Small Business Labs

Forerunner Ventures on Solopreneur Commerce

Forerunner Ventures was founded about a decade ago with a focus on direct-to-consumer ecommerce brands. 

And they've invested in some of the most successful companies in this space, including Bonobos, Warby Parker, Jet, Dollar Shave Club and others.

They are now investing in a space they call The Empowerment Economy, which they describe as:

"The true power of digital connectivity is set to upend the economy at large, powering a new generation of solopreneuers and financial freedom. This movement stands to uplift more people than any economic evolution to date."

Their essay The next revolution in commerce will be driven by the seller goes deeper into this thesis:

If commerce is a transaction between buyer and seller, the face of the seller is evolving with new tools for discovery and purchase that allow for a personal relationship between creator and customer. Beyond a corporation or mass retailer, the seller is now frequently a person or small business. We are seeing a new long-tail retailer learning how to make the internet work in their favor, enabled by social media and without the need to lean into a digital mass marketplace—they simply need a captive audience, which is easier to attract than ever.

Forerunner's chart below summarizes why think this happening at this point in time.

The emergence of niche and solopreneur ecommerce firms is not a new trend. 

But it appears to be hitting a growth inflection point, helped in part by the rise of the creator economy.  Creators need ways to generate revenue, and an increasingly popular way is by selling merchandise to their fans.  

The growth of solopreneur ecommerce is also showing up in the business applications and formation statistics, with applications from solopreneur retail businesses at an all time high.

So we agree with Forerunner and expect solopreneur ecommerce to continue to expand.

The 5 Ways the Creator Economy Rhymes With the Gig Economy

Despite being widely attributed to Mark Twain, there's no evidence he said: "history doesn't repeat itself, but it often rhymes." But it sure sounds like him.

And, in our opinion, this aphorism nicely describes how the recent surge of excitement about the creator economy "rhymes" with what happened with the sharing and gig economies back in 2012-2015.

Here are the key ways we see them rhyming:

1. The Dream

Both the creator economy and the gig economy are based on "the dream".

In the case of the gig economy, it's the entrepreneurial dream of being self-employed and having the flexibility, freedom, and ability to pursue a passion that comes with it.

The creator economy shares the entrepreneurial dream but adds the potential of the fame, glory, and vast riches that come with being a highly successful artist/creator.

2. The Role of Platforms

The initial excitement around the gig economy happened in part because of the rise of platforms, specifically Uber, Task Rabbit, and Airbnb. These platforms claimed they made entrepreneurship easy, including providing decent pay, flexible work, and the ability to be your own boss.

The creator economy platforms like YouTube, TikTok, and Instagram have made it possible for anyone to be a star and make lots of money. More recently, a new wave of platforms, like Substack, Patreon, and others, provides new ways to monetize being a creator.

And like the gig platforms in 2012-2015, the creator economy platforms are generating and getting lots of hype and media coverage.

3. Changing the world

Much of what we now call the gig economy used to be called the sharing economy. And according to its adherents, sharing/gig work would change the world by decentralizing economic power, democratizing and globalizing economic opportunity, and enabling more people to be entrepreneurs.

Creator economy adherents say similar things and add that the creator economy will change things by allowing more artists to earn a decent living.

4. Reality versus hype

The initial hype and excitement about the sharing and gig economies have worn off to a large degree.

And cracks are already forming around the creator economy. There are discussions about creator burnout, the stresses and challenges of being self-employed, the control exerted by the platforms, and how difficult it is for most creators to earn a living.

Expect the hype around the creator economy to wear off in a few years (or sooner) as it did for the sharing and gig economies.  

5. The Yin and Yang of independent work

Most creators are independent workers. Because of this, they share what we've long called the yin and yang of independent work.

Independents like the autonomy, freedom and control independent work provides. They also like that it lets them pursue their passions and work in a manner that reflects their values.

But in n exchange, independent workers have to deal with the stress, hard work, and financial uncertainty that comes with independence.

Despite these downsides, research consistently shows that most independent workers prefer being independent over having a traditional job.

We recently completed some research on digital creators and, not surprisingly, it shows they too face the Yin and Yang - and, like independent workers, most prefer being independent.

We'll have more on this research in the future.

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.  

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.

The Economic Impact of Craft Brewing

The Brewers Association recently released their small and craft brewing economic impact report for 2018. 

The study found that the craft brewing industry contributed $79.1 Billion to the U.S. Economy in 2018 and provided directly and indirectly about 550,000 jobs. 

These numbers are based on what are called economic multipliers, which are used to measure both the direct and indirect impact of economic activity.

For example, the employment multiplier for auto factory workers is about 7. This means for every auto factory job gained or lost, 7 other jobs are gained or lost. These occur in suppliers to the plant as well as places where auto workers spend their money. 

As the chart below shows (click to enlarge), the number of actual jobs at breweries has grown quite rapidly, to 77,902 in 2018 from just 24,864 in 2010. 

This means brewing was one of the fastest-growing sources of employment during that time.

We've long used craft brewing as an example of the rise of niche businesses. We even featured the industry in a 2008 research report, The New Artisan Economy, which we did with Intuit.

And the three broad trends we laid out in the New Artisan Economy report as driving the growth of niche businesses continue to do so:

1. Growing numbers of customers are looking for unique, unusual, personalized or locally produced products.  

2. The Internet and online marketing have made it much easier to find or be found by people interested in buying niche products.  

3.  Technology is lowering the costs of serving niche markets and making artisans able to compete with even the largest of firms.  

Podcasting Entering the Mainstream

In case you hadn't heard, podcasting is booming. 

According to The Infinite Dial 2019, an annual survey conducted by Edison Research and Triton Digital, more than half of all adult Americans have listened to one.

And as the report chart below shows (click to enlarge), 32% of all Americans aged 12 and older listened to a podcast in the last month. This equals about 90 million people.

There are a number of drivers of podcasting's growth. These include:

• There's now a diverse array of interesting podcast content.
• Large audio/music firms like Spotify, Pandora and Apple have embraced podcasting.
• So have big media companies like the New York Times, the Wall Street Journal and the Washington Post.
• Smart speakers have made it easier to find and listen to podcasts.
• The use of internet audio in cars has become easier and more widespread.
• Successful business models are emerging.

Most revenue estimates for the podcast industry continue to be small - ranging from $500 - $700 million in 2018. But as the TechCrunch article Y Combinator Bets on the Booming Podcast Industry points out, revenues are expected to rapidly increase. 

Podcasting is interesting to us here at Small Business Labs because it's yet another example of small businesses and even individuals successfully competing with large corporations. 

In fact, many successful podcasts come from solopreneurs and micro-businesses. This is due in part to podcasting's low production and distribution costs.

The other part is creating compelling content, which a lot of solopreneurs and micro-businesses are capable of. This is especially true for podcasts designed to build community or used for content and/or influencer marketing. 

Medium's 10 Big Takeaways from 2019's Infinite Dial Research covers the study in more detail.

Craft Brewers Continued to Gain Share on Global Brewing Giants in 2018

The small and independent Brewers Association released their 2018 Craft Beer Growth Report. Key quote:

In 2018, small and independent brewers collectively produced 25.9 million barrels and realized 4 percent total growth, increasing craft’s overall beer market share by volume to 13.2 percent. Retail dollar value was estimated at $27.6 billion, representing 24.1 percent market share and 7 percent growth over 2017. 

We first started following the craft beer industry in 2006 because we felt the industry was a good example of the growth small, niche markets. 

It's also a good example of a barbell industry structure. These are industries comprised of relatively few giant corporations on one end, a narrow middle consisting of a shrinking number of mid-sized firms, and a large and growing number of small, micro and even solopreneur firms on the other end.

As the chart below shows (click to enlarge), craft brewers have gained significant market share versus the beer industry giants over the past decade. 

And while craft brewer share gains have slowed, the industry continues to thrive. The number of U.S. craft breweries increased from 6,490 in 2017 to 7.346 in 2018.

Share gains have gotten tougher for several reasons. It's simply harder to gain share given how a large a share the craft brewers already have. Big brewers have also been buying craft brewers as well as creating their own craft brands (Blue Moon being a good example).  

As we pointed out a long time ago, the key trends driving the growth of artisan products like craft beer are:

1. Growing numbers of customers are looking for unique, unusual, personalized and/or locally produced products.  

2. The Internet and online marketing has made it much easier to find or be found by people interested in buying niche products.  

3.  Technology is lowering the costs of serving niche markets and making artisans able to compete with even the largest of firms. 

We see no slow down in these trend and believe craft breweries will continue to be able to effectively compete with the global giants.

The same is true in many other industries. See our Industry Structure section for examples. 

Connecting Artisan Makers With Retailers and Customers a Rapidly Growing Industry

Two companies that connect artisan makers with retailers and customers announced large funding rounds last week.

The wholesale marketplace Faire raised $100 million while the wholesale and licensing business Minted said they raised $208 million.

Both firms connect retailers, who are often small independents, with small and solopreneur maker businesses.

Faire reports having "15,000 stores actively buying on the platform — more retail locations than Walgreens, Walmart, Sephora, and Nordstrom have combined — as well as more than 2,000 makers fulfilling orders."

Minted is an online marketplace for printed goods, like wedding invitations, greeting cards, notebooks, stationery and wall art. The company sources the designs and products from independent illustrators, textile designers, painters and other artists. 

We're hardly surprised that these firms are growing rapidly and attracting capital. We've been following the trend towards what we call The New Artisan Economy for over decade. 

The trends we reported on in 2008 as driving the growth of the new artisan economy still hold true today:

1. Growing numbers of consumers are looking for unique, unusual, personalized or locally produced products.  

2. The Internet and online marketing has made it much easier to find or be found by people interested in buying niche products.  

3.  Technology is lowering the costs of serving niche markets and making artisans able to compete with even the largest of firms.  

Both Minted and Faire are excellent examples of all three trends. 

BTW, so is Etsy.

It too is doing well connecting artisan makers with customers. As the chart below shows, Etsy's stock is up 270% YTD and the company is worth $6.5 billion. 

We believe we're still at the beginning of The New Artisan Economy. See our Artisan Economy section for more on this topic.

Disclosure: the partners at Emergent Research happily own shares in Etsy. 

Social Network Support Helps Turn Knitting Hobbyists into Hobbypreneurs

A recent academic paper - Knitting Community: Human and Social Capital in the Early Transition into Entrepreneurship - covers research on the process hobby knitters go through to decide to turn their hobby into a business.

The study found that many of the hobbyists that started a knitting business had been encouraged to do so by people they knew, such as husbands, friends and other knitters.

The research was based on digging through the data at the knitting community site Ravely.com, which is known as the "Facebook for knitters".

Key quote from a Washington Post article on the study:

...analyzed almost 100 interviews and 403,168 profiles of knitters and crocheters. She found that even on one of the Internet’s great niche social networks, offline encouragement and feedback helped most talented hobbyists recognize their ability and take the first steps toward monetizing it. Success on the Internet was propelled by real-life interactions.

The in-person networking that was found to be most effective at encouraging entrepreneurship was membership in a Stitch n' Bitch group.

These are formal or informal knitters clubs where members meet, knit, socialize and share knitting advice. Again from the Washington Post:

People who joined a so-called “stitch n’ bitch” group to craft socially were 25 percent more likely than otherwise identical knitters to take the plunge into entrepreneurship. This is true even when correcting for geography, experience, skill level and productivity.

We've long studied the shift from hobbyist to hobbypreneur. It's clearly a growing source of new and especially part-time small businesses.

See the 2009 Inuit research brief Today's Hobbyists are Tomorrow's Hobbypreneurs for more on this topic. We worked with Intuit on this report and while the research is 9 years old, we think the findings are still relevant.  

BTW and not particularly relevant is yes, AI is starting to be used in knitting. See the Atlantic's SkyKnit: How an AI Took Over an Adult Knitting Community for more on this.

Duluth's Booming Artisan Economy

Duluth's Lincoln Park neighborhood was until recently a rundown section of this lake front city in Minnesota, with many empty storefronts and buildings.

But now Lincoln Park is the center of a new artisan business boom. Key quote from the head of economic development for the city of Duluth:

A new wave of creative entrepreneurship is taking over Duluth and it’s happening in Lincoln Park. The area is undergoing a healthy revival with niche retail stores, unique restaurants, and longtime anchor businesses that feed the economic pipeline and build a stronger neighborhood. The future for Lincoln Park is full of promise and great potential.”

We recently listened to an interesting "Conversations on the Creative Economy" podcast that featured three entrepreneurs who founded artisan small businesses in Duluth.

The entrepreneurs said they located their businesses in Duluth because it's a great place to live (they must like winter), has a talented workforce and relative to big cities, low costs.

We've pointed out in the past that tech firms are starting to move jobs to the Midwest for these same reasons.

Craft businesses in Duluth include pottery makers, craft brewers, shoe cobblers, outdoor gear manufacturers and others.  The also have a growing number of farm to table restaurants.

All across the country small and mid-sized cities like Duluth (population 86,000) are benefiting from the artisan business renaissance.

In addition to revitalizing neighborhoods and creating jobs, artisan businesses make a city a more attractive place to live. This attracts more artisan businesses as well as non-artisan ones (including tech firms). 

Expect to see these reinforcing trends continue.