Small Business Labs

32 Million Americans Say They Will Start a Business in 2019. Most Won't.

According to a recent Job Creators Network Foundation survey, "Sixteen-percent of Americans say they are likely to start a new business in 2019 ...".  This works out to about 32 million Americans.

Most won't. 

Over the past couple of years about 400,000 to 500,000 employer small businesses and about 2.5 million solopreneur businesses have been started each year.

So it's much more likely that about 1.6% of Americans will start a small business in 2019 instead of 16%.

This is an example of the false positive problem with survey data. 

When you ask people aspirational survey questions about what they will do in the future, many more people will say they are going to do something than will actually do it.  

And starting a small business is aspirational. According to the same survey and shown in their chart below (click to enlarge), 62% of those surveyed said they'd like to run their own business.

Given this data, it's not surprising 16% would say they will do so in 2019, even though relatively few will. 

We've asked a similar question in the annual MBO Partners State of Independence study for the past 8 years.

Consistently 13%-15% of those surveyed over this study period have said they will start a small business over the next 2-3 years. And again, we estimate only about 8%-10% of those who say they will have actually done so.  

An important point is despite the false positive problem, this data is still quite useful. Tracking this data over time provides insight into the interest in starting a business by Americans.

But, and this is a big but, if you don't adjust the results for the false positive problem you end up with unrealistic numbers.

BTW, the JCN survey had another example of the false positive problem on a topic unrelated to small business.

Their survey found "Thirty-four percent of Americans said they are likely to buy a new car next year". This translates to about 70 million or so Americans.

The peak U.S. car and light truck sales year was 2016 when 17.6 million cars and trucks were sold. 

It seems fairly certain that 2019 will not beat 2016 in terms of auto sales. So it seems even more certain no where close to 70 million Americans will buy a new car. 

The false positive problem crops up in many surveys (including ours). Users of survey data need to be aware of this issue and take it into account when reviewing survey results. 

A Look at Non-Employer Businesses from the SBA

The U.S. Small Business Administration's (SBA) Office of Advocacy recently released A Look at Non-Employer Businesses, a one-page summary of key data on non-employers businesses.

"Non-employer" is the terms used by government agencies to describe businesses that have a business owner, but no traditional (W2) full or part-time employees.

The data is collected by the U.S. Census and comes from tax data. Most non-employers are independent workers (freelancers, independent contractors, gig workers, etc.), but some are shell companies of various kinds. 

Two charts from the one-pager jumped out at us.

The chart below shows that the number of non-employer businesses has been growing about 2% a year of the past 15 years, reaching 24,813,048 in 2016. Over the same period, the number of employer businesses has more or less stayed the same at a bit under 6 million.

Their are a number of reasons the number of non-employers has been increasing. The main ones are it's easier and cheaper to start and operate a non-employer business and more people are starting part-time non-employer businesses to supplement their income and/or pursue a passion. 

See the MBO Partners State of Independence report for much more detail on why there are more non-employer businesses. 

There's also a number of reasons why employer SMB numbers aren't increasing, but it's a longer story and we'll go into it in a later article. 

But one reason is very small businesses no longer need to hire traditional (W2) employees as much as they used to. Instead, they can use contract labor, outsourcing and automation.

So one reason the number of employer SMB's isn't growing is because the number of non-employers is growing.

The other chart we find interest cover the demographics of non-employers and the owner of employer small businesses. As you can see from the chart below, non-employers are much more diverse.

For more on non-employer businesses, see the SBA one-pager.

Social Network Support Helps Turn Knitting Hobbyists into Hobbypreneurs

A recent academic paper - Knitting Community: Human and Social Capital in the Early Transition into Entrepreneurship - covers research on the process hobby knitters go through to decide to turn their hobby into a business.

The study found that many of the hobbyists that started a knitting business had been encouraged to do so by people they knew, such as husbands, friends and other knitters.

The research was based on digging through the data at the knitting community site Ravely.com, which is known as the "Facebook for knitters".

Key quote from a Washington Post article on the study:

...analyzed almost 100 interviews and 403,168 profiles of knitters and crocheters. She found that even on one of the Internet’s great niche social networks, offline encouragement and feedback helped most talented hobbyists recognize their ability and take the first steps toward monetizing it. Success on the Internet was propelled by real-life interactions.

The in-person networking that was found to be most effective at encouraging entrepreneurship was membership in a Stitch n' Bitch group.

These are formal or informal knitters clubs where members meet, knit, socialize and share knitting advice. Again from the Washington Post:

People who joined a so-called “stitch n’ bitch” group to craft socially were 25 percent more likely than otherwise identical knitters to take the plunge into entrepreneurship. This is true even when correcting for geography, experience, skill level and productivity.

We've long studied the shift from hobbyist to hobbypreneur. It's clearly a growing source of new and especially part-time small businesses.

See the 2009 Inuit research brief Today's Hobbyists are Tomorrow's Hobbypreneurs for more on this topic. We worked with Intuit on this report and while the research is 9 years old, we think the findings are still relevant.  

BTW and not particularly relevant is yes, AI is starting to be used in knitting. See the Atlantic's SkyKnit: How an AI Took Over an Adult Knitting Community for more on this.

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.