Small Business Labs

Facebook Announces Facebook Shops

This week Facebook announced Facebook Shops, which it describes as "a mobile-first shopping experience where businesses can easily create an online store on Facebook and Instagram . . ."

Businesses will be able to create a Facebook Shop for free and upload their catalog, product pictures, and details like prices, delivery terms, etc.  Customers can then browse and order products.

Some store examples are illustrated below.

Facebook is going to charge a small fee for each sale, but they say their primary revenue model for Stores is advertising.  

Facebook is working with commerce partners like Shopify, BigCommerce, ChannelAdvisor, and others so small businesses can integrate their current backend and logistical systems with the Stores application.

Facebook had already ventured into the commerce arena with Marketplace, which mostly is a Craigslist competitor.  Shops is, obviously, a move upmarket into the traditional small business space and into competition with eBay and Amazon.

Millions of small businesses actively use Facebook for marketing and advertising and we've often wondered why they didn't have a service like Stores. 

Now they do.  

The Recession's Economic Damage is Widespread

Yesterday we covered a series of recent articles saying it will take 2-3 years for the economy to recover to pre-pandemic levels.

One reason for this view is almost all industries are being negatively impacted by the recession.

Illustrating this is the BLS's employment diffusion index.

This index is calculated by adding the percentage of industries with employment increasing plus one-half of the industries with unchanged employment. A score of 0 would mean all industries lost jobs and a score of 100 would mean all gained jobs. 

As the chart below from Marketplace's Here’s one way to tell how widespread April’s job losses were shows, April's diffusion index was a very low 4.8. 

This means almost every industry lost jobs in April.

Early in the pandemic, there was hope that economic damage would be limited to industries with high customer contact such as airlines, restaurants, retail, etc.

But as this index shows, almost all industries are getting hurt.

This means it will likely take at least a few quarters, and probably longer, for the economy to recover fully.

The 90% Economy

There's been a recent flurry of articles suggesting that the economic recovery will not be V-shaped or quick. 

Instead, the articles suggest it will likely take 2-3 years to fully recover from the pandemic induced recession. 

For example, The Economist's April 30th cover story is called The 90% Economy because they think it will take a long time for the economy to get back to 100%. 

Key quote:

Measures to control the virus while either keeping the economy running reasonably smoothly, as in South Korea, or reopening it, as in China, are associated with a GDP reduction in the region of 10%. That chimes with data which suggest that if Americans chose to avoid person-to-person proximity of the length of an arm or less, occupations worth approximately 10% of national output would become unviable.

The Financial Times article Life after lockdown: welcome to the empty-chair economy covers the same ground.  Key quote:

But in most places, it will be anything but business-as-usual. Instead, the next few months are going to feel like an empty-chair economy, with new shift patterns at factories, half-full buses and trains, staggered opening hours and unusually roomy restaurants ... The once hoped-for V-shaped economic recovery now looks more like — at best — a stretched U, even if financial markets, supported by massive central bank firepower, have been on a tear. 

And the New York Times article Why Economic Pain Could Persist Even After the Pandemic Is Contained points out"

In this downturn, there is the looming collapse of many small businesses; potential losses in the commercial real estate sectors; a crisis in the funding of state and local governments that will most likely take years to play out; and a collapse of energy prices that could slow capital investment.

Some sources are even more dire in their economic assessment. A recent study by economists at the University of Chicago suggests that 42 percent of recent layoffs will result in permanent job loss.

This would mean unemployment rates well above 10% could last for more than a year, which would meet most definitions of an economic depression.  

Whatever happens, it seems clear the recovery will not be as fast as originally hoped.  

We're in the process of updating our small business closure forecast from last month and will release the update in the near future.

But based on what we're seeing so far, we expect far more small business closures this year than occurred during the recession of 2008-2009. 

What's Next for Digital Nomads?

It’s clear remote work, and especially working from home, are trends that are being amplified and accelerated by the COVID 19 pandemic and related economic shutdown.  

But one group of remote workers are mostly not benefiting from the pandemic - digital nomads.   

These are people who embrace a location-independent, technology-enabled lifestyle that allows them to travel and work remotely, anywhere in the world that has decent Internet connections. 

But being nomadic is challenging when the world’s locked down due to a pandemic. 

And because of a variety of factors – virus fears, concerns about access to and the quality of developing world healthcare systems, travel restrictions, etc. – nomadic life will continue to be challenging even after countries open back up.  

But the desire to travel, experience other places and cultures, and have new adventures isn't going away.  

So over the next 3-5 years, we expect the digital nomad trend to re-emerge as strong, if not stronger, than before.

In the shorter term, we expect two types of digital nomads to come back the fastest and likely increase in numbers. These are longer stay nomads and Vanlifers. 

Longer stay nomads are people who choose to live in new locations but do so for several months or more at a time. 

This was already a sub-trend of digital nomadism, with “living as service” firms starting up to serve this small but growing group.

And their numbers have significantly increased recently due to people sheltering in place away from their primary residence. 

Airbnb’s CEO nicely sums up this trend. Key quote from his recent interview in the business travel magazine Skift:

“A whole new generation will look for multi-month stays so they can work for a San Francisco company, for example, but engage in extended stays in other cities …”

We also expect Vanlifers to return to the road relatively quickly and for their numbers to grow. 

Vanlife travel is done relatively close to home (mostly within a few days’ drive) and limits exposure to airports, airplanes, and other places with tight quarters. 

So while the digital nomad trend is down, it's not out.  And like so many other aspects of daily life, it will return. But the form will be changed.  

Barclay's 150 Trends for Investors to Watch

Barclays, a large global financial firm, recently released a report and chart covering 150 trends that they think investors should watch over the next decade.

The trends cover six broad categories and they rank all 150 trends by their likelihood of happening and their potential impact. 

The six trend categories are: 1) Technology & Innovation; 2) Consumer, Food & Retail; 3) Industrials, Manufacturing & Transportation; 4) Health & Modern Science; 5) Energy & Environment and 6) Society & Culture.

Below is their Technology & Innovationchart for  (click to enlarge).

We really like that "smart dust" appears on this trend list.  It's a technology that's been discussed and experimented with since the early 2000s.  Some technologies remain 5 or more years away for decades.

Somewhat unfortunate for Barclays they released the report on March 13, just as the COVID 19 pandemic was gaining steam.  This likely why we - and probably many others - missed it when it first came out.

It's also likely their 150 trends would be somewhat different if they pulled them together today. 

But we still think it's a useful and excellent trend analysis piece and if you're interested in trends this report is well worth reviewing. 

How Many Employees Will Small Business Layoff?

Based on an industry by industry analysis of small business employment, our base case estimate is employer small businesses will layoff about 21 million employees through July (1).

This is about 36% of those working for employer small businesses, which are SMBs with an owner/owners and at least one traditional (W2) full or part-time employee (2). 

Our high case layoff estimate is 27 million (about 46% of employees of employer small businesses) and our low case estimate is 17 million (about 29% of employees of employer small businesses).  

Under the base case estimate, the overall U.S. unemployment rate would likely increase to about 22% (3) (4).  

The high case's unemployment rate would reach 28% and the low case 18%.  

The chart below (click to enlarge) shows the data for the base and high cases.  We excluded the low case so the chart would be readable. 

The layoff percentages are Emergent Research (that's us) estimates. 

However, they are based on recent estimates done by economists at the St. Louis Federal Reserve on contact intensive occupations and unemployment risk by occupation. 

The implied overall U.S. unemployment rate estimates assume small businesses will lay off 60% of those laid off over the next 4 months. This is similar to the small business layoff share in the Great Recession of 2008-2009. 

Just under 10 million Americans filed for unemployment insurance over the past 2 weeks, which means the current unemployment rate is likely already in the 8%-10% range.

So forecasting the rate to double over the next 4 months doesn't seem unrealistic.

Other current forecasts of the overall U.S. unemployment rate range from 12% to 32%.  

The highly regarded labor economics at the Economic Policy Institute, for example, are currently forecasting the overall unemployment rate will reach 15% in July. 

Let's hope we're wrong and they're right - or even better, the EPI forecast turns out to be too high. 

Notes:

1.  We've produced 3 layoff scenarios because the employment impact of the pandemic induced recession is still very uncertain. And given the high level of uncertainty, the actual layoff numbers could easily fall outside the range presented in these scenarios. 

2.  Our lay off estimates includes both full and part-time employees of small businesses. It doesn't include contractors or independent workers.  

3. The BLS doesn't include people who are not actively looking for a job in the unemployment numbers.  This means the unemployment rate may stay artificially low because of the pandemic keeping people who have lost their jobs from looking for work.  Because of this, changes in the workforce participation rate may be a better measure of the recession's impact on employment.

4.  Overall unemployment estimates are 45 million for the high case, 35 million for the base case and 28 million in the low case.  

Ipsos Global Trends 2020

The large, global market research firm Ipsos recently released its Global Trends 2020 study.  It's based on extensive surveys and interviews across 33 countries and updates similar efforts conducted in 2013 and 2016. 

The study covers a lot of ground (the study report is 120 pages long) and identifies 12 key trends that Ipsos believes will dominate the world in the 2020s.  These are:

• Climate emergency and antagonism
• A world divided by its values
• Choices over healthcare
• Reactions to uncertainty and inequality
• Capitalism’s turning point
• Peak globalization
• Data dilemmas
• Conscientious health
• Authenticity is king
• The search for simplicity and meaning
• The tech dimension: technophilia and technophobia
• The enduring appeal of nostalgia

One of the interesting findings of this study is how much of an outlier the U.S.is on many of these trends.  

For example, 55% of Americans agreed that unequal wealth distribution is bad for society.  This was the lowest percentage agreeing of the 33 countries in the survey. The global average agreeing with this statement was 76%.

America also came in last on a question about climate change.  Only 66% of Americans agreed climate change is mostly being caused by human activity.  Globally, 82% agreed.

Americans have always gone their own way.

But it's easy to see based on the study findings why "a world divided by its values" is one of the 12 dominant trends.

Americans Policy Priorities Highly Polarized

Pew Research's As Economic Concerns Recede, Environmental Protection Rises on the Public’s Policy Agenda covers a recent survey asking Americans about their policy priorities.

As their chart below (click to enlarge) shows, there is a wide partisan divide on the issues people think are most important.

The top 3 policy priorities for Democrats are the environment, healthcare costs, and education.

The top 3 for Republicans are terrorism, immigration, and the economy. 

The biggest policy priority differences are around the environment and climate change. Key quote from Pew on climate change:

Dealing with global climate change ranks at the bottom of the list of 18 policy priorities for Republicans and Republican-leaning independents (just 21% call it a top priority). By contrast, climate change is near the top of the list of issues among Democrats and Democratic leaners (78% call it a top priority).

One of the topics that interesting is global trade. Neither Republicans nor Democrats rate it as very important.

Because of this, it came in last out of 18 policy options with just 42% of the respondents rating it a priority.

The growing political polarization of America is a powerful social trend.  It's a major reason behind the growing urban/rural divide.

It's also a key reason our politics are so heated and our federal government is grid-locked. If you can't even agree on what's important, there's little chance you will agree on legislation.  

The Dramatic Growth of Internet Ad Spending

OK, it's well known that Internet advertising has been growing rapidly.  But even knowing that, the chart below (click to enlarge) is still stunning.  

The chart is from Adage's Marketing Fact Pack 2020 and shows that the internet's share of U.S. ad spending has increased from just 6.4% in 2006 to over 50% in 2020 and is forecast to reach 60% in 2022.

Print ads in newspapers are magazines, obviously, have taken the biggest hit share wise. But TV's share has also fallen about one-third over this period.

There's a lot of other interesting data in the Marketing Fact Pack 2020.  

For example, Accenture, PWC, Deloitte, and IBM are all on the list of the world's 10 biggest marketing agencies (they're 6th through 9th).  

A key reason these firms are doing so well is digital's share of U.S. agency revenue was almost 54% in 2018, up from about 33% in 2012.  This shift opened the door for non-traditional agencies to gain share. 

See the report for more fun ad-related facts and data. 

Report: Tech in 2020: Standing On The Shoulders Of Giants

Benedict Evans, who is a well-known VC and tech industry pundit, recently released Tech in 2020: Standing on the Shoulders of Giants. 

Similar in style to Mary Meeker's well known annual Internet Trends Report, Evans' report covers similar ground and is full of charts and data.  And like Meeker's report, it's long at 128 pages.

But it's well worth looking through as it has tons of interesting data on the tech industry.  

As the report chart below shows (click to enlarge), Evans suggests a number of technologies could be the next big thing in tech.

But he doesn't predict which, if any, will be.

Instead, he focuses on regulation and government policy likely being at least one of the next big things in tech. It's hard to disagree with this view.

Evans also has a free weekly newsletter that quite popular in the tech community. It too is well-worth reading.