Small Business Labs

Which Colleges Will Survive the Coronavirus

Scott Galloway is a professor at NYU, tech entrepreneur, author, and popular podcaster.  His article This Chart Predicts Which Colleges Will Survive the Coronavirus has caused quite a stir in colleges and universities across the country. 

The reason for the stir is the chart suggests a large number of colleges will fail and even more will struggle going forward.  His chart (click to enlarge) is below.  

Upsetting colleges, even more, is he names names.  And being listed as college likely to "perish" is not good PR.  

Galloway backs up his chart with a detailed analysis of the 438 US universities and colleges ranked by US News & World Report's top National University and National College rankings.

The analysis results in an index score for colleges that lumps the 438 colleges into 4 buckets - Thrive, Survive, Struggle and Perish.

Like all index-based ranking systems, there's plenty to quibble with if you don't like the scores.  But while we aren't all that knowledgeable about colleges, we have built multiple index ranking systems and this one looks pretty good to us.

You may ask why are we covering this in a blog focused on the future of work, small business and the gig economy?

The answer is colleges are facing the same set trends, shifts and dislocations as businesses and workers are.  So it's interesting to see how they're reacting.

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. 

75 Must-Know Statistics About Race, Income, and Wealth

Morningstar's 75 Must-Know Statistics About Race, Income, and Wealth covers a wide range of U.S. financial indicators by race. 

Key article quote summarizing these statistics:

"On average, people of color experience significantly lower levels of income, retirement savings, and rates of homeownership than white Americans. Those shortfalls contribute mightily to other ill effects: poorer healthcare outcomes, lower educational attainment, and shorter life expectancies, for example."

The article chart below (click to enlarge) shows the median household net worth by race.  While the data is a bit old (2016), more recent estimates indicate this data is still accurate.

Wealth and income inequality is a major issue facing the U.S.  And it's not just a racial issue.  Generational wealth and income inequality is also a problem.  We'll have more on this topic in the near future.

May's Controversial Jobs Report

May's Employment Situation Summary report (also known as the "jobs report) from the U.S. Bureau of Labor Statistics (BLS) caused quite a stir.  

The BLS reported employment rose by 2.5 million and the unemployment rate fell to 13.3% from 15.7% in May.

The stir was caused because other economic data showed U.S. employment fell in May and the consensus among economists was that May's unemployment rate would be significantly higher.  

These stark differences led many to wonder if the numbers were intentionally tilted by the Trump administration to make the economy look better.   

We've long worked with the BLS and can say with 99.999% confidence that the numbers weren't tampered with.  The highly professional career civil servants at the BLS wouldn't allow this to happen. And if someone even tried, it would become public knowledge very quickly.  

So we can safely dismiss statistical subterfuge.  But that doesn't mean the BLS data is perfect.

The Washington Post's A ‘misclassification error’ made the May unemployment rate look better than it is. Here’s what happened. explains one issue with the May report.  Key quote:

When the U.S. government’s official jobs report for May came out on Friday, it included a note at the bottom saying there had been a major “error” indicating that the unemployment rate likely should be higher than the widely reported 13.3 percent rate. ... The special note said that if this “misclassification error” had not occurred, the “overall unemployment rate would have been about 3 percentage points higher than reported ...” 

There are other issues with how the BLS collects employment and unemployment data that lead to confusion about the rate of unemployment.

Most of these are covered in the New York Times article The Economic Pain That the Unemployment Rate Leaves Out.  Key quote:

“The unemployment rate itself is significantly going to understate the drop in economic activity,” said Stephanie Aaronson, the director of economic studies at the Brookings Institution. “It also is underestimating the amount of distress that Americans are facing right now because it understates how many people have lost jobs.”

One of the major reasons the unemployment rate is understated (beyond the misclassification error listed above) is the BLS only consider those who who don't have a job but are actively looking for work as being unemployed.

But because of the COVID-19 shutdowns and health concerns, there are many who would like to have a job that are choosing not to look at this time.  This means in the eyes of the BLS, they aren't unemployed. Instead, they are considered out of the workforce.

The New York Times estimates that adding this group of unemployed people back in would increase the unemployment rate by 3.7%.

So we have a 3% misclassification error and a 3.7% omission error.  Adding them back means the unemployment rate is around 20%.  

We think it's even a bit higher - in the 21%-23% range - when you adjust for other issues that lead to the undercounting of unemployment by the BLS.  

None of this is meant as a criticism of the BLS or how they do their work. Measuring employment and unemployment on a monthly basis is challenging even in the best of times. 

But the COVID-19 related shutdown of the economy means the BLS is faced with sampling, data collection and reporting issues they've never faced - or even anticipated facing.  So problems are to be expected.

Despite these issues, the BLS data shows the extent of the economic problem we're facing. 

The chart below (click to enlarge) is from the Calculated Risk blog. It uses BLS to data to show job losses in percentage terms for all the post World War II recessions.

As the chart clearly shows, even with May's numbers we have a long way to go to recover from the current downturn.

Number of U.S. Nonemployer Businesses Continued to Grow in 2018

According to the  U.S. Census, the number of nonemployer small businesses increased to 26,485,532 in 2018, up 3% from 2017. 

Nonemployers are businesses that have an owner but don't have paid traditional full or part-time employees (W2 employees).

The data comes from tax records and you can think of nonemployers as solopreneur businesses (some exceptions apply - see below). The data includes anyone reporting $1,000 or more in self-employment income, so it includes a lot of part-time businesses.  

From 2010 to 2018 the number of nonemployer businesses has grown at an average annual rate of 2.53%. This is a bit more than 3 times the growth rate in traditional employment. 

Nonemployers are businesses that have an owner but don't have paid traditional full or part-time employees (W2 employees). The data comes from tax records.

One of the more interesting nonemployer data sub-trends is that the number high earning nonemployers - those who report earning revenue of $100,000 or more per year - is one of the fastest growing segments.  

Higher earners have been growing at an average annual rate of 3.7% between 2010 and 2018 and reached 3.1 million in 2018. 

The Forbes article Growth Of Million-Dollar, One-Person Businesses Accelerates goes into detail on an even higher earning segment - those reporting revenue of $1 million plus.  Key quote:

The number of nonemployer firms—those with no employees except the owners— that hit $1-$2.49 million in revenue in 2018 rose to 41,666 in 2018, according to just-released Census data, up from 39,494 in 2017 and up from 26,744 in 2011—a nearly 48% increase. 

Nonemployer data gets less attention than other government data on self-employment.

This is because the dataset is messy and includes a hodgepodge of business entities - passive businesses, firms no longer in business, LLCs owned by major corporations, etc. - that aren't active solopreneur businesses. 

But despite these issues, we find the nonemployer data to be a useful indicator of the overall size and growth of U.S. self-employment.  

Most People Want to Continue Working From Home, Just Not Full-Time

Lots of work from home (WFH) surveys have been conducted over the past month. 

And one of the most consistent findings of these studies is most people want to continue to work from home, but most of those only want to work from home part-time.

For example, the Global Workplace Analytics Work from Home Experience Survey found that "U.S. employees want to continue working from home an average of 2.5 days a week (2 days/week globally)."

And as the Harris/Zapier survey chart below shows (click to enlarge), 66% of the respondents prefer working at the office.  

We've long researched the advantages and disadvantages of working from home.  And consistent with the recent surveys, we've found most people want to work from home, but don't want to work from home full-time.  

The biggest reason for this is loneliness, which is why we wrote a Harvard Business Review article - Coworking Is Not About Workspace — It’s About Feeling Less Lonely - on this topic.

Other reasons people like offices include they tend to have fewer distractions than home (except for coworkers) and they tend to have better work tools.

People also like interacting with coworkers, both socially and to work together.  And while remote technology has made interacting with others much better than in the past, being face to face is still preferred in many cases.

So what does this mean?

It likely means "the office", in some form, will continue to be a popular place to work post-pandemic.

We'll have more on this topic in the near future.  

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.