Small Business Labs

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.

The Return of Independent Bookstores

In 1936 George Orwell pointed out that one of the main difficulties of owning an independent bookstore is turning a profit.

This, of course, was long before Amazon.

But as NPR's Why The Number Of Independent Bookstores Increased During The 'Retail Apocalypse' reports, despite Amazon and other challenges independent bookstores are having a bit of a renaissance. 

From 2009 to 2017 the number of U.S. independent bookstores increased roughly 40%. 

So why is this happening?

According to a study by Harvard Business School professor Ryan Raffaelli, there are "“3 C’s” behind this resurgence: community, curation, and convening:

Community: Indie bookstores stress their local community ties and values. This positions them to benefit from the broader new localism trend.

Curation: Independents tend to focus on curating inventory that allows them to provide a more personal and specialized customer experience. They also stock books that appeal to local tastes and interests. 

Convening: Independent bookstores are often community centers that host lectures, book signings, game nights, children’s story times and even birthday parties. 

The rise of independent bookstores nicely illustrates several broader social trends impacting the economy.

These include the shift to experiences over things, growing interest in personalized services, unique products, and all things local, and the desire to be part of a community. 

It's also an example of small firms thriving despite having to compete with global giants, such as Amazon. We refer to this as a barbell industry structure, which we cover in more detail in our Industry Structure section.

The growth of independent bookstores is another signal that the New Artisan Economy is gaining traction. 

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.

Are Makers the Future of Small Manufacturing?

The National League of Cities recently released Discover Your City's Maker Economy, a report that "provides a roadmap for cities to develop policies, programs and a culture that better supports local maker businesses."

The thrust of the report is that "maker-entrepreneurs" -  individuals or micro-businesses who create (either by design or fabrication) and sell tangible products - are potentially the future of manufacturing. 

The report also suggests the maker movement can drive employment opportunities and provide more inclusive access to entrepreneurship. 

This echos a report earlier this year from the Brookings Institution. It too says the maker movement could be the future of manufacturing and describes it as:

 "a deeply American source of decentralized creativity for rebuilding America’s thinning manufacturing ecosystems."

Brookings concludes by saying:

“By embracing the do-it-yourself ethos of the maker movement, communities across the country can renew a sense of local community and help rebuild American manufacturing from the ground up.

The recent article Economy of Scale: Can the Maker Movement Revive U.S. Manufacturing?, from AB Architecture, also covers this ground. 

The article chart below provide some interesting data on the growth of maker entrepreneurs. 

    

We've long covered the growing maker movement and "maker-entrepreneurs".  It's one of the most interesting industrial sectors we follow.

So we certainly agree there's a lot of potential for growth from this sector. 

What is Platform Cooperativism?

Platform Cooperativism is the term being used to describe the combination of coop business structures with online platforms that delivers real-world goods or services.

Coops are basically businesses owned and controlled by the members that they serve. This means that decisions made in cooperatives balance the need to be financially viable with the needs and interests of members and their communities.

In other words, coops aren't just profit focused or as profit focused as most venture backed startups. 

Coops are not new nor are they uncommon. U.S. Credit Unions and mutual insurance companies are coops. Other large examples include Ace Hardware, which is cooperatively owned by Ace's independent retailers and Sun Made Raisins, which is owned cooperatively by raisin farmers. 

Platform coops are simply coops that provide online platforms or marketplaces. Examples include New Zealand's Ensprial, a cooperatively owned and operated freelancer network, Loconomics, a coop version of Task Rabbit and Fairmondo, a co-op version of eBay.

The goal of these and the platform cooperativism movement in general is to give platform providers, workers and sellers more power and, hopefully, more income.

A recent report - PLATFORM COOPERATIVISM: Challenging the Corporate Sharing Economy - goes into detail on this topic. The author's perspective is that for-profit platform companies such as Uber and Airbnb are not good - and that's putting it very mildly. He calls these companies the new middlemen. 

Key quote from the report's landing page:

With these new middlemen sucking profits out of previously un-monetized interactions, creating new forms of hyper-exploitation, and spreading precarity throughout the workforce, what can we do? Scholz insists that we need not just resistance but a positive alternative. He calls this alternative “platform cooperativism,” which encompasses new ownership models for the Internet. Platform cooperativism insists that we’ll only be able to address the myriad ills of the sharing economy—that is to say platform capitalism—by changing ownership, establishing democratic governance, and reinvigorating solidarity.

A gentler description of platform cooperativism is presented in Shareable's How Platform Coops Can Beat Death Stars Like Uber to Create a Real Sharing Economy.

As you may have surmised from the title, the article is still not real positive about Uber and other VC backed on-demand companies. It also offers a blueprint on how worker owned coops could potentially compete with these firms.

Platform cooperativism is a reaction to the growth and power of VC backed online platform companies. It's also part of the broader set of concerns about income inequality, worker rights, wage stagnation and the view that corporations are abusing their power. 

While we think cooperative platforms are unlikely to unseat the "death star" platforms anytime soon, it's an important movement to pay attention to.

Growing unrest with current economic conditions is leading to a number of politically driven changes. For example, there is now a clear, national movement to increase the minimum wage to $15.

It's quite possible the platform cooperativism movement will lead to new on-demand economy regulations. But even if they don't, it's nice to have alternatives - and especially alternatives that are worker friendly.

The Return of Guilds

The New Yorker's The New Guilded Age provides an excellent historical overview of guilds and their potential return. Key quote:

From roughly the turn of the first millennium to the French Revolution, guilds operated as associations of independent craftspeople, setting standards for their lines of work and cultivating lively subcultures around their labor. 

The article focuses on Prime Produce, a New York city coworking collective. Instead of being owned and operated by a company, Prime Produce will be owned by the members. Again from the article:

Prime Produce is exploring a model in which many members will be co-owners of a cooperative firm, which will manage the proceeds of their dues and pay rent to the sympathetic investors who own the buildings. 

We first got interested in guilds way back in 2007 when we were doing research for the Intuit 2020 New Artisan Economy report. Based on this work, guilds seemed like a logical way for new artisans to organize.

And the growing interest in co-ops and other forms of collective ownership is clearly leading to increasing numbers of guild-like organizations, with Prime Produce being a good example.

We're also seeing a rise in the number of "loosely-coupled" groups of independent workers who team up to work together in a guild like way. Key quote from the 2015 MBO Partners State of Independence report:

In 2015 36% of independent workers reported spending about $101 billion in the past year hiring other independent workers on a contract basis ... This is roughly the equivalent of employing 2.4 million full-time workers via traditional hiring.

Independents’ hiring of other Independents is part of a broader collaboration trend in the new economy. In essence, Independents team up with other Independents to pool their talents and address more complex challenges in the marketplace … These teams effectively constitute a new form of project-specific small business that operates with a flexible and agile staffing model. 

These loosely coupled groups of workers look in many ways like the guilds of yore. We continue to think guild like organizations make a lot of sense in the new economy. We expect to see more of them.

The Infrastructure Behind the Rise of Crafters, Makers and Hobbypreneurs

Back in 2009 we released Today's Hobbyists are Tomorrow's Hobbypreneurs, a report on the Maker Movement with our partner Intuit. Our conclusion was:

"Makers increasingly create new products and build small businesses based on innovative use of technology, processes, and business models. They represent a growing force of hobbypreneurs contributing to the U.S. and global economy."

At the time we wrote this report,this was controversial.

Makers were considered hobbyists, amateur crafters, tinkerers and the heirs to the DIY consumer movement of the 1950s and 1960s. They weren't viewed as a source of new businesses. The folks from Maker Faire even told us we were wrong to think of Makers as potential entrepreneurs.  

Much has changed over the last 5 years. 

As the Reuters article Do-it-yourselfers inspire hardware renaissance in Silicon Valley explains:

"a proliferation of high-tech but affordable manufacturing tools and new sources of funding are empowering a generation of handy entrepreneurs and laying the foundation for a hardware renaissance."

The rise of Makers, crafters and others turning hobbies, passions and interests into small businesses is being enabled by a growing support infrastructure that allow these businesses to be started cheaply and easily.

Etsy, of course, is an obvious example of this growing infrastructure. It makes it inexpensive and easy for a crafter to open an online store with immediate reach to millions of potential customers.

In addition to their consumer site, they've also created a wholesale channel for their sellers. This makes product distribution into the retail channel much easier.  

They also recently acquired Grandst.com, which is an Etsy-like marketplace for "creative technology". This will likely greatly expand the customer base for all kinds of gadgets developed by Makers and small manufacturing companies.  

Other infrastructure services include shipping and logistics services targeted at small businesses, a growing array of cloud-based software systems designed to improve the operations and efficiency of small and micro-businesses and a number of new, cheaper, payment system options.

Financing has also gotten easier.  A range of companies are now offering various forms of loans and advances to small and micro businesses. Crowdfunding and more recently equity crowdfunding are also being increasingly used by these types of businesses.  

But although it's gotten cheaper and easier to turn a hobby, passion or interest into a business, for most hobbypreneurs it's still about their passions.  The chart below - from Etsy's Redefining Entrepreneurship report - shows starting these business is about much more than the money.

     

Cities, Freelancers and the Paradox of Place

The Paradox of Place is one of the more interesting trends we follow.

The paradox is even though the Internet and connective technologies have made working remotely easier than ever, people and companies are increasingly clustering together in fewer, more valuable locations.

What's happening San Francisco is an obvious example. There's almost a land grab frenzy of companies and people moving into the city. But it's not just San Francisco nor just places with a lot of tech companies.  All over the world, people are moving to cities and near-in suburbs.

This paradox is happening because in our knowledge-intensive world, industries and people cluster in order to share information, generate ideas and cut deals. These activities are all still better-done face to face.  

Companies also cluster to access talent, which is attracted to urban areas due to job opportunities and the amenities urban or near-in suburban living provide.

This paradox extends to freelancers and other independent workers.

Given how expensive cities tend to be relative to small towns or rural areas and how easy it is to telework, why do so many independent workers choose to live in urban areas - and especially places like SF and New York? 

We've been exploring this issue and the quick answer appears to be the same reasons companies and traditional employees are clustering - place matters to freelancers too.

This is, of course, not exclusively true. Growing numbers of Digital Nomads are wandering the earth and teleworking from the remotest of locations.  And telecommuting is on the rise, especially for independent workers.

But for most independent workers, place matters.

The Brookings Institute has been doing a lot of work on clusters and cities.  The very brief video below does a nice job of summarizing their point of view.

 

The Rise of Experiential Luxury

According to a study released by the strategy consulting firm BCG, the global rich (and well off) spent $1.8 trillion in 2012 on luxury goods and services.

What's interesting about the study is the finding that market for luxury services and experiences exceeds the market for luxury goods and is growing faster. 

As the study chart below shows, what BCG calls the "experiential luxury" market is now over half of the total luxury spending market.  

The Guardian's Super rich shift their thrills from luxury goods to costly experiences nicely summarizes the study.  Key quote:

... the rich are increasingly hunting for unique objects and experiences ... luxury is shifting rapidly from 'having' to 'being' – that is, consumers are moving from owning a luxury product to experiencing a luxury ...

We agree but would add it's not just the rich shifting their spending to experiences. Consumers in all income brackets are looking for unique and unusual experiences.

One example is the growth of food trucks.  Their patrons come from all income groups. Key quote from our Food Trucks Motor Into the Mainstream report:

For many, it’s the experience that attracts them to food trucks. More than 80 percent of those interviewed used words like fun, exciting, new, different, unusual and unique when asked why they dined at food trucks.

This is all part of the broader shift to an experience economy that we believe will continue to gain strength over the next decade.

Trends and Budweiser's Puppy Love Commercial

It's pretty likely you've seen Puppy Love, Budweiser's Superbowl commercial.  

I'm writing this article on the Friday before the Superbowl and it's already been viewed online 25 million times.  For those who haven't seen it, it shows a labrador puppy making friends with a Clydsdale on a ranch. 

While I like the ad, I'm more intrigued by the trends the ad represents.

The first is the growing role pets are playing in society and the broader trend of pet humanization.  This is the trend towards pet owners seeing their pets as full fledged family members and themselves as "pet parents" instead of pet owners.  

While puppies have long been an advertising staple, this ad truly humanizes both the puppy and the Clydsdale in the way they make friends and interact. This, of course, will appeal to the large and growing group of people who humanize their pets.  

The ad also taps into the trend towards a return to simplicity, authenticity and quality.

In the ad the farmer/dog breeder - who's obviously a rugged and independent yet sensitive kind of guy - is shown working with hands. This harkens us back to the authentic, quality oriented days of yore.  

This is, of course, our stylized view of the days of yore and not how the days of yore really worked. But hey, it's advertising.  

This vision of the solo farmer working his ranch ties into several related trends we track: 

New Localism is shift towards Americans relearning the value of community and reestablishing stronger ties with family, friends and their communities.  Part of the new localism trend is a growing interest in local, unique, products that look and feel authentic.  

The New Artisans are people focused on exploring the combination of new and old ideas, approachs and methods to create high-quality, niche products.  

It's interesting to see Budweiser tie into so many trends in one ad - and do so with great effectiveness.