Small Business Labs

Deloitte on the Canadian Gig Economy

Deloitte's The Gig Economy is Here to Stay provides an overview of the Canadian gig economy.  

The chart below (click to enlarge) contains the key data: about one in three Canadian workers use the gig economy to generate income.

This is similar to the workforce share of gig economy workers in other developed economies.  

Deloitte provides four broad trends driving participation in the gig economy. These are:

1. Older workers are delaying their retirement.
2. Younger workers (Gen Z and Millennials) are seeking more flexible work arrangements.
3. Worker perceptions around long-term employment are changing.
4. More people are looking to supplement their income with alternative work.

We certainly agree that these trends are helping to drive the growth of independent work and the gig economy.

See Deloitte's report for more information on the Canadian gig economy.

The Number of U.S. Independent Workers Continued to Surge in 2022

MBO Partners released the 2022 edition of their ongoing State of Independence study series. Emergent Research (that's us) works with MBO Partners on this study.

The key finding is that the number of independent workers (freelancers, gig workers, independent contractors, etc.) reached 64.6 million, up 26% over 2021's 51.1 million.

As the study chart below shows (click to enlarge), the number of U.S. independent workers is up 57% since before the pandemic. This is despite a pandemic-induced decline in 2021.

What is also quite noticeable in this chart is that the total number of independent workers grew relatively slowly between 2015 and 2019.

This raises the question, has the pandemic - and the related shift to remote work - resulted in a growth inflection point for independent work?

We believe the answer to that question is yes. And there are both supply and demand reasons why.

On the supply side, workers are seeking to take greater control of their destiny, exercise a sense of agency, and build strong connections between their work and personal purpose.

On all these fronts, working as an independent - either part or full-time - can be a path to empowerment and self-realization. And more Americans are choosing this path.

On the demand side, firms of all sizes are increasing their use of independent talent to access specialized skills and improve business flexibility and agility.

But while we think we've reached an inflection point, independent worker growth will likely not continue at the torrid pace of the past two years.

We're forecasting that the growth rate will slow to 5%-7% next year. This is still quite fast by labor market standards.

We'll be covering other key findings in the coming weeks.

See the study microsite for more information. And click here to download the 2022 MBO Partners State of Independence report.

Why Being Anti-Fragile is Important for an Entrepreneurial Mindset

MIT Management's 3 traits of an entrepreneurial mindset covers the key traits that define an entrepreneurial mindset, no matter the environment.

Key quote on an entrepreneurial mindset:

An entrepreneurial mindset helps leaders create value by "recognizing and acting on opportunities, making decisions with limited information, and remaining adaptable and resilient in conditions that are uncertain and complex," said Rowena Barrett, pro-vice-chancellor for entrepreneurship at the Queensland University of Technology.

The three traits are:

1. Solutions-oriented
2. Adaptable
3. Anti-fragile

We liked their description of anti-fragile, which is spelled out in the chart below (click to enlarge).

We've studied and worked with start-up founders, small business owners, and other types of entrepreneurs for over 20 years.  

And what we've learned is that the one trait that almost all of them have is being anti-fragile.  

Another Strong Month for New Business Applications

The October Business Formation Statistics were released by the U.S. Census last week.

And as the Census chart below shows (click to enlarge), there were 432,934 new business tax I.D. applications in October.  

Business applications took off in Q3 of 2020, and in 2022 they've run at a rate about 43% higher than pre-pandemic.

Retail trade, which includes ecommerce firms, and professional services, continue to be the top two applications categories.

Also continuing is the shift to solopreneur business applications instead of employer business applications. 

We're going repeat ourselves and point out that new business applications ARE NOT the same as new business startups.

Research by the U.S. Census and similar research by our firm indicates that about 18% - 22% of applications result in new businesses. So if you read that 432,000 small businesses were started in October, it's not correct.  

But by historical standards, 20% of 423,000 is still a lot of new businesses.  

McKinsey finds 36% of Employed Americans are Independent Workers

McKinsey's Freelance, side hustles, and gigs: Many more Americans have become independent workers, covers the results from their American Opportunity study.

And this study found that independent work is booming. Key quote:

"... a remarkable 36 percent of employed respondents—equivalent to 58 million Americans when extrapolated from the representative sample—identify as independent workers. This figure represents a notable increase since we estimated the US independent workforce in 2016 at 27 percent of the employed population."

The study asks survey respondents to self-identify as independent workers. Those answering yes to either, or both, of these questions are considered to be independent:

• "Is your current job as a contract, freelance, or temporary worker?" 
• "Would you consider yourself a gig worker or part of the gig economy?"

The article covers a range of data from the study, but the data on how workers view economic opportunity jumped out at us (click to enlarge the chart below). Key quote:

"Given the broad range of reasons why people work independently, it's surprising how united this group is in one distinct characteristic: they are among the most optimistic workers in the country."

Striking out on one's own requires a certain amount of optimism.  So it's not surprising to us that independent workers, on average, are more optimistic about their economic opportunities than workers overall.  

See the article for more details.

New Business Applications Continue at Historically High Levels

The number of new business applications in July was 425,698, which is another strong month.

Although down from their all-time high in 2020, applications in 2022 have averaged about 420,000 per month. This is about 40% higher than before the pandemic.

The business application data comes from IRS Employment Identification Numbers (EIN) applications. EINs are the tax id number that identifies a business for tax purposes.

Most applications (about 70%) are from firms the Census calls "applications other than high propensity" (grey in the chart; click to enlarge).

These are applications from businesses that are unlikely to have employees, such as freelancers, independent contractors, and other types of solopreneurs.

"High propensity applications" (yellow in the chart) is Census speak for firms they think are likely to hire traditional employees.

As the above chart illustrates, the share of solopreneur applications has steadily increased over the past decade.

Retail continues to be the industry with the most applications. This has been the case since the surge of applications started in 2020. Professional services is second, consistent with its position since the pandemic began.

As we pointed out earlier this year, only about 20% of applications for tax I.D.s result in a new business starting.

But the continuing high levels of business applications means a corresponding surge in new employer small businesses and solopreneurs.

The Inflation Reduction Act and the Growth of Microgrids and Virtual Power Plants

The Inflation Reduction Act, which was just signed into law, has a variety of tax credits and incentives to encourage homeowners and businesses to install green energy systems.  

One of the biggest incentives is for solar power systems. The bill extends a current tax credit for ten more years and raises the tax credit to 30% of the system's cost.  

The law's various credits and incentives will lead to broader deployment of microgrids.

These are localized power generation grids that can disconnect from the traditional grid and operate autonomously.

They can also feed power back to the traditional grid.

The growth of microgrids is allowing the development of virtual power plants.  

Virtual power plant (VPP) consists of distributed microgrids that are used in concert to provide power plant levels of electricity to the grid.

An example is Tesla's virtual power plant agreements with California's two largest utilities.  

Under this agreement, Tesla connects Tesla Powerwalls (a battery storage device fed by solar panels) to the grid and supplies power during peak power usage. Tesla's Powerwall customers are paid $2 per kilowatt hour for contributing energy to the VPP.

Generac, which also provides solar systems with battery storage to homeowners and businesses, has a similar arrangement with Arizona's largest utility.

Given the advantages of distributed solar microgrid systems - cleaner energy, lower costs, resilience to outages - we expect the deployment and use of microgrids and VPPs to grow rapidly.

And as we pointed out in our article The Clean Energy Economy = Small Business Opportunities, the distributed nature of microgrids means numerous opportunities for small businesses.  

BCG on Tapping Into Fluid Talent

The global "Big Three" strategy consulting firm BCG recently released Tapping Into Fluid Talent. It covers their view that companies need to turn to new and diverse talent sources - including various forms of nonemployee labor.

The BCG chart below (click to enlarge) shows the alternative talent sources BGC suggests companies tap.

As with a recent MIT-Deloitte study, the BCG report suggests that companies need to develop new work processes, procedures, and management systems to support the shift to fluid talent. Key quote from the BCG report:

"Support fluid talent with a new operating model. Companies that have experimented with fluid talent understand the need to adapt legal and procurement frameworks, rewire HR processes like performance management, build cross-functional project teams, and invest in change management. But to really unlock value from fluid talent, companies also need to rethink their ways of working and how they deploy and onboard talent."

This study again shows that the debate around whether or not nonemployee labor is an important and growing source of corporate talent is over. 

The focus now is on how to effectively build and manage workforces combining traditional employees and external talent.

This means greater of use of what BCG calls fluid talent.  

BTW, we already have too many buzzwords describing the various types of talent businesses employ.  So we hope "fluid talent" doesn't catch on.  

New Business Applications Continue to Surge

So far this year, new business applications - which are applications for a federal tax I.D. and tracked by the U.S. Census - continue to be at historically high levels.

Business applications have averaged about 420,000 per month through April in 2022 (click on the Census chart below to enlarge).

Although this is down from their all-time high in 2020, applications are still 40% higher than before the recession.

Most applications (about 70%) are from firms the Census calls "applications other than high propensity" (grey in the chart).

These are applications from businesses that are unlikely to have employees, such as freelancers, independent contractors, and other types of solopreneurs.

"High propensity applications" (yellow in the char) is Census speak for firms they think are likely to hire traditional employees.

As the chart illustrates, the share of solopreneur applications has steadily increased over the past decade.

Retail continues to be the industry with the most applications. This has been the case since the surge of applications started in 2020. Professional services comes in second, consistent with its position since the pandemic began.

As we pointed out earlier this year, only about 20% of applications for tax I.D.s result in a new business starting.

But the continuing surge in business applications means a corresponding surge in new employer small businesses, and solopreneurs.

We expect to see business applications continue to decline over the next year. Reversion to the mean is common after a major economic shock.

But we also expect new business applications and new business formation to continue to be higher than before the pandemic.

What is the Ownership Economy?

The VC firm Variant recently released The Ownership Economy - A primer on the state of Web3.  

Variant defines the ownership economy as:

"... the products and services that will define web3—and the next generation of the Internet—are those that transform users into owners. We call this the ownership economy."

The essay points to crypto tokens (also called social tokens) as the main method of transforming users into owners.

Crypto tokens are a form of cryptocurrency. Because of this, they have many features that make them a better choice than traditional equity for sharing ownership. Key quote from the essay:

"Tokens have a richer and more frictionless design space. They can be distributed programmatically, with the potential to reward participants versus those who buy-in; they are effectively free to deploy, and they can transfer value in the same way we transfer information—instantly, to anyone, anywhere in the world."

So, in theory, anyone who uses a digital product or service could buy, or be given, crypto tokens that provide ownership in the product or service - or at least some form of participation in the value created by the product or service.  

We've covered several examples of how this works in prior articles:

1. What are Social Tokens (also called Creator Coins) and Why You Should Care covers how creators use tokens to engage, build, reward, and monetize a community of fans and customers - and provide a way for the fans to benefit from being a fan financially.  
2. The Rise of Crypto Clubs covers how tokens are being used to create new member-owned social and business organizations. And because the members are also owners, they benefit financially if the organization has financial success.

The hope of the ownership economy - and Web 3.0 - is that the financial rewards generated by the Internet will become much more decentralized and democratized.  

In more simple terms, instead of VCs and company founders becoming billionaires while users get nothing, the wealth created by goods and services will be broadly shared with users.

This is hardly the first-time technology democratization claims like this have been made. So far, these claims have failed to materialize.

And although the four words most wrong in forecasting are "this time is different," this time could be different.

The essay's primary focus is to educate startups and founders on potential ownership economy opportunities.

The essay chart below (click to enlarge) shows the wide range of firms currently working in this area.

Many terms in addition to "the ownership economy" are used to describe how technology is empowering new ways for people to become entrepreneurs or solopreneurs.

These include the passion economy, the creator economy, the empowerment economy, the freelance economy, and - of course - the gig economy.  

But no matter what you call it, it's clear technology is creating more opportunities for people to become self-employed and owners.