Small Business Labs

McKinsey and Bain on the Economic Impacts of the War in Ukraine

McKinsey and Bain are two of the three "big 3" strategy consulting firms. They provide business and financial advice to large corporations, governments, and non-profits across the globe.

Each firm has recently come out with its views on the likely economic impacts of the war in Ukraine.

Both firms point out that while Russia, Ukraine, and Belarus are relatively small end markets, these countries are critical sources of supply for various global commodities. 

Because of this, they both believe the broader economic impacts of the war are potentially significant.  

The chart below (click to enlarge) is from Bain's Crisis in Ukraine: Respond and Reposition and it shows the significant exports of the three courtiers involved in the war.  

Food and energy are the biggest categories, but metals and other raw materials are also on the list.

Bain highlights too many potential impacts to cover here. But the big ones are increased inflation, supply chain disruptions, lower economic growth, and geopolitical realignment.  

McKinsey's War in Ukraine: Lives and livelihoods, lost and disrupted covers much of the same ground.

One of their most interesting observations is that there will be financial system ripple effects. Key quote:

The disruption of sanctioned financial flows has the potential to ripple through the banking system and financial markets, with significant repercussions for affected bondholders, lenders, aircraft lessors, derivatives counterparties, and investors. There remains a risk of contagion with second-and third-order effects across the globe.

An example is AerCap, the world's largest aircraft leasing company, which has filed a $3.5 billion insurance claim because they have 100 jets stuck in Russia.

This is one of the first of what will likely be a barrage of losses and legal claims caused by the war and related sanctions.  

Both McKinsey and Bain point out that the war has created a high level of uncertainty in the global business environment. 

We certainly agree and think small businesses should:

1. evaluate how exposed they are to the direct impacts of the war. Energy and food-related companies will be likely be directly impacted. But supply chain disruptions due to raw material shortages will also impact a variety of SMBs. And almost everyone will need to deal with higher inflation.  

2. have a plan in case the war and its effects push the U.S. economy into recession. The good news is that most economists are not currently forecasting a recession. But many economists are cutting their economic growth forecasts and suggesting a slowdown in global economic growth will happen.

3. the pandemic forced many firms to become more agile and resilient. War impacts may mean SMBs will need to redouble these efforts.

The Bain and McKinsey articles are an excellent places to start in terms of thinking about how the war may impact small businesses. They're well worth reviewing.

We'll have more on this topic in the near future.

Yes, Dog Weddings are a Thing - and the Pet Industry's Growth is Accelerating

The New York Times article Love Is in the Air. So Is Dander covers the trend toward doggie weddings. And yes, these are weddings where two dogs get "married." 

No, these weddings aren't legal. But they can have all the pomp and circumstance of human weddings. 

Key quote from the NYT article on Twixie and Cowboy's wedding, both 2-year-old Brussels Griffons:

"... the four-legged guests enjoyed a meal of puppy chow from Vestals Catering in Dallas (which also caters events for humans), as well as a puppuccino bar and activities including a ball pit ... The nuptials cost about $25,000."

The happy couple is pictured below. There was no mention of where they went on their honeymoon.  

We saw this article in Petco's investor day presentation. 

And as Petco's chart below shows (click to enlarge), powerful trends - several of which have been accelerated by the pandemic - are driving the pet industry's growth.

We cover the pet industry because the pet humanization trend impacts the economy and society in a wide variety of ways.  The pet industry is also a large small business segment. And we like dogs (and other pets).  

See our pet trends section for more on this industry.

Gaming Gig Platform Rating Systems

Kellogg Insights article How Gig Workers Push Back Against Their "Digital Boss" covers research by Kellogg School professors on the impacts of gig platform five-star customer satisfaction rating systems. Key quote:

"What these platforms have created, in effect, is a system where the traditional role of the manager has been fully outsourced to customers and their star-based ratings."

The researchers found that gig workers often considered the ratings they received were not fair or didn't accurately reflect the quality of their work.

This, coupled with the significant impact ratings have on gig workers' ability to get work and generate income, has resulted in gig workers devising various ways of gaming the rating systems.

Our favorites include:

• offering a discount for a high rating
• asking trusted customers to spread a single project over multiple contracts, so they had the opportunity to receive multiple high ratings
• canceling a project early if it looks like it will lead to a bad rating - even if means not getting paid
• turning down work from customers that give out bad ratings, a common tactic with rideshare drivers.

Another of our favorites is not in the article. This is asking relatives and friends to post 5-star ratings to boost a gig worker's score.

Gig workers accomplish this by doing a project for a friend or relative for little or no money or reimbursing them. This is commonly done by newcomers on a variety of sites.  

Five-star customer satisfaction rating systems are not new. eBay popularized them in the 1990s. And their problems and the game playing that result from them have been known for years.

But despite their problems, because they provide an easy way for customers to provide feedback, their use is rapidly expanding. 

This has led to the study authors questioning their use. Key quote:

"One thing our paper highlights is the need to rethink whether this model of outsourcing control to a customer and primarily using a five-star rating system for all types of work contexts actually makes sense," Rahman says."

We tend to agree.

The Shifting Views on the Riskiness of Traditional Jobs Versus Self-Employment

Harvard Business Review's Workers Don't Feel Like a 9-to-5 Job Is a Safe Bet Anymore, which we co-authored, covers the changing way workers view job security.

As the article chart below shows, the pandemic accelerated a growing trend towards full-time independent workers feeling more secure working independently instead of having a traditional job.

 

Also, the share of jobholders saying independent work is more secure than a traditional job has increased from 18% in 2018 to 29% in 2021. 

While this data initially sounds counterintuitive, the reasons behind this shift in views are straightforward. 

Almost everyone believes traditional jobs have become less secure than they used to be. This is because corporate restructuring and layoffs have become common even in good times. 

And because traditional jobs have become less secure, self-employment - by comparison - looks more secure than it used to.

The self-employed also tell us that they feel more secure because they have multiple income streams, can pivot and react to changing market conditions, and control their destiny.

And it also appears that independent work has become less risky over the past decade.  

We cover this in more detail in the article. But the key reason is that the Internet and new technologies have made it cheaper and easier to become self-employed and operate as an independent worker.  

This shift in how workers perceive job security means businesses large and small need to rethink their employee value propositions. Key quote from the article:

Job security is a key reason people choose traditional employment over independent work. But declining perceptions of job security, coupled with workers rethinking what they want when it comes to work/life balance, are leading more people to prioritize flexibility, autonomy, and control when choosing where they will work ... Because of this shift, to successfully attract and retain top talent in the post-pandemic world, employers will need to give their employees the freedom and flexibility associated with independent work.

See the article for more on this topic.

The Post-Pandemic Rise of the 3rd Place

The Hill's The future of work: Not the office or home covers an academic study showing that more people are working from "3rd places", which is anywhere that is not a person's home or regular place of work.

As the study's chart below shows (click to enlarge), workers reported spending about 12% of their working hours in 3rd places in November of 2021.

In terms of 3rd places, public places (coffee shops, libraries, etc.) were the most popular, followed by "a friend's house" and coworking spaces.

Regular readers know we've long covered coworking and the increasing use of 3rd places, such as coffee shops, gyms, and other spaces people work.  

So the trend towards working in 3rd places is not new. But like many other trends, it's been dramatically accelerated by the pandemic-induced shift to remote work.

While we're on this topic, another interesting shift relates to one of our favorite trends - the paradox of place.  

The paradox is that even though the Internet and connective technologies have made working remotely easier than ever, people and companies have increasingly clustered together in fewer locations, mostly in and around major cities.  

Economists call this agglomeration, which proves yet again economists shouldn't be allowed to name things.  

This is another trend impacted by the pandemic. 

We're seeing signs that, thanks to the shift to remote work, the paradox of place is breaking down and workers and companies are geographically spreading out.     

We expect both the trends towards greater use of 3rd places for work and economic de-agglomeration to continue.  

According to Gallup, Few Remote Capable Workers Want to Work Full-Time in the Office

Gallup's The Future of Hybrid Work: 5 Key Questions Answered With Data covers their data showing that only 9% of workers with remote capable jobs prefer returning to the office full-time.

As the Gallup chart below shows (click to enlarge), most (50%) prefer a hybrid work schedule, and almost one-third (32%) say they'd like to work remotely full-time.

This is not good news for the companies planning to return to the office full-time.

The reasons most workers want a hybrid work schedule are:

1. To avoid commute time.
2. It's better for my well-being overall.
3. I need the flexibility to balance family needs or other obligations
4. The option to work in person with coworkers.
5. I feel more productive and connected to my organization.

Key quote from the article:

"Hybrid work helps employees get the most out of their day while ensuring they feel connected to coworkers and the organization."

That few want to be in the office full-time is not surprising. Workers have found they like the flexibility working remotely provides.

And it's clear they won't give it up easily.  

See the article for more details on where people want to work and what it means. 

Workcations, Bleisure Travel and the Growing Digital Nomad Trend

Morning Consult's When It Comes to Travel, Blended Is the New Business covers the growing trend towards people combining work and leisure travel.  

This trend - which is referred to as bleisure travel or workcations - is not new. We first covered it in 2015.

But the pandemic and shift to remote work have greatly accelerated this trend. According to Morning Consult's data, about 40% of those planning to travel on business this year will combine their trips with leisure travel.

Fortune also expects to see more people taking workcations in 2021, and they've included it in their 2021 travel trends to watch list.  

The Morning Consult chart below (click to enlarge) shows the top reasons people embrace bleisure travel.  

According to CFO's 'Workcation' plans rising: What it means for your company, increases in bleisure travel will require companies to create new policies to avoid tax and legal compliance issues.

CFO's article covers much of the same ground as our HBR article Your Company Needs a Digital Nomad Policy.  

And a growing number of companies are adding new policies and programs for bleisure travel and digital nomads. 

Shopify, for example, calls theirs program Destination 90, and Unilever's is called Uwork. We expect many more firms to add programs like these.

Work and life continue to blend in new ways, with many accelerated by the pandemic. Bleisure travel is a good example.

In our interviews with digital nomads, we've learned that bleisure travel is often the gateway experience that leads them to become longer-term nomadic travelers.

So we expect the increase in bleisure travel to be a growth driver for digital nomadism.

See our digital nomad section for more on this topic.

Book Review: Tiny Business Big Money

In Tiny Business Book Money, small business expert Elaine Pofeldt offers solid advice on starting and operating a microbusiness, which she defines as a business with fewer than 20 employees.

This is a follow-up to Elaine's first book on solopreneur businesses - Million-Dollar, One-Person Businesses. 

While researching that book, she discovered that many solopreneur businesses turned into highly successful employer small businesses. 

So she decided to chronicle how these firms scaled and reached high levels of sales and profitability.

In this book, Pofeldt profiles nearly 60 microbusinesses that have reached $1 million in annual revenue and describes the tools, techniques, and methods they used to succeed.

Our favorite section of the book is chapter two, Mindset Makeover.

It's our favorite because our research shows that an entrepreneur's mindset is crucial to success. And Pofeldt does a great job describing the kinds of mindsets successful entrepreneurs have.

We also liked chapter 6 - Set Yourself Up for Success - and its description of the lean way most very small businesses run.  

In particular, Pofeldt describes five basic models tiny businesses use to run their businesses. These are:

1. The automated approach
2. The freelancer/contractor model
3. The outsourced model
4. The traditional employee model
5. The partner model

A key goal of all these models is to run lean and stay flexible. 

The book points out that most microbusinesses use several of these models, and our microbusiness is no exception.

We decided early on not to have traditional employees and instead rely on contractors, business partners and outsourcing. We chose this for lifestyle reasons and to help us achieve our work/life balance goals. And in our case, it worked.

See the book for more details on each of the models and "real-life" examples of their use.

Certainly, anyone thinking of starting a solopreneur business or microbusiness will find the advice and information in Tiny Business Big Money of great value.  

Existing solopreneurs and microbusiness owners will also find useful advice.

For example, our firm plans to implement some of the automation ideas we found in this book.  

As the book points out, the pandemic has led to a surge of interest in starting microbusinesses.  And Tiny Business Big Money provides a guidebook for successfully doing so.  

Working in the Metaverse Deja Vu

The metaverse continues to attract much media attention, with recent articles from Quartz, The Wall Street Journal and A16Z focused on how the metaverse will change work. Examples include:

The point of all these articles is that we should soon expect to spend at least part of our work lives in metaverse settings.

Quartz's article suggests there will be three main ways the metaverse will change work:

1. The metaverse will become an office alternative, with many office workers spending at least some of their time in virtual offices.
2. Training will increasingly become metaverse based,
3. The metaverse will become the new office lounge and place for what used to be called "water cooler" discussions.

The Wall Street Journal article covers much of the same ground and focuses on the metaverse being a place where people will meet. Key Quote:

When we need to get together with colleagues or customers to do more than chat, we'll log into virtual spaces so realistic it will seem as if we're physically in the same room. We'll see each other in the form of avatars that, if we choose, look nearly identical to our real selves. 

A16Z's article focuses on whether or not the metaverse will fully replace traditional offices.

The article's view is that it will augment rather than replace physical spaces and real-life meetings. Key quote:

The metaverse won't replace the physical office, but it will transform it for the better, and the distinction between virtual and physical offices will soon melt away.

We agree with most of these views of how the metaverse will change how and where we work.

But we've been around long enough to have more than a bit of deja vu on this topic.

In 2007 we published a report with Intuit suggesting virtual worlds (what is now called the metaverse) would blossom as a business tool and location over the next decade.

The picture below is from the report and shows an avatar leaving The Gap's Second Life retail store.

Our forecast was wrong, but virtual worlds stayed hot for a few more years. 

For example, Network World's 2008 article IBM, Second Life create business-friendly virtual worlds covered a joint-venture between IBM and Second Life to develop virtual world work and business applications. Key quote:

IBM also opened a virtual sales center in Second Life last year and, separately from the Second Life partnership, is building an internal virtual world where workgroups can have meetings.

We attended several meetings in IBM's Second Life meeting center, and we joined many large corporations in opening a virtual office in Second Life.  

The four words that are most wrong in forecasting are "this time is different." 

But we think things are different for the metaverse than they were in 2007. 

The technology is dramatically better, and the shift to remote and distributed work provides an excellent opportunity for the metaverse to succeed. And we think it will.