Small Business Labs

Small Business in the Age of AI

Intuit released a new study, Small Business in the Age of A.I., which found small businesses are bullish on automation technology and are already leveraging it to manage and grow their businesses.

A key study finding is despite all the noise about A.I. and other forms of automation technology disrupting industries and destroying jobs, most small businesses see automation technology as creating opportunities for both their businesses and employees.

As the study chart below shows (click to enlarge), very few (only about 6%) of the SMB's surveyed see automation technology, including A.I., as a threat to their business today or in the next 5 years.

Other findings include:

• Very few small businesses think that automation technology will lead to job losses. In fact, 31% say automation will allow them to add employees, while 59% say there will be no difference, and only 1% say there will be significant job loses.
• Small businesses are adopting the leading edge of automation technology. The top categories are big data (24%), natural language processing (17%), and machine learning (12%).
• Despite positive attitudes toward automation, a significant number of small business are not set up to take advantage of it. Almost 1 in 5 small business are not using the cloud to run their business, a necessary first step to taking advantage of the benefits of most automation software and systems
• The top three benefits existing users of automation technology see are: freeing up time to get more work done (79%), helping with customer service (77%), boosting innovation (74%).

Intuit partnered with Emergent Research (that's us) on this study, which is part of a deeper dive research project on how automation technologies are impacting small businesses.

We'll have more from this study in the near future.

Most Small Business Owners Positive About Automation Technology (Including its Impact on Employment)

Despite all the noise about an automation and A.I. driven jobless future, small business owners are mostly positive about automation technology.

They're even positive about how automation technology will impact their firm's staffing levels.

Intuit and Emergent Research (that's us) recently conducted a survey asking small business owners their views on the impact automation technology will have on their business over the next 5 years.

90% of SMB owners said automation technology will result in their firm either increasing (31%) or maintaining (59%) their staffing levels.

Only 10% of SMB owners surveyed said automation technology would lead them to reduce staff. And only 1% said they expect it to lead them to reduce staff significantly.

As the chart below shows, most SMB owners also see automation technology as having a positive impact on their business. Few see it having a negative impact.

Most small business owners also think automation technology will improve their lives. 

This survey, which is part of a broader deep dive on how automation technology is impacting small businesses, only asked the respondents to look out 5 years. 

But based on interviews, the answers would have been the same if we asked the respondents to look out a decade or more. 

This doesn't mean automation technology and/or A.I. won't in the long run have a negative impact on overall employment.

But it does indicate the fears of automation replacing a large share of jobs over the next decade are likely overblown.

Samaschool's "The Future of Work is Independent" Report Series

Samaschool is a nonprofit focused on preparing low to moderate income job seekers to succeed as independent workers. Their flagship program is an 8 hour course on how to succeed as a freelancer. 

They've recently released the first two of a three part series of white papers called The Future of Work is Independent. 

The first report, A Primer on Independent Work, provides an excellent overview of the gig economy and independent work, including a comprehensive review of recent gig economy studies. It's well worth reading for anyone interested in understanding the confusing world of gig economy data.

The second report, How Low Income Job Seekers Use Independent Work, looks at the financial impact of their program and provides data from a survey of program alumni.

As the study chart below shows (click to enlarge), Samaschool program grads report earning an average of $21 per hour working independently.

We've long believed there is a strong connection between targeted training and independent worker success. The research by Samaschool shows this to be true. 

More exciting is Samaschool is planning to expand. Key quote from the report on their 2018 priorities:

• Scaling our program to reach more people, given strong income results and favorable attitudes toward independent work, through partnerships with workforce systems, non-profit organizations, and academic institutions
• Continuing to collect data to build an understanding of the long-term implications of independent work among low-income job seekers to inform workforce development systems and strategies
• Advocating for protections and supports for independent workers at the federal, state, and local levels

The expansion of Samaschool's training program will no doubt improve the financial lives of many. 

Food Truck Nation

The U.S. Chamber of Commerce's study Food Truck Nation includes a "food truck index" that shows which cities are the most food truck friendly.

The index covers 20 U.S. cities and the goal is to show what it's like to start an operate a food truck. The index covers three key criteria: obtaining permits and licenses, complying with restrictions, and operating a food truck. 

The study chart below shows the top 10 food truck friendly cities, with  Portland leading the list. 

See the report for the complete list. Boston, BTW, came in last.

We think the key quote from the report is:

“You can create your restaurant on wheels for $50,000 to $60,000. You get a little slice of the American dream, pretty inexpensively.”

We've long covered the food truck industry and in 2012 released what is still our favorite study, Food Trucks Motor into the Mainstream, in partnership with Intuit.

Our key finding at the time was that the growth of food trucks was an excellent example of the broader of growth of niche, artisan businesses.

Craft brewing, which we covered a few weeks ago, is another example. 

Our thinking hasn't changed. For more on this topic, see our food truck section.

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. 

Ryder Creates an Airbnb for Trucks

Truck leasing and rental company Ryder announced it's launching an asset-sharing platform for commercial vehicles. This move is quite interesting because the new marketplace will directly compete with Ryder's core business.

The platform, called Coop by Ryder, connects fleet managers that have idle vehicles to businesses that are looking to rent vehicles.

In other words, they're creating an Airbnb for trucks. 

According to Ryder, data from the 200,000 vehicles it leases and rents to fleet customers showed that around 25 percent of them sit idle more than one day a week. It seems likely that commercial vehicles owned by companies sit idle even more.

So there's a lot of spare truck capacity available. 

This means the new marketplace will allow anyone with spare truck capacity to rent it to others. This is directly competitive with Ryder.'s main business. 

But this type of marketplace was going to happen anyway (and marketplaces like this already exist). So Ryder decided that building their own marketplace is better for them than being disintermediated by someone else.

Seems like a smart decision to us. Below is Ryder's video explaining Coop.

Ryder's move highlights the ongoing shifts towards access over ownership and the use of connective technologies to increase asset utilization. 

These shifts are enabling small businesses access equipment and infrastructure once only available to larger enterprises.

This is very important trend that is creating many new small business opportunities. 

A good example is our firm, Emergent Research.

We wouldn't exist without the ability to access through the cloud advanced analytical tools that even fairly recently were only available to firms large enough to afford the substantial expense of installing these systems in-house. 

Job Growth Slowed in 2017; Implications for the Economy in 2018

Despite all the noise from DC about a booming economy and massive job growth, the U.S. economy created fewer jobs in 2017 than in 2016 and economic growth was moderate. 

U.S. job growth slowed in 2017 to an average of 171,000 jobs created per month, down from an average of 186,000 jobs created each month in 2016. 2017 was also had the lowest U.S. job creation total since 2010. 

The peak recent year for job creation was 2014, when an average of 250,000 jobs were created each month. The chart below on U.S. job growth comes from the Yahoo Finance article Challenge for Trump: Job Growth is Slowing. The data is from the U.S. Bureau of Labor Statistics.

                  

Wages also grew at a stubbornly slow rate in 2017, increasing 2.5%. 

But despite slowing job growth, the economy performed well in 2017. It's also looking good for 2018.

Consumer confidence is high, the stock market continues to rally and there are signs wages may be starting to increase at a faster clip. We also start 2018 with a very low unemployment rate of 4.1%.

Most economists see a continuation of moderate U.S. economic growth in 2018 of around 2.8% to 3.0%. This is a bit better than the past few years, but not by much. 

Economists also see labor shortages constraining economic growth. Simply put, with such a low unemployment rate the concern is there aren't enough workers to drive faster economic growth.

While we agree 2018 will see another of moderate economic growth, we think the economy will do a bit better than the consensus.

Global economic conditions are good and the recent U.S. tax cuts should bump the economy a bit next year.

The "wealth effect" created by stock market, although not as strong as in the past because fewer households directly benefit, should also help. 

For these reasons we think U.S. economic growth will be more robust and in the 3.3% range in 2018.

The economic downsides currently appear to be limited.

Having said that, we have a very unpredictable political environment. Potential problems that could hurt the economy include trade wars and even shooting wars.

We also think 2018 could be a good year for wages. As mentioned above, there is some evidence wages are starting to increase. And we believe the labor shortages that are occurring in some sectors of the economy will likely spread.

Despite a continued strong job market, we expect the number of independent workers will increase again in 2018. The trends driving the growth of the gig economy remain in place and a strong job market is not enough to offset them.

The Digitialization of Jobs

Brookings recently released an interesting study on Digitalization and the American workforce. 

The report:

"... presents a detailed analysis of changes in the digital content of 545 occupations covering 90 percent of the U.S. workforce in all industries since 2001. The analysis categorizes U.S. occupations into jobs that require high, medium or low digital skills and tracks the impacts of rapid change."

The study findings show the U.S. economy is digitializing rapidly. 

As the report chart below shows (click to enlarge), the number of high digital jobs has grown from 5% of jobs in 2002 to 23% in 2016. It also shows the number of low digital jobs substantially declined during the same period.

According to Brookings, pretty much all industries have become more digital. 

The bad news is workers who don't have digital skills, or can't acquire them, face declining job options.

The good news is those with digital skills tend to be paid pretty well. The mean annual wage for those with a high level of digital skills is an impressive $73,000. Those in low digital skills jobs earn an average of just $30,000.

There's little doubt that the digitalization of the economy is going to continue. This will impact almost all jobs and pretty much all small businesses.

We'll have more on this topic, including how small business owners view automation and automation tools, in the near future.

Most Cities Embracing the Sharing Economy

It's always interesting how the media covers the sharing economy. 

Take for example the coverage of the recent National League of Cities report Cities and the Innovation Economy: Perceptions of Local Leaders.

It reports that 55% of cities have a good or very good relationship with sharing economy companies like Airbnb and Uber (see chart below; click to enlarge) and that 4 out of 5 cities support the growth of the sharing economy.

It also found that 16% of cities currently partner with sharing economy companies and 79% of those who don't would be open to partnering.

These are very positive numbers and show a large majority of U.S. cities favor the sharing economy. 

So naturally, Fast Company's article's headline on the report is 33% Of U.S. Cities Have A “Very Poor” Relationship With Sharing Companies. 

Another interesting finding is the growing use of drones by cities. 

As the report chart below shows, over 40% of U.S. cities surveyed already are using drones. 

The report's conclusion is:

Cities are incubators for new technology. Overall, the nation’s city officials are embracing new technologies and sharing economy platforms, and these leaders recognize the value that these new services bring to their cities and residents.

So despite the negative headlines, the sharing economy continues to expand and add value.

This is not to say cities don't have issues or concerns with the sharing economy. The report makes it clear they do, with public safety issues being the area of most concern.

But despite concerns, most cities are embracing the sharing economy.

Number of Minority Owned U.S. Small Businesses Growing Rapidly

According to research from The Business Journals SMB Insights group the number of minority owned small businesses in the U.S. is growing much faster than overall small business growth rate.

As their chart below shows, between 2007 and 2017 the number minority owned SMBs have grown by 79% reaching 11.1 million.

This growth is about 10 times faster than the 7.6% overall growth rate for U.S. small businesses during this period.

As the chart below (click to enlarge) shows, all three major minority groups have seen substantial growth since 2012.

The growth in minority owned businesses in part reflects the changing demographics of America. It is expected that by sometime between 2040 and 2050 the U.S. will be a minority majority country. So it makes sense that the percent of small businesses owned by minorities would be increasing.

The data in these charts include both employer small businesses (those that employ at least one traditional employee) and non-employer small businesses (solopreneur businesses that do not have traditional employees).

Employer small businesses still skew towards ownership by older, white males.

But this too will change in the coming years due to the increase in non-white Americans. As is often stated, demographics is destiny.