Small Business Labs

We're Nearing Peak Fossil Fuel Demand

McKinsey's Global Energy Perspective 2021 suggests the global demand for fossil fuels will peak in 2027 and steadily fall afterwards.  

As McKinsey's report chart below shows (click to enlarge), global coal demand peaked in 2014 and they are projecting oil demand to peak in 2029, and natural gas demand peaking in 2037.

Other forecasts are even more aggressive.  A recent report by the International Energy Agency suggests oil supply and gasoline demand may have already peaked.  Key quote from their report:

 "Gasoline demand is unlikely to return to 2019 levels, as efficiency gains and the shift to electric vehicles eclipse robust mobility growth in the developing world." 

The drivers of these changes, of course, are the steady declines in the cost of renewable energy sources and their increased use.

As forecasters we're fascinated that the term "peak oil" now refers to the point in time when global oil demand begins to fall.

It wasn't that long ago when "peak oil" was used to describe the point in time when oil supplies started running out. 

There were even a bunch of forecasts in the 2000's suggesting a lack of oil would lead to the collapse of modern civilization, with many suggesting the collapse would happen by 2020 - or even earlier.  

Instead of running out of oil, it's now likely vast amounts will end up staying in the ground.  

The last issue keeping renewables from fully replacing fossil fuels is storage.  But that's quickly changing.

Large battery storage systems are coming down in price and "green hydrogen" systems are becoming viable.  

So expect to see the declines in the use of fossil fuels continue - and maybe fall even faster than McKinsey estimates.  

Recode's 10 ways office work will never be the same

At around 4,000 words, Recode's 10 ways office work will never be the same is really more of a report than an article.

The article is chocked full of data and links to interesting studies illustrating what offices will be like post-pandemic. 

The 10 ways office work is changing covered in the article are:

1. Working from home is here to stay
2. Flexibility is a double-edged sword
3. Some populations will benefit from working from home while others struggle
4. The office will still exist, but you’ll use it differently
5. Expect more AI, automation, and freelancers
6. Our communication will be more asynchronous
7. How our productivity is measured will change
8. Culture will be harder to create
9. We’re more human at work
10. More of your colleagues will live somewhere else

Two of 10 jumped out at us. 

#3, some benefiting from remote work while others struggle is something we see all the time in our work.  Hopefully hybrid models will fix this for many who struggle.

#7,We've long thought our standard productivity measures don't capture knowledge work properly.  The shift to hybrid models will likely lead to new, more effective measures.

If an analyst or consulting firm produced this report, it would cost thousands of dollars.  It also wouldn't be as well written.  

Since Recode is free, we recommend that anyone interested in the topics above read the article.

NFTs are Helping to Monetize the Creator Economy

The Creator Economy - the economic activity generated by the people who create online digital content and the firms that serve them - is a hot topic in tech circles. 

And one of the hottest creator economy topics is NFTs.  These are non-fungible tokens.  

The reason they're hot is they provide a way to make money selling digital content.

In simple terms, an NFT is used to prove the ownership and uniqueness of a digital item.

NFTs are tokens (digital code) that are attached to digital assets and content.  The tokens use blockchain technology, which provides the ability to track the content's origin and current ownership.

This means the objects an NFT is attached to can be bought and sold.

For example, a digital art piece recently sold for $6.6 million on an online art marketplace.       

And the art auction house Christie's is currently running an auction to sell a digital art piece (pictured) by the artist known as Beeple. 

Current bidding is over $3 million.  **Update: Beeple's digital art piece sold for a stunning $69 million after a frenzy of last minute bids.**

Another example is sports video highlights.  A film clip of a Lebron James dunk recently sold for over $200,000. 

You may be asking why anyone would want to own digital content that can be freely downloaded from the Internet.  

Key quote on this from TechCrunch's The Explosive Potential of NFTs in the Creative World:

“Humans inherently, whether we will like to admit it or not, want to own things,” Ronin said. “And I think that that’s part of the human experience is owning things. When you own things, it’s a connection, and it’s like you have a reason for being and there’s something unique about ownership ...”

Supporting this is the fact that people are willing to pay astronomical sums of money for physical works of art when free or cheap copies are easily available.

So on some level, it makes sense that people are willing to pay to own original digital content.

The challenges of earning money in the creator economy is another hot topic.  This is because while some creators (the vast majority are independent workers) make a lot of money, most make very little. 

The hope is NFTs will allow more people to monetize their digital assets. 

Barlow Research on Small Business Exporters

Barlow Research is one of our go-to sources on all things related to small business use of financial services.

Their article Five Truths about International Business in the Middle Market covers survey research on the exporting and importing by U.S. firms with between $10 million and $500 million in sales (midmarket companies).

As shown in the Barlow chart below (click to enlarge), the key finding is that about one-third of firms in this size category conduct business internationally.

As we pointed out in a previous article, about 28% of microbusinesses - firms with fewer than 4 employees including the owner  - conduct business internationally.  

Barlow doesn't include historical data in their article.  But microbusiness exports have risen rapidly over the past decade, with the share of microbusiness exporters doubling.  

This is primarily due to online marketplaces like Amazon and Etsy, and improvements in outsourced logistics services.  

One of the most interesting parts of the Barlow article are the export challenges faced by midmarket companies.

What's so interesting to us is microbusinesses report fewer challenges than midmarket firms do.  

Shipping is still an issue, as is regulation.  But none of the other challenges reported by midmarket companies even blip with microbusinesses.

This is likely because they outsource most tasks to online marketplaces and logistics firms, while most midmarket exporters sell directly into foreign markets.

Historically, one of the huge advantages larger firms have had over smaller firms is the operational scale to export.  

Thanks to online marketplaces and other services, that advantage has clearly narrowed.

More research needs to be done on this topic and we're adding this to our "to-do" list.

The Texas Power Outage and the Rise of Microgrids

Both of the partners at Emergent Research started their careers as economists, specifically energy economists.

So we've followed the Texas power outages and think just as the pandemic has accelerated digitalization and remote work trends, the Texas outage has accelerated existing trends driving the growth of microgrids and distributed power.

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

Natural gas, propane and gasoline powered backup generators are good examples.  

Less common but growing rapidly in number are solar panels connected to batteries.  

Microgrids are common at universities, hospitals and businesses - and are becoming popular with homeowners. 

Bloomberg's How the Rich Can Escape America's Unreliable Power Grid points out that PG&E, northern California's main electricity provider: 

"... has more than half a million residential solar customers, and at least 18,000 have installed battery energy storage systems. You hear a lot in California about “solar plus storage”: solar panels to harvest sunlight into electricity, paired with a home battery that can store the electricity for later use, like after the sun goes down." 

Californians are turning to solar for a variety of reasons (environmental concerns, to save money), but a growing reason is the rolling blackouts that have become increasingly common during fire season, which now occurs regularly in the fall.

As the Bloomberg article title implies, going the full solar route is still a bit expensive.

But solar power costs continue to fall, and Texas and California's power failures show that big, highly connected, and complex power systems - which are very efficient when they work - are also prone to very big failures.

And, as climate change brings more frequent and intense storms, floods, heatwaves, wildfires and other extreme events, there will be more power disruptions and failures.

This will lead to increasing demand for microgrids and other forms of distributed power.

Which, as we've pointed out in the past, will create new opportunities for small businesses.

Side Giggers and Independent Workers in Super Bowl Ads

We haven't seen all the Super Bowl ads yet, but we know independent workers will be featured in two of them.

Squarespace's ad (below) features Dolly Parton singing 5-9, a take off on her hit song and movie 9-5.  It shows a variety of side giggers pursuing their passions.

Fiverr also has a Super Bowl ad, but we haven't seen it yet.  But no doubt it will feature creative independents.

Being featured in Super Bowl ads is a clear signal that independent work in general and side gigs have gone mainstream.

 

 

The World Economic Forum's 2021 Global Risk Report

The World Economic Forum's (WEF) Global Risk Report identifies the top risks faced by businesses and society over the next decade.  

This the 16th year WEF has issued a global risk report and the results come from an extensive risk survey of a wide range of risk related professionals.

As the WEF chart below shows (click to enlarge), they group the risks by likelihood and impact.

The highest likelihood risks of the next ten years are extreme weather, climate action failure and human-led environmental damage.  Others include digital power concentration, digital inequality and cybersecurity failure.

The top spot on the highest impact risk list are new infectious diseases. COVID-19 has obviously changed the view of infectious disease risk, which came in 10th in the pre-COVID 2020 report.

Other top risks by impact include climate action failure and other environmental risks, weapons of mass destruction, livelihood crises, debt crises and IT infrastructure breakdown.

Overall, environmental and climate change risks stand out in terms of likelihood and impact. 

One could also easily argue that climate change is leading to increased infectious disease risk, so the risks related to environmental degradation are potentially even greater than described.

The report is long (97 pages), detailed and since it focuses on downside risks, depressing.

But as COVID-19 has shown us, it's not good to be under prepared for major risks.

Wunderman Thompson's 2021 Future 100 Trends Report

The 2021 edition of the annual Wunderman Thompson Future 100 report was released last year.  It's one of our favorite trend reports. 

Here's how Wunderman Thompson, a global advertising and marketing agency, describes the report:

The Future 100: Trends and Change to Watch in 2021 highlights emerging consumer behaviors with 100 trend predictions from Wunderman Thompson Intelligence.

Trends span culture, tech and innovation, travel and hospitality, brands and marketing, food and drink, beauty, retail, health, work and finance.

Each includes an original analysis of why it matters for the organizations whose products and services we use daily.

This year’s report also includes 21 exclusive predictions from leading experts across industries to mark 2021.

As with past years, the 2021 report is beautifully produced and long - over 200 pages.  

This year's report has more on work and entrepreneurship than prior years.  This is partially due to the pandemic, which has accelerated the blending of work and life.

It well worth skimming for anyone interested in trends.

Business Applications Continue to Surge

There were 1.15 million applications to get a business tax ID (EIN) in Q4, 2020.  This is an impressive 27% increase compared with Q4 of 2019.

As the U.S. Census chart below shows, business applications fell from Q3 by 28%.  But Q3 of 2020 was a blow quarter by any measure.  So despite the quarter over quarter decline, the Q4 numbers still show very strong growth by historical standards.

When we reported on the Q3 numbers last November, we said:

It's too early to know if this surge is a one-time event, or it signals a substantial uptick in small/solopreneur business formation going forward.  

Two quarters is still not enough to declare a long term surge in small/solopreneur business formation.  But it's enough to say we're likely going to see a substantial near-term increase in small business formation over the next 2 years.

See our post the Q3 business formation numbers for more detail on the data.  

Poshmark and the Rise of Social Selling

Poshmark is a social e-commerce platform where people buy and sell secondhand goods, mostly used clothes.  It went public last week and closed its first trading day worth $3 billion.  

In the Barron's article Poshmark CEO Sees Huge Market for Used Goods. Investors Agree the firm's CEO described the trends driving their growth and opportunity.  Key quote:

In a Zoom interview on Thursday with Barron’s from his office in Redwood City, Calif., Poshmark CEO Chandra said the company is riding three trends: the acceleration of e-commerce; consumers embracing social selling; and the growing market for second-hand goods. He sees a huge opportunity, and one the company is only just beginning to tap.

While we track all three trends, consumers embracing social selling is a powerful trend that we regularly see in our research.  

Social selling is defined a variety of ways, but at a high level we like LinkedIn's definition:

"Social selling is about leveraging your social network to find the right prospects, build trusted relationships, and ultimately, achieve your sales goals."

Social selling isn't new. 

The traditional direct selling industry (also known as multi-level marketing) has been around at least since the 1940's, with well known brands such as Avon, Tupperware and Mary Kay.  

The direct selling industry is also large, with about 6.8 million direct sellers serving about 37 million customers.  

But the growth of social media has made it easier and cheaper for consumers to leverage their networks to sell things.  This has expanded the interest in social selling.

The chart below (click to enlarge) is from the MBO Partners State of Independence study series.  It shows the percent of independent workers who said social media was their top source of customers (orange) and one of their top 3 sources (blue).

As the data shows, the use of social media by independent workers (self-employed, freelancers, independent contractors, etc.) to find customers has substantially increased since 2014. 

Especially interesting is the percent of independent workers reporting social is their top source of customers has gone from effectively zero in 2014 (it was .3%) to 10% in 2020.  

Social media is just one part of social selling - there are obviously other ways to leverage a network in the sales process.  

But as this data shows, social media has become an important customer acquisition tool for a growing number of independent workers.  We expect this growth to continue.