Small Business Labs

Ten 2021 Future of Work Predictions from MBO Partners

Last week MBO Partners released their annual future of work predictions for the coming year.  Their forecast themes for 2021 are:

Ten: Dip & Climb  
Nine: Happiness & Health  
Eight: Gen Z Arrives  
Seven: It’s All About Control  
Six: Exports Not Imports  
Five: Make It A Trillion
Four: Side Hustle Nation  
Three: Virtual Just in Time Orgs  
Two: Radical Remote Work 
One: Gunning for Growth  

One of the most interesting from our perspective is "Virtual Just in Time Orgs". MBO Partners describes this as:

Before, to build a larger business, an office, a staff and a payroll was needed. With the advent of new work platforms that enable real-time teaming between independents, we’re predicting a rise in the virtual, just-in-time organization – where talented individuals come together to deliver work and then disband until the next project arrangement. They maintain more control and flexibility, lower margins and raise efficiencies and satisfy their client’s needs for great results. With teaming on the rise (20% did so in 2020), we think that it’s only a matter of time before virtual reality is surpassed by virtual corporations.

Virtual corporations and related new forms of organizational structures have long been forecast to replace traditional corporate structures.  

One of the most popular futurist forecasts in the late 1990s was that large corporations would soon disappear and be replaced by virtual corporations made up of lots of independent workers.  

Obviously, this didn't happen - or at least hasn't happened yet.  In fact, large corporations have gotten much larger since the 1990s.  

But there clearly is a strong trend towards virtual microbusiness formation where independent workers, through teaming, outsourcing and the use of nonemployee labor are creating virtual organizations with the reach and capabilities of larger traditional businesses.

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

MBO Partners is an Emergent Research client.

Led by Uber and Airbnb, the Sharing Economy Continues Rapid Growth

According to eMarketer:

"...over a quarter (26.0%) of US adult internet users—or 56.5 million people—will use a sharing economy service at least once in 2017. This is a higher figure than previously projected due to stronger-than-expected uptake of both ride- and home-sharing services."

This is up from 44.8 million in 2016.

And as the eMarketer chart below shows, they're forecasting that 86.5 million US adult Internet users will use a sharing economy service in 2021.

         

Equally impressive are their 2017 numbers for Uber and Airbnb. 

They say 36.8 million Americans will use Airbnb at least once and 44.4 million will book at least one ride on Uber this year.

Despite all the turmoil at Uber and their negative press, eMarketer is still very bullish on the company.

As their chart below shows, they expect Uber to continue its rapid growth over the next 4 years.

        

We agree.

It's clear there is a lot of demand from both consumers and businesses for services like Airbnb and Uber. It's also clear that on-demand and sharing economy products and services in general are also in demand. 

These services take advantage of lightweight business infrastructures, reduce capital requirements and turn fixed costs into variable costs. 

This combination cuts overall costs and increases efficiency. And in the long run, efficiency wins.

We've been tracking these trends for over a decade and they continue to drive innovation and change how business is done.

Manufacturing Joining the On-Demand, Collaborative Economy

Estimates are that most manufacturing equipment in the U.S. sits idle about 50% of the time.

So comes as no surprise several companies are trying to become the "Uber of manufacturing" by creating online marketplaces to connect customers who need parts made with companies who have spare manufacturing capacity. 

The Quartz article An Uber model for manufacturing is ready to upend the industry covers the distributed manufacturing company MakeTime. Key quote:

Under a model known as distributed or on-demand manufacturing, MakeTime is meeting small businesses’ manufacturing needs in much the same way Uber meets the needs of passengers looking for rides. Companies, entrepreneurs, and inventors can rent time on nearby equipment, be it CNC milling machines, water jets, or laser cutters—any of which can cost from $50,000 to $250,000 apiece to purchase.

MakeTime's tagline is "Your Supply Chain in the Cloud".

MakeTime, of course, isn't the only company offering this type of online marketplace.

Xometry (tagline: Manufacturing on Demand) has an online platform connecting small to medium sized manufacturers with customers in a wide range of industries. They claim to have over 4,000 customers and manufacturing partners in 35 states. They recently raised $23 million from GE Ventures and VC firm Highland Capital. 

The process is similar with both firms. Customers upload CAD drawings and pertinent information such as preferred materials, tolerances and quantity required. Manufacturing firms then bid on the projects. 

According to both companies, this saves time and money compared to traditional outsourcing options.

More broadly, this is another example of shift to variable costs. Instead of owning their production equipment - which is a fixed cost  - more firms are looking for ways to buy parts on a variable cost basis.

For the buyers, this increases business agility and flexibility while also reducing the need for capital. For the manufacturing firms, this increases their efficiency. 

As we said in a recent article, we consider the shift to variable cost business models to be one of the major megatrends of the new economy. Key quote on the switch to variable costs:

It's a driver in the growth of sharing and gig economy firms like Airbnb and Uber, it's a major reason businesses large and small are increasing their use of contingent labor, it's one reason there are more online only businesses, including restaurants and it's the main driver behind the rise of platforms, ecosystems and cloud computing.  

Despite its importance, the shift to variable cost business models get little attention. We think this is because it's a fairly wonky topic. Also, few people get excited about accounting concepts. 

It's also having a major social impacts. Again from our prior article:

... it's driving a lot of change, and not just business change. 

Consumers are also avoiding fixed costs and long term commitments. They're delaying or not opting for marriage and kids, they're renting instead of buying homes and they're reducing or delaying large purchases of all kinds, and they're even choosing pets over children.

The shift to variable costs is covered in more detail in 2016 Intuit Future of Small Business Dispatch From the New Economy. 

The Rise of Coworking and the Variable Cost Economy

A key reason we started following coworking back in 2007 was it provided a flexible alternative to the traditional long term commercial office lease.

Coworking turned a fixed cost (long term lease) into a variable cost (month to month membership). 

We've long considered the shift to variable costs to be a key megatrend of the new economy. As we pointed out in the 2008 Intuit report The New Artisan Economy:

… by the beginning of the 21^st century, ownership of large-scale infrastructures no longer determined business success in a growing number of industries. Brick and mortar and heavy iron gave way to speed, flexibility and innovation. New technologies, collaborative supply chains and outsourced manufacturing created lightweight infrastructures – smaller, cheaper and more agile.

With the greater need for business flexibility and agility not only are variable cost business models more attractive, in many cases fixed cost models are a liability.

Because of this, a recent article by the CEO of the coworking chain Industrious grabbed our attention.

The Tension that Defines us: Some Thoughts on the Future of Work covers a recent funding round by Industrious.

It also covers two key trends they see driving change in commercial real estate. One of them is "businesses’ rapidly growing need for flexibility". Key quote from the article:

American businesses are finding it increasingly difficult to sign 10-year leases. As the pace of change increases in business, with every passing year the ability to project headcount in a city 10–15 years in the future is becoming more and more difficult, not just for small businesses and startups, but for the Fortune 500. 

The article goes on to describe what corporate customers want from coworking spaces:

... I’ve never heard a customer say “I want coworking.” What they say is, “I want my employees to love coming to work, but I can’t commit to a 10 year lease and create this all myself. Can you help?”

The article closes with a description of the move from fixed cost business models to variable cost ones:

This is starting to look a lot like other outsourcing trajectories, whether it’s manufacturing, customer service, or IT. Businesses are moving a cost line from a fixed obligation they deliver themselves, to a flexible service they consume from a partner: think for example of the transition from companies managing their own servers to using Amazon Web Services.

The shift to variable costs continues to be a megatrend.

It's a driver in the growth of sharing and gig economy firms like Airbnb and Uber, it's a major reason businesses large and small are increasing their use of contingent labor, it's one reason there are more online only businesses, including restaurants and it's the main driver behind the rise of platforms, ecosystems and cloud computing.  

Despite its importance, the shift to variable cost business models get little attention. We think this is because it's a fairly wonky topic. Also, few people get excited about accounting concepts. 

But it's driving a lot of change, and not just business change. 

Consumers are also avoiding fixed costs. They're delaying or not opting for marriage and kids, they're renting instead of buying homes and they're reducing or delaying large purchases of all kinds and they're even choosing pets over children.

We cover the business aspects of this topic in more detail  in our Business Models section and the consumer aspects in our Economic Uncertainty section.

The Growing Biotech Gig Economy

Unlike traditional pharma or biotech companies, most of the people working at Nimbus Therapeutics are gig workers. 

And the primary reason Nimbus hires gig workers is not to cut costs.

It's to increase their business flexibility and agility and access hard to find, highly skilled talent. 

According to their blog post Talent in the Biotech Gig Economy, only 25 of the roughly 150 people working at Nimbus are traditional employees. 

Key quote on the composition of their workforce:

"... the vast majority are freelance consultants (Head of Regulatory Affairs, Head of CMC, Head of Stats & Programming, Head of HR) and dozens of scientists at expert CRO collaborators."

As you can see from the list of titles, most of the freelancers employed by Nimbus are highly skilled specialists. 

The advantage of this model is summarized in this quote:

.. the gig economy has enabled them <Nimbus> to apply investment capital against projects much more sensitively, limit overhead, and toggle it up and down in a moment’s notice (think flexible spend vs. fixed cost).

In addition to hiring gig workers, Nimbus uses contract lab space, partnerships, cloud based technology and outsourcing to keep their fixed costs down and business flexibility up. 

The Wall Street Journal covered the growing use of outsourcing and contracting last week in their front page story The End of Employees. Key quote:

Never before have American companies tried so hard to employ so few people. The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry.

The WSJ article focused on companies doing this to cut costs. 

But as the Nimbus example shows, a growing number of companies are using gig workers to increase their agility and flexibility and access hard to find and/or hire talent. 

This is not to say cost isn't a factor.

When we first started our research on the use of contingent talent, corporations told us cost was the primary factor. Today most corporations tell us cost is still a reason, but not the primary reason they are hiring contingent talent.

The top reasons now are accessing specialized talent and increasing business agility and flexibility.

This shift is not yet widely understood, but these reasons are increasingly the main driver behind the growth of contingent workers at corporations.

Digital Transformation Leading to Ghost Restaurants

Ghost restaurants are delivery only, online restaurants that skip storefronts and deliver food straight to the customer. Think Amazon for restaurants.   

Fast Company's Hold The Storefront: How Delivery-Only "Ghost" Restaurants Are Changing Takeout describes the growing number of delivery only eateries that are popping up all over the country.

There are three main drivers of this trend.

Ghosts are much cheaper to operate than traditional restaurants.

They don't have to have space for customer seating and they can be located in cheaper areas than traditional restaurants.

These combine to mean they pay much less in rent than traditional restaurants. 

Second, Americans are cooking less and ordering more delivery food. 

The third driver is ghost restaurants are embracing digital platforms and technology. For example, they are take advantage of the growth of food ordering platforms like GrubHub and Uber Eats which expose ghost restaurants to a large pool of potential customers.

They are also marketing their restaurants using digital marketing methods. 

The article profiles Green Summit, a New York city based ghost with 8 online brands and two kitchens.

Their Leafage brand, for example, focuses on salads, macrobiotic sushi and quinoa bowls. Those less health oriented can get mac & cheese  and fries from their Mac Royale brand.  

In addition to cost, online restaurants also have an agility advantage. This too is driven by digital technologies. 

Unlike brick and mortar restaurants, Ghosts can can shift menu items and create new, branded online-only restaurants very quickly. This means they can react faster and more efficiently to changing consumer tastes.

Ghost restaurants are an interesting example of how digital transformation is impacting a wide range of industries; in this case restaurants.

Ghosts use online platforms to find customers. Their business model focuses on agility and flexibility to improve their ability to adjust to market changes. They keep their fixed costs down, reducing their risk and capital requirements by not having storefronts and partnering with delivery firms. 

We're seeing these same business model attributes growing in use across the economy.

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. 

Small and Independent Brewers Continue to Gain Share

According to the Brewers Association, small and independent craft brewers continued to gain share on beer industry giants in 2015. Key quote from their press release:

In 2015, craft brewers produced 24.5 million barrels, and saw a 13 percent rise in volume and a 16 percent increase in retail dollar value.  Retail dollar value was estimated at $22.3 billion, representing 21 percent market share.

The 21% revenue share is up from just 6% in 2008. Also, 2015's craft beer growth was despite an overall decline in beer sales in 2015.

The number of small breweries also increased in 2015 and as the chart below from Bloomberg's I'll Toast to That: U.S. Brewery Count Hits All-Time Record shows, it's at an all-time high.

We've long used the beer industry as an example of how industry structures are becoming more barbell like. 

In almost every industry we track we see consolidation resulting in fewer, but much larger, global corporate giants.  At the same time, in most industries we are also seeing growing numbers of small businesses and declining numbers of mid-sized businesses. This is resulting is industry structures that take the shape of a barbell in terms of market shares.

We used the beer industry as the main example in our 2008 New Artisan Economy report on how changing industry structures is leading to more small businesses. 

The beer industry is an extreme example. Craft brewers control 21% and pretty much the rest of the U.S. market is controlled by 2 giant, global beverage conglomerates - mid sized brewers are pretty much non-existent

But the shift to barbell industry structures is both widespread and accelerating.

The growth of platform companies is helping to drive this acceleration. Key quote from a 2014 Deloitte study on this topic:

... a new economic landscape is beginning to emerge in which a relatively few large, concentrated players will provide infrastructure, platforms, and services that support many fragmented, niche players. In this way, both large players and small will coexist and reinforce each other.

Because it's a bit esoteric, the shift to barbell industrial structures doesn't get a lot of attention.

But it's one of the most important trends we follow and it's creating new opportunities for small businesses and independent workers.

See our industry structure section for more on this topic.

The Global Shift to the Open Workforce

New Ways of Working ... Managing the Open Workforce is a fascinating study from London-based CGMA. 

Key quote on their definition of "the open workforce":

Organisations are increasingly finding themselves managing an “open workforce” – one in which talent and resources are spread across a complex mix of in-house teams, freelancers, contractors and external business partners.

One of the most interesting things about this study is the source. CGMA stands for Chartered Global Management Accountants and it's a global trade association for management accountants.  

I think the fact that CGMA has issued a report on contingent talent is a clear signal that independent workers and "the open workforce" have become of strategic importance to most businesses.

Also interesting are their findings on the growing global use of independent workers.  

As the study chart below shows, the use of external talent (independent workers, contractors, etc.) is already substantial and forecast to grow rapidly over the next 5 years in most parts of the world.

These findings are consistent with the Ardent Partners study we reported on yesterday and the research behind the MBO Partners State of Independence studies.  

Theses studies, and others like them, make it clear the shift to independent workers is not just a response to the Great Recession. This is a fundamental shift in employment and business practices.  

Adapting To Versus Adopting Cloud Computing

The recently released Intuit dispatch Small Business Success in the Cloud includes the following forecast:

Nearly 80 percent of U.S. small businesses will be fully adapted to cloud computing by 2020, more than doubling the current 37 percent rate.

We've gotten a lot of questions about this forecast, so we thought we would explain it in more detail (Emergent Research worked with Intuit on this study). 

 

For the purposes of this forecast, "fully adapted to cloud computing" means being completely or very confident using cloud tools to manage a business. 

We chose this metric because we felt cloud adoption was not an informative statistic. This is because most small businesses use the cloud for at least some tasks and especially email and social media.  

But despite relatively high cloud adoption rates, relatively few (37%) small businesses report being confident using the cloud to manage their business.

And if small businesses aren't confident about the cloud, they won't change their behaviors due to the cloud or fully embrace the cloud's capabilities. 

But those who are confident will adapt their businesses to the cloud. This means not only embracing the full range of cloud computing's capabilities, but also potentially doing things in new and innovative ways. 

To get at this information, Intuit recently surveyed small business owners with 50 or fewer employees. Below is the key survey question and the responses.  

As you can see from this data, 37% of respondents said they were completely or very confident in their use of web tools. We call this group "fully adapted". 

We're forecasting the "fully adapted" group will grow to 78% by 2020.

This forecast was done by looking at the small business diffusion rates of other technologies (online banking, ecommerce, mobile payments, etc.) and factoring in the vendor pressure to move to the cloud (few new products come in non-cloud forms) and the increasing speed technology is adopted. 

We are strong proponents of the use of behavioral data and metrics as forecast tools. We think this type of information provides deep insights on the likely impacts of a new trend, shift or technology.