Small Business Labs

CNBC's Ultimate Side Hustle Guide for 2021

The number of people who have side hustles (also called side gigs) has been growing rapidly over the past 5 years.  

The reasons for this growth - and how to start and run a side gig - are nicely explained in CNBC's extensive field guide The Ultimate Side Hustle Guide.

Key quote on why more people are starting side gigs:

"Starting a side business is one of the smartest financial moves you can make right now. With the economy shaky, no one can have too much income diversity. Even people in seemingly secure public sector jobs have been hit with furloughs and layoffs since Coivd-19 struck ... Even if you aren’t worried about job loss, a side hustle can be a great source of extra income to pay down debt, save money and invest."

The guide goes on to provide practical and useful information covering everything you need to know to get going on a side gig.  The guide's topics include:  

Which side-hustle you should launch?

How much will a side gig cost you?

Getting a side hustle started

Figure out when and where you will run your side-hustle 

How to develop a budget and financial plan

Don’t forget tax planning

Open a separate checking account for your side hustle

Create a simple record-keeping system

Getting set up

Winning your first customers

Keep your business thriving

Even experienced side hustlers will find this information useful. And, of course, those new to side gigs will find it invaluable. 

The Number of Nonemployer Businesses Continues to Grow

According to the  U.S. Census, the number of nonemployer businesses in 2017 increased to 25,701,671, up 3.6% from 2016. 

Nonemployers are businesses that have an owner, but don't have paid traditional full or part-time employees (W2 employees). The data comes from tax records.

As the chart below shows (click to enlarge), the number of nonemployers has been growing around 2.45% per year since 2010.

That may not sound like a lot of growth, but it's about 3 times the growth rate for overall employment.

We've long tracked the nonemployer business statistics. 

Nonemployer data gets less attention than other government data on self-employment.

This is because the dataset is messy and includes a hodge podge of business entities - passive businesses, firms no longer in business, LLCs owned by major corporations, etc. - that aren't active solopreneur businesses. 

But we find this data a useful general indicator of U.S. self-employment.

Storr Raises $4 Million to Democratize Retail by Letting Anyone Sell Brand-Name Products

Storr is a new digital marketplace that lets anyone set up an online store and sell brand-name products. 

According to their press release announcing their $4 millon seed round:

"Now people can buy new, brand-name products directly from their friends or people they follow."

This is sort of an influencer marketing meets social selling.

Storr's head of business development describes this approach as a “transactional Pinterest” in a Glossy article on the company. 

People can set up a store, which is mobile device oriented (click on image to enlarge) and get commissions of 15-25% from any of the 125 brands they sell.

The store owner is only responsible for the sale. Shipping, handling and returns are done by the brands. 

There's been a steady array of new ways for individuals to sell things to their friends, families and followers. 

Multi-level marketing (MLM), of course, has been around since the 1950's and over 5 million Americans are active in MLM programs and selling products to a customer base (think Avon, Mary Kay, Arbonne, Herbalife, etc.).

Affiliate programs started in earnest in the late 1990's during the first Internet boom. They provide commissions to websites who refer customers who buy things.

It's now a big business and most companies have some form of this type of a program. See Amazon's affiliate program for an example.

And influencer marketing came of age over the past decade. These programs compensate influencers who recommend their products. The compensation if often cash. But it can be free products or other forms of compensation.

Pretty much anyone who has an following and pitching things on sites like Instagram, YouTube, Pinterest, blogs, etc. are participating - or wanting to participate - in these programs.

They can be quite lucrative with a few people earning six and even seven figure incomes. But most earn pizza and beer money. 

We'll see how Storr does. There's already a bit of a backlash against online selling to family and friends. See the Atlantic article Beware of Selling Yoga Pants on Facebook for more on this.

But we like the concept and think it likely has legs for the same reason the gig economy is thriving - it's a low friction, highly flexible way to generate income. 

In case you are wondering, Small Business Labs doesn't participate in any of these programs. As an analyst and consulting firm we aren't allowed under our conflict of interest rules. 

Book Review: The Million-Dollar One-Person Business

We really like the tagline for the book The Million-Dollar One-Person Business. It's "Make great money; work the way you want; have the life you want."

This pretty much sums up the advantages of being successfully self-employed. 

But this book is not just about being self-employed.

It’s about creating a successful solopreneur business, which is one that doesn’t have traditional employees.

There are many advantages of being a solopreneur.

There is less risk because there’s no regular payroll to meet and less stress because there aren’t employees to manage.

There’s also more freedom and flexibility without employees.

The challenge is scaling a business without hiring employees. And that’s what The Million-Dollar One-Person Business focuses on.

The book is written by the well-known and highly respected small business expert Elaine Pofeldt.  She explains how to identify, launch and grow a single person business that can generate $1 million or more in revenue.

The book is based on hundreds of interviews Elaine has conducted with successful solopreneurs. Because of this, it's filled with practical advice from those who have accomplished the challenging task of reaching $1 million in revenue.

We liked the entire book, but our favorite part is Chapter 4 - Making It Happen. This chapter has the nuts and bolts advice about building a successful solopreneur business.

We particularly liked the section Experiment and Revise (page 113). Being able and willing to adapt, adjust and pivot is almost always a prerequisite to business success. This section nicely and usefully lays out how several successful solopreneurs did this. 

We also found the section on Useful Resources to be very helpful. It's a one stop shop of the tools and hacks that can be used to automate work and business processes.

The value of automation is stressed throughout the book (you simply can’t build a large solopreneur business without using automation tools) and this section provides a list of the tools to make this happen.

The Million-Dollar One-Person Business is clearly aspirational. As the book points out, there were only about 36,000 single person businesses in the U.S. with a million or more in revenue in 2015. 

But this book is not just for those who want to reach $1 million in revenues.

Anyone who wants to build a high income solo business will find the information in this book extremely valuable. And a growing number of Americans are building high income solo businesses.

As the chart below shows, over 3 million American solopreneurs reported earning more than $100k in 2017. This is up from just a bit over 2 million in 2011. 

So if you plan on building a $1 million solo business, this is the book for you.

But it's also the book for you if your goal is simply to build a successful solopreneur business of any size. Especially if you want a business that "lets you work the way you want and have the life you want."

The Cities With the Most Self-Employed

A new report from the Stephen S. Fuller Institute at Virginia’s George Mason University shows that Miami has by far the most non-employer businesses per capita in the U.S. (click on chart to enlarge).

New York, not surprisingly, has the largest total number of non-employer businesses. 

Non-employer statistics are often used as a proxy for self-employment.

This is because a "non-employer businesses" is defined by the  U.S. Census Bureau as "one that has no paid employees, has annual business receipts of $1,000 or more ($1 or more in the construction industries), and is subject to federal income taxes."

In other words, non-employers only have an owner. The data comes from IRS tax files and includes full and part-time businesses. About about three-quarters of all U.S. businesses are non-employers. 

For a variety of reasons too wonky to go into here, the non-employer stats are an imperfect self-employment proxy (see the U.S. Census non-employer methodology description for more detail). But we consider this data to be a directionally correct measure of self-employment, both in terms of growth and overall size. 

You may ask how non-employer data differs from BLS self-employment data.

The quick answer is the non-employer data comes from IRS data, while self-employment data comes from the BLS's monthly current population survey. This means the two data sets aren't really comparable. See this article for more details. 

We started tracking the non-employer data back in 2006. It was the dataset that first alerted us to the growth of the gig economy. 

The Five Faces of the On-Demand Economy

Last week Intuit released The Five Faces of the On-Demand Economy, which covers 5 common profiles of on-demand workers.

This is a follow on report to their On-Demand Workforce report from several weeks ago, which covers the motivations, attitudes and demographics of those working via on-demand economy (ODE) work intermediation platforms such as Uber, Upwork, Fiverr, etc.

The Five Faces and their percentage share of all on-demand economy workers are:

• The Business Builders – Primarily driven by the desire to be their own boss, they represent 22 percent of on-demand workers.
• The Career Freelancers – Happily building a career through independent work; 20 percent.
• The Side Giggers – Seeking financial stability by supplementing existing income; 26 percent.
• The Passionistas – Looking for the flexibility to do something they love; 14 percent.
• The Substituters – Replacing a traditional job that is no longer available; 18 percent.

These profiles were developed using cluster analysis to group ODE workers who share similar motivations and attitudes. 

As Intuit VP Alex Chriss points out in his article The Future of Work Doesn't Look Like You Think it Does, these groups are not fixed. Key quote:

The data shows five different faces. But in meeting hundreds of our customers I have come to appreciate that these profiles are fluid and there are often several motivations that influence people’s decisions on how to own their own career.

This is an excellent point. These "faces" - much like the pirate's code - should be seen "more as guideline than actual rules".  

The reason these faces are important is they show how differently ODE workers view ODE work.

Satisfaction is a good example. As the chart below shows, most Substituters are not sastified with ODE work while the vast majority of Business Builders and Career Freelancers are.

See the report for more differences and details by segment.

Emergent Research worked with Intuit on this study.

Use of Contract Labor by Sole Proprietors Surging

The IRS recently released the 2013 data on sole proprietors. This data covers business receipts, deductions, and net income reported by individual taxpayers on Schedule C of Form 1040.

This is how most independent workers and small businesses report business income for tax purposes.

In 2013 there were a bit over 24 million sole proprietors reporting about $1.34 trillion in gross business receipts. In 2012 there were 23.5 million sole proprietors who reported $1.30 trillion in gross receipts. 

While looking through the data we were struck by the extent of the growth in the usage of contract labor - contingent workers such as freelancers, independent contractors, temps, etc. -   by sole proprietors. 

As the chart below shows, sole proprietor contract labor expenses increased 38% between 2010 and 2013. 

Over the same period salary and wage expense increased only 10.7%. In 2013 contract labor was 36% of total labor costs, up from 31% in 2010 and just 20% in 2003. 

The use of contract and contingent labor by businesses large and small continues to grow and we expect this trend to continue.

Major Shift in Thinking About Americans with Multiple Jobs

Fusion's There are probably way more people in the 'gig economy' than we realize covers a major shift in thinking about how many people in the U.S. have multiple jobs or "gigs".

The article quotes noted Harvard economist Larry Katz as saying:

... in preliminary interviews with “gig economy” workers, Katz said he and Krueger have confirmed that a majority of those who have regular, non-“gig” employment don’t answer that they have “multiple jobs” when asked the standard multiple-jobs question, “even in many cases where they have significant on-line and other non-traditional job income.”

“They do answer about their share, gig, and freelance economy activities when specifically asked about other specific ways they made income,” Katz said. “But many of them do not seem to consider such activities as ‘regular jobs.'”

Katz is working with Princeton economist and former Chairman of President Barack Obama’s Council of Economic Advisers, Alan Kruger, on a study of the gig economy. 

Regular readers know the gig economy industry has been aware of the problems with asking about "2nd jobs" for several years.

For example, we changed our surveys to ask about "other sources of income" instead of "other jobs" about 3 years ago. We did that based on our interviews with independent workers. This led to about a 4X increase in the number of survey respondents reporting multiple sources of income.  

Our post from last year - Moonlighting: Booming or Declining - covers this specific topic in more detail. 

The Fusion article also says Kruger and Katz point to tax and non-employer business data as additional evidence the gig economy is growing.

Again, this is something the gig economy industry has been pointing to for years.  We first wrote about this almost a decade ago (and we were by no means the first) and some of our first blog posts --way back in 2007 -- are on these topics.  

Don't get me wrong, I'm not criticizing academic research or these highly respected economists.

Academic research in the economics and business fields often confirms or disproves hypotheses established by people working in the field. This is done by thorough data collection and rigorous analysis, both of which require a lot of time - often years in the case of the data. 

The reason I consider this a major shift in thinking is that these are, at least as far as I know, the first well known academics to acknowledge the number of Americans with 2nd jobs is much larger than government statistics report.

Assuming Katz and Kruger's study confirms this, their findings will lead to others in academia, government and think tanks acknowledging that the gig economy is large and growing.

And that is a big deal.

What it Takes to Be a Successful Freelancer

Several good articles this week about what it takes to be a successful freelancer.

HBR's 7 Questions to Ask Yourself Before Going Freelance nicely synthesizes the key questions a person should ask themselves prior to becoming a freelancer. 

The article chart below lists the 7 questions. See the article for more details.

Want to Freelance? Eight Skills You Need to Succeed from the Christian Science Monitor covers some of the key skill sets a freelancer needs. The 8 skills listed in the article are:

1. Communications
2. Time Management
3. Negotiation
4. Organization
5. Scheduling
6. Self-Motivation
7. Boundary Setting
8. Self-Awareness

8 Freelancers on What They Love (and Hate) About Their Jobs from Business News Daily covers the pros and cons of being a freelancer. 

The information and advice is all three articles is consistent with our research on independent workers.

The Rise of the Highly Talented and Compensated Independent Worker

The Forbes article Six Figure Solo Businesses Grew by 45% in 5 Years, Study Finds reports on the growing number of U.S. independent workers who report earning more than $100k.

The key quote comes from Gene Zaino, CEO of MBO Partners:

“It’s a reflection of what’s happening in the traditional workforce,” Zaino says. “There’s segment of our workforce that is in high demand ... As these people realize they’re in high demand – if they see their consulting firm billing them out at four times what they are being paid – they become even more entrepreneurial because they see opportunity. More of the high-talent people are realizing they are able to go off on their own and make more money and they’re doing it.”

The data comes from the 5th annual MBO Partners State of Independence report. We work with MBO Partners on this study.

With Uber, Lyft and other 1099 economy companies getting so much attention these days, the focus of the media is on independent workers that have relatively low earnings. 

This data shows there's also a substantial number independent workers who are highly skilled and well compensated. In fact, there are many more independent workers making more than $100k (about 2.9 million) than currently working full-time in the on-demand economy (less than 700,000). 

The chart below shows the growth of this talented and well compensated group of independent workers.