EMERGENT RESEARCH is focused on better understanding the small business sector of the US and global economy.
Authors
The authors are Steve King and Carolyn Ockels. Steve and Carolyn are partners at Emergent Research and Senior Fellows at the Society for New Communications Research. Carolyn is leading the coworking study and Steve is a member of the project team.
Emergent Research works with corporate, government and non-profit clients. When we reference organizations that have provided us funding in the last year we will note it.
If we mention a product or service that we received for free or other considerations, we will note it.
The indicators cover the time frame from 1996 to 2017 and will be updated annually. They replace the Kauffman Index, which was also on entrepreneurial activity but not as data intense.
The most interesting finding from the new indicators is that early stage entrepreneurship was near a 20 year high in 2017.
As the study chart below (click to enlarge) shows, the rate of new entrepreneurs is fairly stable.
But after peaking in 2010, it declined until 2013 and then started to increase again.
The Kauffman Indicators use a somewhat unusual entrepreneurship measure - the percent of the adult U.S. population who create a new business each month.
In 2017 this worked out to be .33% of the adult population, or 330 out of 100,000 adults. This is just shy of the .34 in the peak years of 2009 and 2010.
The Hustle's Life in the Silicon Prairie: Tech’s great migration to the Midwest covers the continued growth of the Midwest's tech sector.
Key quote:
Investors are flocking to Middle American cities like Omaha and Des Moines. Startups are forgoing the paradisiacal pastures of California for a little Midwestern mojo. And the “Silicon Prairie” — cornfields and all — is having a moment in the unrelenting sun.
The article stresses how much lower the cost of doing business - and living - is in the Midwest. And that's certainly a strong draw.
But as the article chart below points out, the Midwest is also an economic powerhouse that has traditionally been undervalued by the tech industry.
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.”
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.
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).
U.S. companies have long moved work overseas to save money. But a long emerging trend of moving work to lower cost areas of the U.S. instead of overseas appears to be gaining steam.
Although lower cost U.S. cities are more expensive than outsourcing overseas, rising salaries and costs overseas is making outsourcing there less of a bargain.
Meanwhile, locating in the U.S. has a number of advantages.
Having work done in the U.S. greatly reduces issues and problems associated with navigating time zones, cultures and languages that are common with international outsourcing.
The nature of software development and product design has also changed in ways that make domestic outsourcing more attractive. Key quote from NY Times article:
... companies in every industry need mobile apps and appealing websites, which can be made smarter with data and constantly updated. That software is best created by small, nimble teams, working closely with businesses and customers — not shipped to programmers half a world away.
Regular readers know one of our favorite trends is the paradox of place.
The paradox is even though the Internet and connective technologies has made working remotely easier than ever, people and companies are increasingly clustering together in fewer, more valuable locations.
But despite the paradox, there are a growing number of signals indicating that companies - and workers - are becoming more distributed.
Also driving this shift is cities like San Francisco and New York have become so expensive, it's simply become hard for companies and their employees to locate there,
The advantages of these remote locations include lower salary costs, higher standards of living for employees, greater ability to retain employees, less competition and consequently higher retention.
A number of domestic outsourcing firms have sprung up to tap into this trend. The New York Times article covers the Midwest-based Nexient, whose tagline is "100% U.S. based software partner".
Technology is, of course, the other driver of this shift. Next-generation chat, video calling, and project management software make it easier to coordinate work with and manage remote teams.
But paradox of place continues to be, well, paradoxical.
In person, face-to-face, co-location is the most effective form of communication, especially when you are faced with brainstorming and solving complex issues. Software development is often complex. And, the more that companies rely on technology to be a differentiator, the more complex it becomes.
So the trends indicate there will be both more distributed work and more co-located work. We believe both will continue to happen, at least for the next 5-10 years.
But we also think in the long run distributed work will become more common as technology reduces the problems associated with distance.
The short video below (less than 1 minute) give a quick overview of the Midwest's Silicon Prairie.
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.
According to data from the 2014 U.S. Annual Survey of Entrepreneurs, the median U.S. employer small business (those with paid traditional employees) generates less than $400k in revenue.
As the chart below shows, in 2014 the median small business had receipts of about $390,000 and about 4 in 10 (39%) had less than $250,000. Only about one quarter (26%) of small businesses generated more than $1 million in revenue.
The author of the article is a partner at Drive Capital, a VC firm based in Columbus, Ohio.
They feel pretty strongly that tech entrepreneurs should consider a Midwest location for their startups.
Key quote from the article:
"We also believe that if you are an entrepreneur with a fledgling company in 2016, you are an idiot if you don’t consider building it in the Midwest."
What makes this statement more compelling is the fact that the founders of Drive are former partners at Sequoia, the elite Silicon Valley VC firm. Like many others, Drive's founders fled Silicon Valley in search of new opportunities.
Key quote from their website:
"The Midwest is the opportunity of our lifetime."
This is in large part due to the size of the Midwest's economy coupled with how little attention the region gets from VCs. Again from the Venture Beat article:
California is the eighth largest economy in the world. The Midwest is the fifth. The Midwest is also bigger than Brazil, Russia, and India, each of which had recently caught many a venture capitalist’s eye.
The Midwest receives 25 percent of all research dollars in America and graduates more computer science degrees than any other region or country on planet earth. There are gobs of tech exits at valuations just as large as other places, and yet, the Midwest receives just four percent of the annual venture dollars in America.
I think there is a touch of hyperbole in this - China graduates a lot folks with computer science degrees - but the fact that Midwestern companies only attract 4% of America's VC dollars is pretty stunning.
The Midwest has a number of advantages as a place to start tech companies. Costs are much, much lower than in Silicon Valley, you can be closer to key customers and there's a lot of talent available.
The study consisted of a survey of over 400 small business owners coupled with a set of 26 in-depth interviews with "successful" business owners. These are small business owners who told us they were meeting or exceeding their business goals and objectives and self-described their business as "successful".
One of the key findings is that most small business owners are largely motivated to work in a field or discipline they enjoy and/or by being their own boss.
Few are motivated by or interested in want building a large business and even fewer are solely motivated by financial rewards.
We've long studied how small business owners define and achieve success and this finding fits with our past work.
A variety of other studies have found the same thing. Wealth, Tastes and Entrepreneurial Choice, a 2015 academic study on this topic, is a good example and references a number of related studies.
But despite this research, the vast majority of people believed then and still believe now that most small businesses want to grow and become big businesses.
This belief is driven mostly by the vast amount of media coverage high growth small businesses and their owners get.
So just as our 2007-2008 study findings were surprising to most people, so too are these findings (or at least that's the feedback so far).
It's even surprising to a lot of small business owners. Many small business owners tell us they consider themselves an outlier because they aren't interested in growing into a big business. They often are surprised when we tell them this attitude is common.
It also makes them happy to learn their goals for their business and definition of success is shared by most other small business owners.
This is not to say small business owners don't want to grow at all. Nor are we saying small business don't care about making money.
Most do want to grow - 76% of those surveyed and 71% of those interviewed reported having a growth goal - and almost all (over 90%) have explicit financial targets.
But in most cases the growth goal is modest and the financial targets important but secondary to other objectives. See the report for more on this.
We'll have more on this study over the next couple of weeks, including a finding that surprised us so much we didn't believe it at first, still aren't sure about, and plan to study more deeply going forward.
This is the growing role small business coaches and coaching are playing.
Based on what we saw, heard and learned, coworking is entering the mainstream. Our top 10 reasons why are:
1. The continued exponential growth of global coworking spaces and members: Carsten's Foertsch's excellent presentation on the coworking industry made it very clear our forecast at the 2014 GCUC that there would be 1 million coworking members by 2018 is woefully low. We'll be updating this forecast in the near future, but assume it's going way up.
2. Big Coworking is getting bigger - and more numerous: We first wrote about big coworking spaces in 2011, which at the time we defined as bigger than 20,000 square feet. Since then they've become much more numerous and much bigger, with spaces over 100,000 square feet increasingly common. WeWork is the obvious example, but there are now many, many more.
3. The real estate industry is embracing coworking: We regularly hear from real estate people developing shared spaces these days and they were active at GCUC. Since one of the industry's leading economists is suggesting that coworking's growth is "absolutely unprecedented", expect more participation from this giant industry.
4. Coworking continues to expand to new niches: Coworking continues to hybridize and verticalize with spaces being designed for a wide variety of target markets. A good example is MakeOffice's soon to be opened, 21,000 square foot space in Chicago targeted at health tech companies. Segmentation and growth into niche markets are clear signs of a maturing industry.
5. Business centers and coworking spaces have finally figured out they're in the same industry: The Alliance Business Center Network and GCUC are now partnering on these events . Also, the new executive director of the Global Workspace Association is a former coworking space owner. The recognition by each group of the value of the other will help the entire industry.
6. Successful coworking business models have emerged and exposure to the business center industry is making them stronger: Business centers have always been, on average, savvier and more sophisticated financially than coworking spaces. This financial knowledge is being transferred to the coworking industry.
7. Coworking's innovative approaches to space and community are making the business center industry stronger: Business centers/executive suites are also gaining from interactions with coworking spaces. In fact, it's time to get rid of the separate names and start calling them the flexible workspace or workspace-as-a-service industry.
8. Coworking is truly global. Conference speakerJean-Yves Huwart discussed how coworking is taking off in Africa and Middle East. It's also booming in Asia and Europe. As we discovered last year on a trip to India and Dubai, there are coworking spaces everywhere. This is because the need for these spaces is universal.
10. WeWork continues to thrive: While other private "unicorns" are seeing their valuations get slashed (even Uber and Airbnb), both T.Rowe Price and Fidelity both marked up their valuation of WeWork last quarter. So even the tech slowdown is not (yet) impacting coworking.
Back in to 2012 we wrote about the Top 10 Signs Coworking is Growing Up. It's safe say coworking has entered adulthood. But at the same time it's still a nascent industry with lots of room for continued growth.
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.
