new agey, there's a growing body of research showing that work that is is consistent with a person's values, interests and passions leads to greater career success and overall happiness.

To help develop a mashup career, the book explains to readers how to:

• Push past the fear that holds them back and build limitless confidence to move forward.
• Align their interests, strengths, and skills to get them where they want to be.
• Spot the common threads between skills and experiences and leverage them like a pro.
• Expand their sustainable skillsets.
• Identify the full value they bring to every new network so they can socialize with confidence.
• Leverage themselves as their own best assets.

Think of Building the Business of You as a guidebook for the new world of work.

You can learn more about the book and get additional tips and career resources at the book's website.                  

It Had to Happen. A Gig Economy SPAC

A SPAC is a special purpose acquisition company.  A good description comes from CNBC's SPACs used to be a joke in Silicon Valley — now they’re going mainstream. Key quote:

In a SPAC, a group of investors raise money for a shell company with no underlying business. The SPAC goes public, generally at $10 per share, and then starts hunting for a company to acquire.

A new SPAC called Z-Work was recently formed that's focused on the gig economy.  According to their website, they describe their ideal acquisition as having the following characteristics:

• Using technology to change how people find work, get work done or make ends meet
• Demonstrated sustainable growth potential
• Management driving continued innovation
• Strong, clear value proposition to their customers
• Leveraging data to constantly improve the product and operations
• Benefiting from demographic and/or societal tailwinds" 

SPACs used to be somewhat rare, but there's now a SPAC frenzy going on.  

According to Yahoo Finance's What the SPAC frenzy tells us about the market and ourselves:

In 2019 59 SPACs worth $13 billion were created. Last year there were 248 worth $83 billion. And already, just six weeks into this year, there are 135 SPACs which have raised $40 billion.

Even the ex-San Francisco 49ers quarterback Colin Kaepernick, who is famous for taking a knee during the national anthem, has formed a SPAC.

So it's no surprise there's a gig economy SPAC.

New Business Applications Surged Again in January

Over the past 6 months new business applications have surged. 

As the U.S. Census chart below shows (click to enlarge), the surge is continuing with 492,000 applications filed in January. This us up 73% compared with last January. 

Most of the applications are what the Census calls "applications other than high propensity" (grey in the chart).  These are applications from businesses that are unlikely to have employees, such as freelancers, independent contractors and other types of solopreneurs.

But employer small business applications (high propensity applications) have also surged.  

The business applications data comes from IRS Employment Identification Numbers (EIN) applications.  EIN's are the tax id number that identifies a business. 

Not all small/solopreneur businesses have EINs. Some, and especially independent workers working part-time, use their social security numbers instead.  But almost all employer businesses have EINs.  

While only about 15%-20% of applications have historically turned into actual small businesses, the surge indicates we should see strong growth in the number of independent workers and employer small businesses over the next 2 years.  

See our prior posts on the surge in new business applications for more details on the surge.

See the U.S. Census Business Formation Statistics site for more data. 

Nonprofit Sector Has Lost Close to Million Jobs During the Pandemic

The nonprofit segment is quite large, employing more than 10% of all U.S. private sector workers.  This is more workers than in the manufacturing, construction, or finance sectors.

So it's a problem that nonprofits have been hit hard by the pandemic.

The chart below (click to enlarge) comes from the Center for Civil Society Studies at Johns Hopkins University. 

It shows employment in the nonprofit sector has fallen by over 900,000 jobs since the beginning of the pandemic.

Other sources have the job losses greater than 1 million jobs.

And when a nonprofit closes or reduces jobs, the community it serves is also hurt.  Key quote from the Axios article Nonprofits in crisis amid the pandemic:

"When you lose a nonprofit job, you’re not only losing that job, but the community is losing a service," says Tim Delaney, president and CEO of the National Council of Nonprofits. "It’s a double whammy."

According to Johns Hopkins, the nonprofit sector's recovery will likely be slow.  They're projecting it will take 18 months after the pandemic for the sector to recover fully.

Nonprofits are mostly small businesses, which is why we cover them.  According to the National Council of Nonprofits, 88% of all U.S. nonprofits have less than $500,000 in annual expenses and only 8% spend more than $1 million.

Prior to the pandemic, the nonprofit sector had been growing more rapidly than for-profit SMBs. And hopefully, they'll get back on track.  

The Long Term Shift in Business Applications to Solopreneurs

In the early 2000s, about 60% of all new business applications were from businesses planning on having employees.  The other 40% were from solopreneurs who did not plan to hire employees.

But as the chart below shows (click to enlarge), by 2015, 57% of new applications were from solopreneurs (orange in the chart).  And in 2020, 66% of new business applications were from solopreneurs.

The data comes from the U.S. Census Business Formation statistics, which tracks applications for Employer Identification Numbers (EIN).  Because EINs are needed for tax reporting, almost all employer businesses and most solopreneurs have them.  

This data nicely illustrates the long-term shift towards independent workers and the growth of the independent workforce. 

See this article for details on the business formation statistics and the 2020 surge in new business applications.  

Side Giggers and Independent Workers in Super Bowl Ads

We haven't seen all the Super Bowl ads yet, but we know independent workers will be featured in two of them.

Squarespace's ad (below) features Dolly Parton singing 5-9, a take off on her hit song and movie 9-5.  It shows a variety of side giggers pursuing their passions.

Fiverr also has a Super Bowl ad, but we haven't seen it yet.  But no doubt it will feature creative independents.

Being featured in Super Bowl ads is a clear signal that independent work in general and side gigs have gone mainstream.

 

 

The Rapidly Growing Creator Economy

Axios' App rush: Talent over trash covers the growth of social media apps where the content is created by digital content creators who are getting paid.  Key quote:

The big picture: Creator-economy platforms like Patreon, Substack and OnlyFans are built around content makers who are paid. It's a contrast to platforms like Facebook that are mostly powered by everyday users’ unpaid posts and interactions.

Most of the creator economy platforms pay creators in some form of royalties or advertising revenue share agreements. 

But some of them - Patreon and Substack, for example - provide mechanisms for creators to have more direct relationships with their fans and generate revenue a variety of ways (subscriptions, merchandise sales, etc.).

According to the venture capital firm SignalFire, there are about 50 million income earning creators across the globe (click to enlarge the charts below).

This estimate was developed using a bottom's up count across the major creator platforms such as YouTube, Instagram, Twitch and others.  The estimates of professionals versus amateurs are based on traffic.  

And as the chart below shows, there are numerous platforms catering to creators.

Key quote on how SignalFire explains the rapid growth of the creator economy:

So how did creatorship grow so quickly? There’s been a societal shift in consciousness towards caring more about feeling fulfilled in our jobs, having control over how we spend our time, and being our own boss. Fans see creators doing what they love for a living and aspire to follow that path that never leads to a cubicle.

Regular readers will recognize this is basically the same explanation as one of the main reasons why the independent workforce has grown, which is the desire for work autonomy, control and flexibility.

A variety of names have been used for the creator economy.  We include content creators in our definition of the Artisan Economy, which we started using  over a decade ago. It's a broader definition and includes makers, crafters and knowledge artisans.  And, of course, creators earning money independently are independent workers.  

More recently, the venture capital firm Atelier called it The Passion Economy in an essay that drew a lot of attention. 

But even more recently, Atelier switched to calling it the creator economy in their Harvard Business Review article The Creator Economy Needs a Middle Class.

This article points out one of the issues facing the creator economy is while a few creators make lots of money, most make very little.  Key quote:

On Patreon, only 2% of creators made the federal minimum wage of $1,160 per month in 2017 ... On Sportify ... the top 43,000 artists — roughly 1.4% of those on the platform — pull in 90% of royalties and make, on average, $22,395 per artist per quarter. The rest of its 3 million creators, or 98.6% of its artists, made just $36 per artist per quarter.

We think the creator economy will continue to rapidly grow.  We also think the name is here to stay (at least for awhile).    

BTW, Atelier's newsletter is excellent and anyone interested in the creator economy should sign up for it.