Small Business Labs

Is Craft Brewing a Harbinger of a New Artisan Economy?

There have been a number of recent articles pointing out that despite having to compete with several giant beer companies, the craft brewing industry has dramatically expanded over the past decade.

Examples include The Atlantic's Craft Beer Is the Strangest, Happiest Economic Story in America, Bloomberg's Craft Brewing as a Model for Helping the Middle Class, and the Economist's Crafting a Life.

All three also make the point that craft brewing may be a model that spreads to other industries, creating new artisan businesses and middle class jobs. 

That artisan businesses can be job creators is certainly true in the case of craft brewing. As the chart below from The Atlantic shows, brewing jobs have taken off with the craft brewing boom.

 

These jobs also pay decent wages, have consistent schedules and generally come with benefits. In other words, these are good jobs.

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.

So we certainly agree that niche, artisan businesses will continue to become more numerous. 

We also continue to see three broad trends we laid out in the New Artisan Economy driving the growth of these niche artisan businesses:

1. Growing numbers of customers 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.  

And we still like this summary paragraph from The New Artisan Economy report:

The new generation of artisans will be amplified versions of their medieval counterparts. They'll be equipped with advanced technology, able to access global and local business partners and customers, and be capable of competing in any industry. Their firms will agile, flexible and often partner with larger firms to accomplish their business goals.

Most will be knowledge artisans, relying on human capital to solve complex problems and develop new ideas, products, services and business models. These artisan firms will attract and retain highly skilled and creative talent by offering freedom and flexibility and, in many cases, high competitive compensation.

It's important to note that craft brewing is not the only artisan sector that is doing well.

For example, The U.S. National League of Cities has called artisan makers the future of small manufacturing and have urged cities to create programs to support them due to their positive economic impact.

And there are many other successful artisan business sectors, including crafts, fashion, distilling, food of various kinds, etc. 

Having said all this, the jury is still out as to how big and impactful the New Artisan will become. 

But in the case of craft brewing, the New York Times article How Craft Breweries Are Helping to Revive Local Economies reports the impact can be quite significant.

After a Decade of Strong Growth, Craft Brewing Industry Shows Signs of Slowing

In 2016, a new craft or micro brewery opened in the US on average every 11 hours. Pretty amazing.

Also, the roughly 5,300 U.S. craft and micro breweries produced 24.6 million barrels of beer in 2016. This was about 12.3% of the beer industry's 2016 volume. 

More impressively, craft and micro brewers 2016 sales totaled $23.5 billion, which was 21.9% of the U.S. beer industry's revenue. 

But despite these frothy numbers, there were also some sobering craft beer stats in 2016.

Volume sales growth slowed from 13% in 2015 to 6% and sales growth declined from 16% in 2015 to about 10% in 2016.

So while the craft beer industry is still growing, the growth is starting to slow.

The financial analyst firm Harding Loevner's report CRAFT BEER IS GOING FLAT. CAN CRAFT SPIRITS CONTINUE THE INSURGENCY? nicely covers the reasons behind craft beer's slowing growth. 

A big reason for slowing growth is craft beer is a victim of its own success. Key quote:

... the groundswell of newcomers resulting from lower barriers to entry has fragmented the market, making it increasingly difficult for craft breweries to stand out from their peers and grow their brand. 

Another reason is the big brewers are fighting back. They are releasing their own craft style beers and acquiring craft brewers.

According to the Brewers Association, large brewers acquired micro brewers that produced roughly 1.2 million barrels of beer in 2015. This was about 5% of the entire craft beer production in 2015. 

Harding Loevner also points to market saturation as a source of declining growth. Their analysis shows an estimated 75% of the US drinking age population resides within 10 miles of a brewery.

Price is also an issue. As the Harding Loevner report says, "there are natural limits to how much of the market will pay $17.49 per six-pack (the current retail price of a Dogfish Head “Flesh and Blood IPA” on Craftshack.com)."

So is the craft beer boom over? 

No. And it's especially not over globally. As the Harding Loevner chart below shows, there's plenty of room for craft beer growth globally.

Also, there are still pockets of high growth here in the U.S. 

According to CBS MarketWatch's Craft-beer glut starting to take its toll on sales smaller micro brewers are doing much better than larger ones. Key quote:

The 5,000 small brewers shipping fewer than 100,000 barrels a year had an average volume growth last year of 14%, double the growth rate for the craft category overall, according to Beer Marketer's Insights.

At the same time, the article points out that "shipment volumes declined for 16 of the top 36 craft-style U.S. brewers last year."

So the more micro the brewery, the more likely it's doing well.

Our interest in the craft brewing industry is due to the fact that it's such a good example of a barbell industrial structure. 

In this structure industries are comprised of a few global corporations on one end and a large number of small, micro and solopreneur businesses on the other.  

As the barbell evolves, the number of mid-sized businesses decline in number. These firms lack to the scale to compete with the global giants but are too big to match the agility and flexibility of smaller firms. Mid-sized firms also are attractive acquisition targets for the global giants.

We've been following the evolution of barbell industry structures for over a decade and we often use the beer industry as an example. The reason is the beer industry is such a clear example the barbell. 

But it's not just beer. Almost every industry we've looked at is moving to a barbell structure.

See our Industrial Structure section for more on this topic.

Patreon, True Fans and the Return of "Patron Funding"

In 2008 Kevin Kelly wrote a prescient essay called "1000 True Fans".

Key quote:

"A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author - in other words, anyone producing works of art - needs to acquire only 1,000 True Fans to make a living."

According to Kelly, if you have 1,000 True Fans (defined as people who will pay for your content) you have a large enough audience for your work to generate enough money to live. 

Since that essay crowdfunding has become a large industry, but it's been mostly focused on the funding of physical products.

More recently there has a been a growing trend towards the funding of artists and other creatives through "patron funding" models. These are sites that allow fans to subscribe to the creative output of individuals. 

A good example is Patreon, a site that allows creators to build subscription services that allow access to their work. 

According to the New York Times article Suffering for Your Art? Maybe You Need a Patron, Patreon currently "has one million “fans” who each contribute an average of $12 every month to their favorite artists on the site."

Originally designed for musicians, Patreon now has a wide range of "creatives". 

A good example is Naked Bakers.

The Vice article How NSFW Content Makers Found a Home on Prateon describes Nakde Baker as an R rated video series "that let's patrons of the show watch the "Baker" whip eggs, sift flour, and add her wet ingredients to her dry ingredients in the nude."

NSFW is a an acronym for "not suitable/safe for work".  

Subscribing to Naked Bakers costs a minimum of $3 per month, with the average subscriber paying $10 per month. The Naked Bakers, BTW, also gardens and cleans in the nude. 

While the relatively new Naked Baker show is not a huge hit, it's generating enough revenue that the "Baker" has quit her day job. 

One driver behind the shift to patron funding is advertising revenue models are becoming harder to make work. This is due to what some are calling the adpocalypse, which is the advertising revenue declines many content sites are seeing. 

The other driver is the growing awareness that a relatively small number of patrons can generate a decent living. As Kelly pointed out in his essay:

 "If you keep the full $100 of each true fan, then you need only 1,000 of them to earn $100,000 per year. That’s a living for most folks."

Patron funding is not new. During the Renaissance royal houses provided room, board, materials and business support to talented artists of the day.

Today, thanks to the Internet and platforms like Prateon, you don't have to be a Medici, or even rich, to be a patron.

This democratization of patronage is a good thing for artists and content creators. We believe this model will continue to expand, providing a growing alternative revenue source for a variety of independent workers.

Thomas Friedman Embraces the Gig Economy

The well known New York Times columnist, best selling author and pundit Thomas Friedman wrote a very bullish article on gig work last week.

Self-Driving People, Enabled by Airbnb focused on the gig work being created by Airbnb's "Experiences" platform.

Key quote:

To see what’s growing, go to Airbnb’s site and click not on “homes” but on “experiences.”

You’ll find an endless smorgasbord of people turning their passion into profit and their inner artisan into second careers.

According to Airbnb, Experiences is a platform that connects travelers with "handcrafted activities" developed by "local experts".

They range from mushroom foraging in Tuscany to hiking to the Hollywood sign with a naturalist to doing yoga on a paddle board.

The providers of the experiences are independent workers who, according to Airbnb, "create unique experiences around your city, and earn extra money by bringing others along."

The point about "extra money" makes it clear that Airbnb sees this a source of supplemental income, not a full-time job.

Friedman points out that tour guiding will likely not solve the middle class jobs problem. But he thinks it is part of the solution.

Again from the article:

"Is this the only answer for the American middle-class jobs challenge? Of course not. There is no one answer. That’s the point.

We have to do 50 things right to recreate that broad middle class of the ’50s and ’60s, and platforms like Airbnb’s are just one of them. (Having universal health care to create a safety net under all of these budding entrepreneurs would be another.) But you have to be inspired by how many people are now finding joy and income by mining their passions."

The mainstream media has not, on average, been thrilled about the rise of the gig economy. In fact, mostly it's been quite hostile. 

So it's good to see someone as influential as Thomas Friedman be supportive.

Etsy Makes it Easy for Sellers to Move Off Etsy

One of the challenges online marketplaces face is sellers often do their best to move their customers off the marketplace to their own ecommerce site.

They do this for two main reasons. First, they want to avoid the fees associated with selling through a 3rd party marketplace. They also want to have a direct relationship with customers. 

Most marketplaces try to discourage this. 

Etsy has decided to embrace it.

Etsy's new Pattern service allows Etsy sellers to quickly and easily set up their own independent ecommerce site. 

What makes this really interesting is Etsy Sellers using Pattern will be able to automatically sync content, inventory and commerce from their Etsy marketplace site to their own, independent ecommerce site.

This effectively means they can run both storefronts with roughly the same effort as running one. Pattern even allows sellers to see analytics from their Etsy store and their Pattern store side-by-side on the same dashboard.

At only $15 per month (after a 30 day free trial), our guess is a lot of Etsy sellers will give the new service a try. 

We also suspect Etsy sellers who already have their own ecommerce sites will find the time and cost savings associated with Pattern attractive and migrate over.

On a more strategic level, we see this move as showing Etsy is seeing themselves less as a marketplace company and more as a platform for entrepreneurs. This shift certainly entails risk. It's possible Pattern will lead to lower overall revenues for Etsy due to sellers shifting business to their own sites.

But we think the greater opportunities Etsy has by adding this service - and positioning themselves as more than just a marketplace - outweigh these risks.

And after thinking this new service through, we (disclosure) became an Etsy shareholder. 

The Continued Rise of the Collaborative Economy

Crowd Companies has released their 2nd annual report on the collaborative economy - The New Rules of the Collaborative Economy. 

It's full of interesting information and data on why consumers are participating in the collaborative economy. Key quote from the report:

More than 110 million North Americans are now part of the collaborative economy.Participation has grown by 25 percent in the past year: for every four people who were sharing a year ago, the collaborative economy has attracted one new recruit.

Crowd Companies has a very broad definition of the collaborative economy, which is why it's so big. Their definition is:

The Collaborative Economy is an economic model where people are creating and sharing goods, services, space and money with each other in what is also known as the Sharing Economy. Some people are also building their own products, known as the Maker Movement. Combined, this movement means the crowd is getting what they need from each other.

Despite its breadth, we think this is a solid definition and we've adopted it for our use. 

The report chart below shows the main reasons consumers participate in the Collaborative Economy, which Crowd Companies also calls the Sharing Economy. 

See the report for much more on this topic.

 

Near-Shoring Hurting China, Helping Small U.S. Manufacturers

The Harvard Business Review's You Can’t Understand China’s Slowdown Without Understanding Supply Chains covers the interesting possibility that China's recent economic issues are at least in part being caused by manufacturing moving away from China.

Key quote from the article, which is written by a MIT engineering professor:

I nonetheless believe that the slowdown is due, in part, to an acceleration of “near-shoring,” the practice of producing closer to the customer.

The article goes on to describe several surveys and studies that:

... may suggest that the world is in the middle of a transformation, with companies moving from a global manufacturing strategy, whose focus is on low-cost countries, to a more regional strategy, where China is for China, the United States (or Mexico and Latin America) is for the Americas, and Eastern Europe is for European markets.

The article lists 4 main drivers of the shift to near-shoring:

1. Lower US energy prices
2. Higher Chinese labor costs
3. Automation, which favors highly skilled labor
4. Supply chain risk is greater the longer the supply chain

We first noticed the shift to bringing some manufacturing back to the US in 2007. Since then we written extensively about this trend in our small manufacturing section (and yes, I'm definitely patting us on the back for this piece of trend spotting). 

We continue to see more manufacturing moving back to the US. We also think a number of trends and shifts will drive the continued growth of small manufacturing, with a big one being the growing support infrastructure for small makers and manufacturers. 

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

The Etsy Economy

Craft marketplace Etsy recently released a new report called Building an Etsy Economy: The New Face of Creative Entrepreneurship.

The report is based on a survey of 4000 Etsy sellers. The key findings include:

The vast majority of Etsy sellers, 86%, are women. This is much higher share of women ownership than either employer businesses (about 33% women owned) or independent workers (about 50% are women). According to the report the sellers also skew young with many below the age of 35.

Most Etsy shops are real businesses. Most sellers (76%) call their Etsy shop a business and 9 out of 10 say they are planning on increasing their sales. While only 30% report it's their full-time job, almost all consider their Etsy earnings to be an important source of income.

Key quote from the report:

For 30% of Etsy sellers, their creative business—both on and off Etsy—is their sole occupation. For the rest, their creative business supplements other jobs, contributing an average of 15% to total household income overall. This money makes a difference—44% use this income for necessary household expenses.

Etsy is a great example of how the Internet and online marketplaces are making it easier to create new businesses. It's also allowing people to pursue their creative passions while providing income.

This report also comes at a good time.

With Uber and the on-demand economy getting so much attention, it's important to remember that the on-demand economy is a small segment of the overall independent worker sector. 

The Etsy report nicely reminds us that independent work and micro businesses continue to thrive and expand outside of the on-demand economy.

The Shoe That Grows - Small Business Innovation in Action

The Shoe That Grows is a simple and clever solution to a massive problem - providing children in the developing world with inexpensive, long lasting shoes.

Ill-fitting or the lack of shoes is a big problem. 

Over 2 billion people in the world suffer from soil-transmitted parasites and diseases. 

Add in injuries and other issues that come from not wearing shoes or wearing shoes that don't fit and it's clear there's a need for this kind of product.

The Shoe That Grows addresses this problem by providing inexpensive footwear that expand through a simple system of buckles, snaps, and pegs.

It adjusts across five sizes and last five years – providing better protection and better health for children.

The reason we are covering this product is it's a really interesting example of small business innovation. 

The inventor is a guy named Kenton Lee (pictured). He came up with this idea while working in an orphanage in Kenya.

He pitched it to a number of shoe companies, but none were interested.

So he created his own non-profit to produce the shoes.

We've long been fascinated by how small businesses innovate. Our 2009 study - Defining Small Business Innovation - defined 6 attributes that enable small businesses to innovate.

These are:

• Personal passion: Personally invested, most small business owners are willing to try new approaches to make their business more successful.
• Customer connection: A deep and direct relationship with the market and customers helps small businesses understand customer needs, identify new opportunities, and fix problems quickly and efficiently.
• Agility and adaptation: Unlike large corporations, small businesses can quickly adapt to changing market conditions and implement new business practices.
• Experimentation and improvisation: When pursuing new opportunities, many small business owners and managers aren't afraid to experiment and improvise, accepting failure as part of the path to success.
• Resource limitations: Small businesses are adept at doing more with less. And these resource constraints lend to their innovative mindset. 
• Information sharing and collaboration: Small businesses traditionally rely on strong social networks to share information and inspire innovative thinking.

The Shoe That Grows is an excellent example of these enablers in action.  

By the way, the shoe is so popular they're sold out until July. 

Small Business Success in the Cloud

Small Business Success in the Cloud is the first in a new research series from Intuit. It focuses on how cloud computing is transforming small business.

New technologies, like cloud computing, tend to go through 3 broad generations.

 

During the first generation, which occurs after a technology is first commercialized, the impacts are mostly efficiency gains. The new technology makes things cheaper, easier and/or faster. 

A good example of a first generation cloud product is Amazon's Web Services, which is still heavily marketed as a way to reduce IT costs and increase the speed and ease of deployment. 

During the second generation, people and businesses have adapted enough to the new technology to create new ways of doing business as well as new business forms and structures.  

Based on our research, we think cloud computing has entered the 2nd generation. We also found 4 types of businesses - we call them faces or personas - that illustrate some of the new ways, forms and structures that cloud computing is enabling.

These are:

• Plug-in Players: Small businesses will increasingly adapt to the cloud by taking advantage of specialized services that can be seamlessly integrated into back-office operations. Instead of spending time and effort on the nuts-and-bolts of finance, marketing and human resources, cloud-adapted small businesses will plug into cloud-based providers who deliver comprehensive, tailored solutions, giving small business operators the ability to focus on mission-critical areas of business.

• Hives: Cloud-adapted small businesses will increasingly be made up of individuals who share talent to form a team. These businesses will operate virtually, with employees working in different locations, and staffing levels will be increasingly flexible, rising and falling to meet project needs. For example, independent contractors will use virtual spaces to connect and market themselves. On Main Street, small manufacturers and producers may share a commercial facility.

• Head-to-Headers: A growing number of cloud-adapted small businesses will compete head-to-head with major firms, using the growing number of platforms and plug-in services to reach markets once only accessible to large corporations. This is already being seen with platforms such as AirBnB, which provide individuals with the ability to reach a mass market through community infrastructure.

• Portfolioists : Successful cloud-adapted freelancers will bring together multiple income streams to create a career portfolio. These largely will be people who start with a passion, or specific skill, and are motivated primarily by the desire to live and work according to their values, passions, and convictions. They will increasingly build personal empires in the cloud, finding previously unseen opportunities for revenue generation.

Small Business Success in the Cloud is the first in a series of reports, presentations and videos - called Dispatches from the New Economy - Intuit will be releasing in the coming months.

The Dispatches are based on a comprehensive, year long project exploring the ways social, economic,demographic and technology shifts will shape the future of small business success. Emergent Research (that's us) partnered with Intuit on this work.  

We're excited by the findings of this work will be covering the Dispatches in detail.