Small Business Labs

The K-Shaped - and Swoosh-Shaped - Recovery

There's much talk these days about a K-shaped recovery. This is a recovery where professionals and those with higher wealth and income are hurt less by the recession and recover more quickly than moderate and low-income Americans.

The K-shape is driven, in part, because industries that employ high percentages of low and moderate wage jobs are not recovering as quickly as other industries.

The chart below is from the U.S. Chamber of Commerce article The K-Shaped Recovery and the Cost of Inaction.  Key quote:

"Long gone is the notion that we’ll have a V-Shaped Recovery—a deep economic decline followed quickly by a sharp rebound. Instead, what we’re looking at is a recovery that will be vigorous for some sectors while others remain in freefall."

The Chamber article illustrates this by pointing out that "the financial services sector, for example, has already recovered 94% of its pre-pandemic employment. Leisure and entertainment, on the other hand, has only brought back 74% of the workforce."

Another factor is remote work. A much higher share of high wage jobs can be done remotely than low wage jobs. This has resulted in much higher levels of unemployment among low wage workers.

Cutting the data by income reinforces the idea of a K-shaped recession.

According to an NPR survey and covered in their article Nearly Half Of U.S. Households Face A Financial Crisis 54% of those with household incomes below $100,000 reported serious financial problems due to the pandemic, compared with only 20% of those with incomes above that threshold.

And, of course, the stock market's recovery heavily favors the wealthier.  The top 1% of Americans in terms of wealth own over half of all stocks and mutual funds and the top 10% own about 87%. 

That doesn't leave a lot for the other 90%.

Recessions have always increased economic inequality and hurt the wealthy less than those with low and moderate-incomes.  

But this one seems particularly hard on the low to moderate-income group.  

In terms of the recovery's shape, we think it will be both a swoosh and K-shaped.  One reason it will be both is the k-shaped jobs and industry recovery will keep the overall economy from fully recovering quickly. 

We think the economy will get to 90%-95% of pre-pandemic levels by the end of the year, but the last %%-10% - which are big percentages in terms of the economy - will take much longer. 

Unfortunately for the small business sector, it over indexes in industries that are not recovering quickly.  This is one reason we continue to forecast that a large number of small businesses will close this year.  

Braintrust - a Coop Online Freelance Talent Marketplace

Braintrust is a new entrant in the online talent marketplace space, but with a twist. 

Instead of being owned by investors and founders, Braintrust is a non-profit and the founders say it will be user-controlled by their talent.  

In other words, Braintrust is a coop, which is a business owned and controlled by the freelancers that they serve. 

Braintrust focuses on high-end IT projects and works with an impressive list of large corporations.  According to the company, their clients include Deloitte, Nestle, Netflix, Nike, Four Seasons, and Task Rabbit, NASA, Porsche, PWC, and Pacific Life. 

They also (naturally) have a blockchain and cyber token angle. 

Freelancers using the site will be issued tokens in exchange for working on the site or bringing new talent or clients to the site.  These tokens equate to voting rights on Braintrust's corporate actions and decisions.  This is how power will be distributed to the workers.  

Braintrust argues that by being a coop, their freelancers will earn more and have better control over their work than they would using a traditional for-profit marketplace.  

Establishing a coop online talent marketplace is not a new idea.  In 2014- 2015 the concept of "platform cooperatisim" was widely discussed in sharing economy circles.  

Shareable's 2016 story How Platform Coops Can Beat Death Stars Like Uber to Create a Real Sharing Economy nicely covered the topic.

It pointed out at that time a number of online talent marketplace coops existed.   These included New Zealand's Ensprial, a cooperatively owned and operated freelancer network, and Loconomics, a now-defunct (at least in the U.S.) coop version of Task Rabbit.

And, like Braintrust, the article argued that coops would provide workers with more income and control.  But 4 years later, coops haven't made a dent in the online talent marketplace industry.

But many great ideas and business concepts fail a couple of times before succeeding.  Maybe the same thing will be true with coop online labor platforms.

We hope so. Alternatives are always good, especially ones that are worker-friendly.

For those who want to learn more, Harvard Business School's Future of Work project has an excellent podcast interview with the founders of Braintrust.

The Census Bureau's Small Business Pulse Survey is Back and Shows the Pandemic is Still Taking A Toll on SMBs

The U.S. Census started a COVID-19 impact survey back in April to measure how the pandemic was impacting small businesses.  The weekly surveys ran until the end of June.

Unfortunately, the pandemic wasn't over by then.  But after skipping 6 weeks, they're back with what they are calling phase 2 of the surveys.

Things haven't improved much over the 6-week layoff according to the small businesses surveyed - 34% of the respondents said the pandemic has had a large negative effect on their business and 45% said it a moderate negative effect.  Only 6% said it had a positive effect.

More interesting, 11% said in the week prior to the survey they had decreased the number of employees at their firm and only 7% said the number of employees had increased.   

The combination of only 7% saying they increased employment coupled with 11% saying it decreased shows the economy is still struggling. 

The Census added a new question in phase 2 asking whether or not small businesses had increased their use of online platforms and marketplaces since the beginning of the pandemic.

As the Census chart below (click to enlarge) shows, only 25% of the SMBs surveyed said they increased their use of online platforms, while 35% said they had not increased their use. 45% said they didn't use online platforms in their business.  

This surprised us a bit.  Other surveys have shown a greater share of SMBs increasing their use of online platforms.  Since it's only one week's worth of data, we'll continue watching this to see if these numbers change.

The pulse survey is well worth following.  The Census even provides some simply analysis and visualization tools so you can play with data and/or track it over time.

The 2nd phase of this survey will run through October 15th.  We suspect, unfortunately, that there will be a third phase. 

MIT Economists on the Impact of COVID-19 on Labor Markets

The Hamilton Project essay The Nature of Work after the COVID Crisis: Too Few Low-Wage Jobs is authored by MIT economists David Autor and Elisabeth Reynolds. 

The essay covers four shifts being accelerated by the COVID-19 pandemic and their impact on labor markets. 

And, according to the authors, all four potentially have significant, negative consequences for low wage workers, economic inequality and overall employment. 

The four are:

1.  Telepresence: The essay points out that the shift to remote and telepresence is " is so self-evident that it might escape notice." But if there is a substantial reduction in the number of people working in offices and/or traveling to meet in offices, there will be much less need for the workers who feed, transport, clothe, entertain, and shelter people when they are not in their homes.

2.  Urban De-Densification: While stressing that "the death of cities have been greatly exaggerated over many decades," changes caused by COVID-19 will likely lead to a reversal in the growth of large urban centers due to people moving to the suburbs as well as smaller towns.  This, too, will result in less need for many workers who support those living in urban areas.

3.  Employment Concentration in Large Firms: Because of their stronger balance sheets and ability to raise capital, large firms tend to do better in economic downturns than smaller firms.  As we've pointed out, this recession is hitting small firms hard and many will likely permanently close this year.  

4.  Automation Forcing: Due to social distancing requirements and labor lock-outs, firms are quickly adopting automation technology (such as delivery drones) to keep their businesses running. This will likely result in leaner staffing in retail stores, restaurants, factories, and other places where companies have invested in labor-saving automation systems.

The authors suggest these four shifts will reduce the demand for low wage work, which will increase income inequality and long-term unemployment while also reducing economic growth.

Not good.

The essay ends on a positive note explaining that policy interventions at the federal, state and local levels could limit the negative impacts. 

NPR's economics show The Indicator has an excellent segment on the essay.  Also, see the essay for specifics on the policies they believe will be needed.

It's Looking Like a "Swoosh" Shaped Recovery for the U.S.

It's looking much less likely the U.S. will experience a sharp, V-shaped recovery. Instead, a growing amount of data is indicating a slower, "swoosh" shaped recovery is likely.

The swoosh refers to the shape of Nike's logo and indicates a recession that starts with a steep decline and is followed by a gradual recovery.

According to the Wall Street Journal's Economic Forecasting Survey, 70% of economists think the recovery will be swoosh shaped.

The reason is the continued outbreaks of COVID-19, which is leading to less economic activity.

The Opportunity Insights chart below (click to enlarge) shows an estimate of the percent change of total U.S. consumer spending.  

You can easily recognize the famous Nike swoosh in the chart.

You can also easily see that consumer spending stalled in mid-June and is running at about 6.4% below pre-COVID levels.  While much better than earlier this year, this is in a range that indicates we're still in a deep recession.  

Other data also supports a swoosh shaped recovery.  

The chart below is from Oxford Economic's U.S. recovery tracker.  The tracker looks at 6 economic sectors to develop an overall economic score.  

It again illustrates the swoosh.  But more ominously it also shows the U.S. economy has declined a bit over the past month.  Key quote:

"The foundations to this recovery are cracking under the weight of a mismanaged health crisis. Our Recovery Tracker fell for the third time in five weeks in the week ended July 10. The health index declined for the fourth consecutive week; demand fell for the second consecutive week, its largest decline in four months; and employment was unchanged."

Other data also points to a slower recovery, especially unemployment claims which have averaged well over 1 million a week over the past 4 weeks and rose last week over the prior couple of weeks. 

The resurgence of  COVID-19 likely means a full economy recovery won't happen until a vaccine is available and - and this is a big and - widely distributed.  This combination will likely not happen until at least Q2 of next year, and it could easily take longer.  

We, of course, hope the economy recovers quickly. But businesses of all kinds need to be prepared for the recession lasting well into next year.

Online Mental Health Marketplaces Democratizing Therapy

The COVID-19 pandemic has led to a substantial increase in mental issues.  According to a Kaiser Family Foundation study:

"Over half of U.S. adults (56%) report that worry or stress related to the coronavirus outbreak has caused them to experience at least one negative effect on their mental health and wellbeing, such as problems with sleeping or eating, increased alcohol use, or worsening chronic conditions."

Several online marketplaces are trying to make it easier and cheaper for people looking for a therapist to find one. These firms match therapists with patients and provide billing and telemedicine solutions for mental health practitioners.

Frame, for example, is a new startup based in Los Angeles. 

They use answers to an online patient questionnaire to match potential patients with therapists.  

Denver based Sondermind also matches patients with therapists. 

As an added service they check to see if the patient's insurance covers all or part of therapy costs.   

They recently raised $27 million in venture funding.

Both firms are attacking two big problems customers face when shopping for a mental health provider. 

The first is finding a provider who is a good fit.  This is the common matching problem faced by all online talent marketplaces. 

Both Frame and Sondermind do this by asking patients to fill out questionnaires and based on the answers provide multiple therapist alternatives.  

Key quote from the founder of Frame in Yahoo Finance's article This startup works like a dating site for therapy:

“We facilitate free intro calls,” she said. “Our users typically call two to three therapists ... You get to talk it out and make sure it's the right fit for you so that you feel comfortable. And then you can make your decision.”

The second problem is cost.  Therapy is expensive.  Both firms offer telehealth solutions, which cuts down on the cost.  And as mentioned above, Sondermind also helps patients access and use insurance if possible (a feature Frame will no doubt also have at some point).  

By making it easier to find and connect with mental health professionals - and by reducing patients costs - both firms are trying to allow more people the ability to access mental health professionals.  This is part of the broader democratization of services trend we've long covered.  

At this point, there are few - if any -  professions that don't have specialized online talent marketplaces connecting service providers with customers.  Lawyers, doctors, dentists, wealth managers, mental health providers of all kinds, engineers of all kinds, etc., etc., etc. all have industry specific online marketplaces.  

There's still much work to be done before the use of most of these marketplaces is mainstream.  Matching, for example, continues to be an issue. 

But it's clear the use of online talent marketplaces is rapidly moving to the mainstream. 

Zagat's Future of Dining Study

Zagat, the restaurant review site favored by foodies, recently released a Future of Dining Study. 

The study looks at the impact of COVID-19 on the eating habits of consumers and how they may evolve post-COVID.  

Zagat's report chart below (click to enlarge) shows that consumers plan to return to dining out post-COVID, but at a lower rate than pre-COVID.

These results are not surprising. Nor are the reasons. 

Simply put, diners miss the experience of dining out - and especially the social side of dining out.

And as the chart below shows, they also miss their favorite places.

But while consumers want to return to restaurants, they've also learned some new behaviors thanks to the shutdowns.  More people are cooking at home - and most are saying they plan on cooking more after the pandemic ends than they did before the shutdowns. 

Food delivery has also accelerated. And again, most say they plan on continuing using food delivery services at higher rates when the pandemic is over than prior to the pandemic.   

Restaurants are, obviously, one of the most COVID impacted industries.  Because of this, they are interesting to watch and learn from.  

Thrasio's "Platform on a Platform" Rolling Up Fulfillment by Amazon Small Businesses

Thrasio is a large and fast-growing acquirer of small consumer product companies that are part of Amazon's Fulfillment by Amazon program (FBA).  They recently raised $260 million in a funding round that values the company at $1 billion.  

Thrasio's business model is fairly straight forward.  They find and buy category-leading consumer product small businesses that operate on Amazon's platform. 

Key quote from Crunchbase's article on Thrasio's recent funding:

"... the company has acquired nearly 60 Amazon businesses, including 17 in the last quarter. In addition, more than $300 million in pro forma revenue and 6,000 products, makes Thrasio one of the top 25 sellers on Amazon ..."

After acquiring the firms, they integrate them into their systems and marketing programs.  This makes the individual firms more efficient and provides Thrasio with economies of scale. 

One of the things we find most interesting about Thrasio is they are building a platform business on top of Amazon's FBA platform.  This "platform on a platform" business model is not rare, but still somewhat unusual.  And even more unusual is Thrasio's size and ambitions. 

Most platform on a platform companies are relatively small. Thrasio is looking to be a very large firm and has the financial backing to do so.  

Thrasio's success will likely lead to others following its roll-up approach.  These new entrants will add layers of business complexity for anyone operating on or running a business platform or ecosystem.  

Thrasio itself, of course, has to dance with an elephant (Amazon) without getting crushed. But small businesses in the FBA program now have to contend with both Amazon and Thrasio - as well as potentially a number of Thrasio imitators.  

In our Top 10 Small Business Trends of 2017 we wrote:

Platforms have become so important that small businesses need a platform strategy. For most this will consist of identifying the best platforms to participate in and the right ecosystem roles to play. These decisions will increasingly play a key role in small business success.

This has become even more true today.  

Census Household Pulse Survey Data Shows Self-Employment Recovering

According to the U.S. Census Pulse Survey of Households. over the 10 weeks the surveys have been conducted (they started the end of April) the number of self-employed Americans has increased from 13.5 million to 15.2 million.  

This is an increase of 12.7%. 

During this period, the number of traditional jobs increased by only 1.2%. 

The pulse surveys are short, weekly surveys designed to track how households are doing during the pandemic.   

It's important to note that the Census started these surveys after the first wave of pandemic related layoffs, which is why the overall numbers are slightly higher over the 10 weeks.

Had they started these surveys before the pandemic, the most recent traditional employment numbers would be about 12.5% lower than when the pandemic started.

But the most recent self-employment numbers would only be about 4% lower.  

What's interesting about this data is during prior recessions self-employment fell faster and deeper - and recovered more slowly - than traditional employment.

This time it may be that self-employment is declining less than traditional employment and recovering more quickly. 

It's still way too early to draw any conclusions from this data.  And even if this is happening, it will take more research to understand why.  

But it's at least a potential bit of good news at a time when good news is hard to come by.

U.S. Census Pulse Survey Shows Small Businesses Still Struggling

The U.S. Census Small Business Pulse Survey for the week of June 14th to June 20th shows small businesses continue to struggle.  

43% of the small businesses surveyed reported a decrease in revenue from the prior week while only 21% reported an increase. Also, 11% reported decreases in their number of employees while 10% reported increasing employment.

This despite many states ending their lockdowns and opening up their economies.

And the outlook for the future remains cloudy.  As the chart below (click to enlarge) from the Economic Innovation Group's analysis of the survey data shows, the percentage of small businesses expecting the return to normal operations to take longer than six months increased by 3 points over the prior week, reaching a near high of 41%.

Our guess is the data will turn down again next week due to the rising number of COVID-19 cases across the country.

For more on the pulse survey, see the Economic Innovation Group's Taking the Pulse of America's Small Business Sector: June 26th.  It does an excellent job of covering the survey, so we see no need to do so ourselves.