Small Business Labs

Flurry of Articles on Micropreneurship

Micropreneurs - generally defined as people who work for themselves or run businesses with fewer than 5 employees - has been getting a lot press lately.  Articles include:

Why People Want to Be Micro-Entrepreneurs:  From Fast Company Co.Exist, this article covers a survey by micro-task site Fivvr on why people want to be micropreneurs.  The top reasons are job independence, frustration with the 9 to 5 grind and the money.  

The Rise of the Micro Entrepreneurship Economy:  Also from Fast Company Co.Exist, it discusses why people want to be micropreneurs from a qualitative and trends point of view.  

Here Comes the Corporate Brain Drain:  From Information Week, this covers the risk to corporate IT shops that they may lose a lot of their best performers to independent work.

Why Micropreneurship May Be the Key to Job Creation:  A Huffington Post article that interviews the CEO of Task Rabbit, a micro-job site.  

Can the Rise of Micropreneurs Force Companies to be More Humane:  Yet another Fast Company Co.Exist article (they really like this topic).  It argues companies are going to have to treat their employees better or lose them to independent work.  

Side-hustlin': From MTV's Scratch Gen Y marketing agency the article describes the side businesses that Gen Yers are building, alongside the regular work they do, to make more money, fulfill their dreams, or maximize their potential in ways that their 9-to-5 might not be able to.

My Mom is a Micro-Preneur: Very nice story on a 9 year old Bolivian Boy's perspective on his mother being a micro-preneur.  

We're in the process of crunching the data from the 2nd Annual MBO Partners State of Independence study survey.  This survey is designed to identify and profile micropreneurs (we call them independent workers).  

We will be reporting on our findings in the coming weeks.

Why are There More Non-Employer Small Businesses?

Scott Shane's post Should We Count Non-Employer Businesses? raises a number of interesting questions related to the fact that a growing share of U.S. small businesses don't have employees.  

He wonders whether or not these businesses should count as small businesses. He also closes his article by saying:

Patterns like these suggest that we need to understand why fewer and fewer American entrepreneurs are starting businesses with employees.

We've long studied non-employer businesses (we prefer to call them personal businesses).  Back in early 2007 we released a research report forecasting the continued growth of personal businesses.  

More recently we did a deep dive on independent workers (freelancers, independent consultants, etc.) - most of which qualify as non-employer businesses.  

Based on our research we think there are 3 broad types of personal businesses:

1.  Job substitutes:  These are freelancers and other independent workers who by choice or by necessity don't have traditional jobs but have created a personal business as a job substitute.  These folks tend to stay independent and tend to stay personal businesses (few hire traditional employees).

2.  Part-Time/Hobby businesses:  A lot of personal businesses are very small, part-time endeavors. They're generally driven by a personal passion or the need/desire to create income.  While some of these businesses expand into employer businesses (see Today's Hobbyists are Tomorrow's Hobbypreneurs), most don't.  

3.  True Small Businesses Without Traditional Employees:  A rapidly growing segment, these firms use technology, outsourcing, partnering and contingent workers instead of traditional employees.  These businesses often expand into employer businesses as they mature.  

So to get back to Scott's questions:

1.  Should non-employers count?  Personal businesses that are job substitutes or part-time/hobby businesses behave very differently than employer small businesses.  Because of this, in our corporate consulting work we strongly encourage our clients to treat the job substitute and part-time/hobby personal businesses as very different segments than employer small businesses.  

So in that sense, we agree with Scott that they shouldn't count as traditional small businesses.  

This doesn't mean these businesses aren't important - they are, both to the owner and the U.S. economy.  It just means they behave differently than employer small businesses.  

We also advise our clients to treat true small businesses without employees like the employer small business segment.  These firms behave much like employer businesses - and they often effectively have employees through their use of contingent workers.  So we think this group should be counted with employer small businesses.  

2.  Why are fewer Americans starting employer businesses?  The main reason, we think, is for many types of small businesses it no longer makes sense to have traditional employees, or at least have traditional employees early in a firm's life.  

Automation, outsourcing and contingent workers are cheaper and provide much greater business flexibility and agility.  Use of these resources also cuts upfront capital requirements and lowers business risk.  And not having traditional employees reduces the administrative and regulatory burdens of running a business.

We're seeing more and more industry segments become viable for personal businesses. Technology and the ability to access talent and business infrastructure on an as needed basis is enabling this trend.  Good examples of this include the growth of talent marketplaces like eLance and oDesk and the ability to contractually access world class business infrastructure through services like Amazon's AWS.  

Because of this, we continue to forecast a growing number of personal businesses.

Home is Where the Startup Is (For Now)

The Kaufman Foundation and LegalZoom have teamed up to produce a quarterly Startup Confidence Index. The goal of the index is to measure how much confidence startups have in their business and the economy.

Their most recent survey shows that 53% of startups are home-based.  This is consistent with other studies on both startups and small businesses.  For example, the Rise of the Homepreneur study from Network Solution and us showed that a bit over 50% of small businesses are home-based.  

Independent workers (freelancers, contractors, etc.) also tend to be home-based.  The MBO State of Independence study shows that 34% of all independents work primarily from home and the vast majority work from home part of the time.  The other major primary work location for independents is client sites.

This data comes as no surprise, but confirms that today home is where most startups and small businesses start and stay.

We do think this is starting to shift as more startups and small businesses discover the advantages of coworking and other shared workspaces.  But this shift is just starting and still years away from the mainstream.

The Contingent Workforce and Public Decision Making

The Contingent Workforce and Public Decision Making is an article in the Spring issue of Public Sector Digest.  It suggests rethinking a range of laws and policies including employment rules, zoning, K12 education and health care due to the shift to the contingent workforce.

Key quote on the rise of the contingent workforce:

"For the private sector, the rise of a sizable free-lance workforce will transform what we think of as the ‘office’. As Dana Shaw, a Senior Vice President for Staffing Industry Analysts, sees it, “Currently,the average mix of contingents in the Fortune 100 is 20-30 percent of the workforce, but it will evolve to 50 percent” by 2020."

The article goes on to suggest that governments at all levels need to respond to the rapidly growing number of contingent (freelancers, contractors, temps, etc.) workers with new policies and approaches.

This is an extremely important issue.  We were in DC last week and were again reminded that most public policy decision making is still based on serving the needs of the traditional triad of big business, unions and big government.  This approach simply no longer fits the new economy.

The article's author, Thomas Fisher, is the Dean of the College of Design at the University of Minnesota and he also writes for Huffington Post.  

Personal Branding Goes Mainstream

Celebrities, politicians and others have long built personal brands.  What is relatively new is the idea that anyone can and should build a personal brand. 

The chart below shows the rapid growth in the annual number of Google references for the search term "personal brand."  

 
Another indicator that personal branding has entered the mainstream is the Today Show's two day series on personal branding, featuring branding expert Martin Lindstrom (videos of the Today Show segments can be found down the page a bit). 

The Today Show is a lagging trend indicator - meaning Today Show producers are most interested in content with mass appeal, so they tend to feature things entering or already in the mainstream. 

Not surprisingly, the growth of personal branding coincides with the growth of social media.   While personal branding was possible prior to social media, it was much, much harder.

If you want to learn more about developing a personal brand, The Personal Branding blog is my favorite on this topic. 

For the second day in a row I'm building on a post from Franz Dill's insightful Eponymous Pickle blog, which is focused on the discovery and application of emerging technology. 

The Growing Customer Acceptance of Home-Based Businesses

One of the key trends driving the growth of home-based businesses is the increased willingness on the part of customers to buy from them.   This shift in attitudes has made it much easier for home businesses to be successful.   

The BusinessWeek article, The Rise of the Homepreneur, includes coverage of this trend.  Key quote:

"But just as important, there has been a change of consciousness in the business world to recognize home-based enterprises as legitimate."

Most trends - and especially attitude shifts - take a long time to enter the mainstream.  The growing acceptance of home businesses started many years ago.  The underlying, inter-related drivers of this trend include:

1.  The rise of telecommuting and mobile computing:  Telecommuting exposed many people to working from home.  This led to a broader understanding that real work can be done from a home office.

2.  The blending of work life with home life:  Similar to telecommuting, the blending of work and home life is now common for many and again shows that you don't have to be in a traditional office to get work done.   

3.  The interest in work/life balance:  Work/life balance has become an important issue for many.  Many see home businesses as a way to help achieve better balance.  Because of this, there is more acceptance of people who choose to work from home.

4.  The realization that home businesses can be cost efficient:  Many homepreneurs stress the cost efficiencies they gain by being home-based.  This allows them to be very price competitive, which is attractive to their customers. 

While tipping points are hard to discern or predict, we believe customer acceptance of home businesses has reached a tipping point.   With millions of home businesses in the U.S., we've reached the point where many Americans have worked with or know a homepreneur. 

For more on home businesses and homepreneurs, see our research report Homepreneurs - A Vital Economic Force.   

Amateurs are Becoming Professionals

John Tozzi's BusinessWeek article Cheap Photo Sites Pit Amateurs vs. Pros examines the impact of low cost digital images - often produced by amateurs - on professional photographers.

John points out that while affordable digital cameras and desktop design software have made it possible for amateur photographers to compete with the pros, photography is not the only industry where this type of competition is happening.  Key quote:

"In any industry where technology has enabled passionate amateurs to try their hands, businesses face new competitors who may not be motivated by profit." 

We consistently talk to small business owners who started their business due to a hobby or passion.  Often these businesses start part-time, but grow into full time personal or small businesses. 

New, lower cost technology - like digital cameras - and Internet-based marketing are the primary drivers of this hobby to business trend.  The low cost of starting and operating a home-based business is another driver.

Over the last 2 years (2007 and 2008) the number of U.S. personal businesses (single person businesses without employees) increased by more than 2 million.  Many of these new personal businesses are part-time and/or hobby businesses.  Because of new technology and the Internet, part-timers can now compete with professionals.  Amateurs and hobbyists can also more easily evolve into professionals - often taking advantage of the low costs associated with personal businesses to effectively compete on price with larger, existing firms.

We expect the trends towards hobbies and passions leading to small businesses - and more amateurs becoming professionals -  to gain momentum over the next few years. 

We are finishing up a research brief on how the new Do It Yourself (DIY) movement is resulting in hobbyists and amateurs starting small businesses.  We will cover this issue and related trends in more depth in this soon to be released research brief.

Number of U.S. Personal Businesses Grew by Almost 1 Million in 2007

According to new data released by the U.S. Census, the number of personal businesses - whicy are single person businesses with no employees - increased by close to 1 million in 2007 reaching 21.7 million.  This is an increase of 4.5% over 20.8 million personal businesses recorded in 2006.

This increases the total number of U.S. small businesses (defined as less than 500 employees) to roughly 28 million. 

Personal business total receipts (roughly equivalent to revenue) grew 2.2% to $992 billion.  This means personal businesses generated about 7.5% of America's economic activity in 2007.  The average personal business had about $46,000 in receipts in 2007.   

The personal business category includes freelancers, independent contractors and other forms of self-employment.  The Census derives this data from tax returns.  This number includes full time and part-time personal businesses.  The Census calls this group "nonemployer businessess." 

The number of personal businesses has been growing steadily since the late 90's when the Census first started collecting this data. 

We are forecasting that this growth will continue over the next few years due to lower personal business start-up costs, lower relative risk associated with starting a personal business and the economic downturn reducing traditional employment options.

Longer term we see multiple structural shifts driving the growth of personal businesses.  We cover this in more detail in our Changing Faces of Entrepreneurship research report and in our personal business and self-employed blog categories. 

Recession Drives New Businesses

Three good articles last week on the economic downturn resulting in displaced workers starting businesses and freelancing.   

In Hard Times, Freelancers Turn to the Web, NY Times reporter Dan Fost discusses layoffs leading to a growing number of freelance workers and the various freelance marketplaces they turn to for business.  The article covers Elance, oDesk and several vertical industry sites that connect freelancers and independent workers with companies looking to hire contractors. 

Weary of Looking for Work, Some Create Their Own, also from the NY Times, talks about a surge of interest in entrepreneurship due to the economic downturn. 

And over at BusinessWeek, John Tozzi's After Layoffs, Starting a Business From Scratch reports on laid off workers starting small businesses. 

The BusinessWeek article also has a great slide show with 29 examples of displaced workers - referred to as "rebounders" - who have started a new business. 

We've posted in the past on recession leading to higher rates of small business formation. 

Self-Employment and Nonemployer Businesses

Self-employment week continues with a look at the differences between government definitions of self-employment and nonemployer businesses.  And yes, it doesn't get much more exciting than this:).

Let's start with nonemployer businesses (we call them Personal Businesses).  According to the U.S. Census Bureau:

"A nonemployer business is 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. Most nonemployers are self-employed individuals operating very small unincorporated businesses, which may or may not be the owner’s principal source of income."

The data comes mostly from tax returns filed with the IRS.  So as long as we aren't looking at cabinet nominees or those buying and selling senate seats, it is probably pretty accurate.

According to the Census, there were roughly 21 million nonemployer businesses in U.S. in 2007, up from 20.8 million in 2006.  We've posted a lot in the past on personal businesses and covered them in detail in our Changing Faces of Entrepreneurship research report. 

Self-employment data comes from the Current Population Survey (CPS), which is a monthly survey of about 50,000 U.S. households.  The CPS has been around over 50 years and is the primary source of information on the U.S. labor force.  The widely followed monthly unemployment rate, for example, is derived from CPS data.

According to the CPS, about 16 million people were self-employed in 2007.  This is total self-employment and includes unincorporated, incorporated and agricultural self-employed.  Alert readers of the prior two posts in this series will immediately recognize why we need this qualifier.

So in 2007 the U.S. had 21 million personal (nonemployer) businesses and 16 million self-employed.

Because the data collection methods are so different, one should not try to draw a lot of conclusions from the combination of the two datasets.