Small Business Labs

The Demographics of Nonemployer Business Owners

The U.S. Census has released new demographic data on nonemployer businesses.  

Nonemployers are businesses that have an owner but don't have paid traditional full or part-time employees (W2 employees). The data comes from tax records, and you can think of nonemployers as solopreneur businesses (freelancers, independent contractors. gig workers, etc.)

The new data provides information by owner demographics such as sex, race, ethnicity and veteran status, geography, industry, receipt size class, and legal form of organization.

The Census chart below (click to enlarge) illustrates some of the demographics of nonemployers for 2017.  Census is planning on updating this for 2018 (the most recent year the non-demographic data is available) in the near future.

The nonemployer dataset gets less attention than other government data on self-employment. There have been two reasons for this.

The first is until fairly recently, there was little interest in self-employment data.  The rise of the gig economy has changed this.

And second, the nonemployer dataset is messy and includes a hodgepodge of business entities - passive businesses, firms no longer in business, LLCs owned by major corporations, etc. - that aren't active solopreneur businesses. 

But despite these issues, we find the nonemployer data to be a useful indicator of the overall size and growth - and now, also the demographics - of U.S. self-employment.  

Because this dataset is getting more attention, the Census is working to make it more complete and timely.  The addition of demographic data is an example of these efforts. 

Recode's 10 ways office work will never be the same

At around 4,000 words, Recode's 10 ways office work will never be the same is really more of a report than an article.

The article is chocked full of data and links to interesting studies illustrating what offices will be like post-pandemic. 

The 10 ways office work is changing covered in the article are:

1. Working from home is here to stay
2. Flexibility is a double-edged sword
3. Some populations will benefit from working from home while others struggle
4. The office will still exist, but you’ll use it differently
5. Expect more AI, automation, and freelancers
6. Our communication will be more asynchronous
7. How our productivity is measured will change
8. Culture will be harder to create
9. We’re more human at work
10. More of your colleagues will live somewhere else

Two of 10 jumped out at us. 

#3, some benefiting from remote work while others struggle is something we see all the time in our work.  Hopefully hybrid models will fix this for many who struggle.

#7,We've long thought our standard productivity measures don't capture knowledge work properly.  The shift to hybrid models will likely lead to new, more effective measures.

If an analyst or consulting firm produced this report, it would cost thousands of dollars.  It also wouldn't be as well written.  

Since Recode is free, we recommend that anyone interested in the topics above read the article.

Spending on Pets and Investing in Pet Startups Continues to Grow

U.S. spending on pets reached nearly $100 billion in 2020, up from $95.7 billion in 2019, according to the American Pet Products Association.  

And according to Crunchbase News bad pet pun infused article Pets Became Purrfect Pals During Pandemic While Startup Funding Didn’t Lay Down, 55 pet startups raised $281 million in venture funding in 2020 (chart below).

Pet startups now even have their own venture accelerator programs.

Leap Venture Studios, for example, is a partnership between Michelson Found Animals and Kinship, a division of Mars Petcare. 

Leap, which started in 2018, provides training, seed investments and other support to pet startups.  

Regular readers know the pet humanization trend is driving the growth of the pet industry.  

BTW, in case you were wondering, 63.4 million U.S. households own dogs. This is roughly half of all U.S. households (there are about 128 million U.S. households). Cats live at 42.7 million U.S. households (no one really owns a cat). Fish come in third, with about 14 million households owning them.

See our Pet Trends section for more pet humanization and the pet foods industry.

Side Gigs for Restaurants

The New York Times article You’ve Heard of Ghost Kitchens. Meet the Ghost Franchises covers the growing number of companies franchising food concepts to existing restaurants.

The restaurants that take on these franchises continue to serve their regular food and make the franchise food for delivery only.

Key quote from the NYT article on the burger franchise MrBeast Burger, which takes its name from the well-known celebrity YouTube star MrBeast:

MrBeast Burger is not quite what most of us think of as a chain, or even a restaurant. In exchange for a cut of sales revenue, the brand supplies the name, logo, menu, recipes and publicity images to any restaurant owner with the space and staff to make burgers as a side hustle. When a customer orders from the MrBeast Burger in Midvale, Utah, the food is prepared at a location of the red-sauce chain Buca di Beppo, following a standardized MrBeast recipe.

And yes, we've never heard of MrBeast.

And after looking at his videos, we don't get why he's a star. 

But his burger target market (teenagers and young adults) loves his videos. So they buy his burgers.  

Or we should say they buy the burgers from the franchise company, Virtual Dining Concepts. 

MrBeast's contribution is his name and his promotional activity.

Virtual Dining Concepts has 9 different restaurant concepts, including, of course, MrBeast Burger.  

The franchise fees are not cheap.  Most ghost franchises charge 35%-45% of sales.

But in most cases, the fees include delivery charges, which can be as high as 30%.

The franchising companies also spend a lot of money getting good placements on the delivery apps and search engines.  This is something a small restaurant chain would be unlikely to accomplish on its own.

Ghost kitchens have been around for several years and the pandemic has accelerated their growth.  

Since food delivery will likely continue to grow post pandemic, we expect ghost franchises to continue to grow.

Uber Grants U.K. Drivers "Worker" - But Not Employee - Status

After losing a U.K. Supreme Court case, Uber this week announced it would be classifying its U.K. drivers as "workers." This means Uber's 70,000 UK drivers will get a minimum hourly wage, holiday pay, pensions and other benefits. 

Unlike the U.S., which has two worker legal classifications - self-employed and employee - the U.K. has three.  

The "worker" classification is the 3rd, and "workers" get some, but not all, of the protections and benefits employees in the U.K. receive. 

Because of this, the "worker" classification has been described as "a half-way house between being an employee and self-employed."

Despite this move by Uber, its U.K. legal battles are not over.

Uber is applying the minimum wage requirement "after accepting a trip request and after expenses." Uber refers to this as "engaged time" and is not applying the minimum wage to the time a driver waits for a ride. 

Not including wait time in the minimum wage payment is a contentious issue. 

Uber argues that since many drivers drive for multiple services, they shouldn't pay for wait time. Worker rights groups argue they should.

So it's likely the U.K. courts will have to decide this issue.

We've been against a 3rd way to classify workers in the U.S.  

But as we pointed out in our article A Third Way to Classify Workers Gains Momentum, we've changed our minds.  This is because California's AB5 legislation and the many classification lawsuits have shown that trying to fit gig work into our current laws doesn't work.

So we now think adding a 3rd way to classify workers is the best way to move forward.

Whatnot - A Live Streaming Person-to-Person Collectibles Marketplace

Whatnot, which bills itself as the best marketplace for collectors and enthusiasts on the internet, recently raised a $20 million funding round led by A list VC Andreessen Horowitz.

According to TechCrunch's Whatnot raises $20M for its livestreaming platform built for selling Pokémon cards and other collectibles:

"The company currently focuses primarily on Pokémon cards, Funko Pops, FigPins and sports cards, but they mention things like comic books, video games and vintage hardware as natural fits."

And yes, we have no idea what "Funko Pops" or "FigPins" are, but they must be collectible.

The company says the online marketplace targets person-to-person commerce.  Key quote from one of their press releases:

Instead of focusing on the retailer-to-consumer relationship, Whatnot builds peer-to-peer connections within existing communities, driving high adoption and conversion. While some sellers on Whatnot are small businesses, 90+% of Whatnot sellers are enthusiasts who buy and sell their favorite items as a hobby or side-hustle.

In addition to a traditional online marketplace, Whatnot also offers livestreaming.  

 

Think of it as the TV shopping network meets the iPhone, with the video coming from people at home streaming their sales pitches for their collectibles.  

There's been a surge in interest in collectibles since the beginning of the pandemic.  While this surge will likely subside once the pandemic is over, the collectibles market is large and will continue to grow.

Whatnot is yet another example of an online marketplace helping people turn their interests and passions into side businesses.

eBay also started as a person-to-person marketplace but evolved into a site dominated by businesses.  It will be interesting to see how Whatnot evolves.  

American Express on The Rise of the Digital Nomad

American Express recently released its annual Global Travel Trends report.  

And not surprisingly, one of their trends was on digital nomads.  Key quote from the report:

"... 54% of respondents (U.S.) said that the freedom and flexibility of being able to live and work while traveling the globe is more appealing now than it was prior to the pandemic."

The AMEX chart below (click to enlarge) shows the interest in being a digital nomad by country.

 

As we pointed out in our article The Wannabe Digital Nomads, most people saying they're interested in becoming a digital nomad won't do it.  

In our work, we've learned surveys asking aspiration questions or questions on hot topics or things that sound like fun result in a large number of false positives.  And survey questions about becoming a digital nomad are a good example.  

Instead of becoming nomadic, most of the 54% who said they are interested will follow digital nomads on social media and treat the trend almost as a spectator sport. We call this group "armchair digital nomads".  

But having so many say they would consider it shows there's strong interest in digital nomadism.  And that interest is playing out in the numbers. 

According to the MBO Partners 2020 research brief COVID-19 and the Rise of the Digital Nomad, the number of U.S. digital nomads grew from 7.3 million in 2019 to 10.9 million in 2020, a 49% increase.

So we've definitely seen an uptick in digital nomadism since the beginning of the pandemic. 

See the digital nomad research brief for more details.  

NFTs are Helping to Monetize the Creator Economy

The Creator Economy - the economic activity generated by the people who create online digital content and the firms that serve them - is a hot topic in tech circles. 

And one of the hottest creator economy topics is NFTs.  These are non-fungible tokens.  

The reason they're hot is they provide a way to make money selling digital content.

In simple terms, an NFT is used to prove the ownership and uniqueness of a digital item.

NFTs are tokens (digital code) that are attached to digital assets and content.  The tokens use blockchain technology, which provides the ability to track the content's origin and current ownership.

This means the objects an NFT is attached to can be bought and sold.

For example, a digital art piece recently sold for $6.6 million on an online art marketplace.       

And the art auction house Christie's is currently running an auction to sell a digital art piece (pictured) by the artist known as Beeple. 

Current bidding is over $3 million.  **Update: Beeple's digital art piece sold for a stunning $69 million after a frenzy of last minute bids.**

Another example is sports video highlights.  A film clip of a Lebron James dunk recently sold for over $200,000. 

You may be asking why anyone would want to own digital content that can be freely downloaded from the Internet.  

Key quote on this from TechCrunch's The Explosive Potential of NFTs in the Creative World:

“Humans inherently, whether we will like to admit it or not, want to own things,” Ronin said. “And I think that that’s part of the human experience is owning things. When you own things, it’s a connection, and it’s like you have a reason for being and there’s something unique about ownership ...”

Supporting this is the fact that people are willing to pay astronomical sums of money for physical works of art when free or cheap copies are easily available.

So on some level, it makes sense that people are willing to pay to own original digital content.

The challenges of earning money in the creator economy is another hot topic.  This is because while some creators (the vast majority are independent workers) make a lot of money, most make very little. 

The hope is NFTs will allow more people to monetize their digital assets. 

Barlow Research on Small Business Exporters

Barlow Research is one of our go-to sources on all things related to small business use of financial services.

Their article Five Truths about International Business in the Middle Market covers survey research on the exporting and importing by U.S. firms with between $10 million and $500 million in sales (midmarket companies).

As shown in the Barlow chart below (click to enlarge), the key finding is that about one-third of firms in this size category conduct business internationally.

As we pointed out in a previous article, about 28% of microbusinesses - firms with fewer than 4 employees including the owner  - conduct business internationally.  

Barlow doesn't include historical data in their article.  But microbusiness exports have risen rapidly over the past decade, with the share of microbusiness exporters doubling.  

This is primarily due to online marketplaces like Amazon and Etsy, and improvements in outsourced logistics services.  

One of the most interesting parts of the Barlow article are the export challenges faced by midmarket companies.

What's so interesting to us is microbusinesses report fewer challenges than midmarket firms do.  

Shipping is still an issue, as is regulation.  But none of the other challenges reported by midmarket companies even blip with microbusinesses.

This is likely because they outsource most tasks to online marketplaces and logistics firms, while most midmarket exporters sell directly into foreign markets.

Historically, one of the huge advantages larger firms have had over smaller firms is the operational scale to export.  

Thanks to online marketplaces and other services, that advantage has clearly narrowed.

More research needs to be done on this topic and we're adding this to our "to-do" list.

LinkedIn's New Online Freelance Talent Marketplace

Fortune's LinkedIn’s new Marketplaces will help freelancers find work covers a new online freelance talent marketplace being developed by LinkedIn.

Like other online freelance talent marketplaces such as Fiverr and Upwork, Marketplaces will enable businesses to find, hire, and pay freelancers.

According to the article:

Marketplaces, which is supposed to launch in September, will focus on white-collar jobs in fields like design, marketing, and software development. Employers would be able to use the service to compare the rates of individual freelancers and the kind of work they offer.

Marketplaces is going to replace ProFinder, LinkedIn's current effort at connecting freelancers with jobs.

Not long ago in a meeting with LinkedIn, ProFinder was described to us as an experiment.  The experiment evidently worked and LinkedIn is doubling down with Marketplaces.

LinkedIn clearly has a lot of assets and capabilities they can use to penetrate this market.  However, they are late to party.  It will be interesting to see how they do.

Whether successful or not, LinkedIn's decision to aggressively pursue this market is yet another clear signal independent work has entered the mainstream.