Small Business Labs

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.

What is Good Information Hygiene?

Edelman released their 2021 Trust Barometer, which is an annual global study on the level of trust citizens have in institutions.

The Trust Barometer focuses on trust in governments, corporations, NGOs and the media and Edelman has conducted this study for two decades.

Not surprisingly, the past year was not a good one for institutional trust.  Key quote from Edelman:

After a year of unprecedented disaster and turbulence – the Covid-19 pandemic and economic crisis, the global outcry over systemic racism and political instability – the 2021 Edelman Trust Barometer reveals an epidemic of misinformation and widespread mistrust of societal institutions and leaders around the world.

The Trust Barometer has lots of good information and is well worth reading.

But we were particularly struck by Edelman's concept of "information hygiene" in this year's report.  

According to Edelman, "good information hygiene means having regular engagement with news, engagement with differing points of view, verifying that information and not amplifying or spreading misinformation."

They measure information hygiene across 4 dimensions:

1. Regular engagement with news: Do they stay informed?
2. Engagement with differing points of view: Do they avoid information echo chambers?
3. Information verification: Do they avoid assuming something is true simply because it supports their point of view?
4. Avoids spreading misinformation: Do they check information veracity before forwarding content to others?

Unfortunately, as their chart below (click to enlarge) shows, only 26% of Americans practice good information hygiene.

We constantly run into examples of bad information hygiene in our work. 

It's stunning how often we're presented with information and data that are obviously wrong -  and easily proven wrong with minimal fact checking.  

The culprit is is almost always bad information hygiene, which often manifests itself in the form of confirmation bias.  

Bad information hygiene is obviously a huge societal problem and there are no easy fixes. 

Regular readers know we somewhat regularly write about biases and how we try to overcome them in our work.  A big part of this is practicing good information hygiene, which we will continue to do.

Key Findings from 10 Years of Studying the Gig Economy

Last week, MBO Partners released its 10th annual report in the MBO Partners State of Independence research series. Emergent Research (that's us) worked with MBO Partners on this ongoing study across all 10 years.

The research was based on surveys of over 23,000 independent workers, gig workers, and micro-business owners and was augmented by 1,500 in-person interviews throughout the decade. 

Over the next couple of weeks, we'll be highlighting some of the key findings and insights from this research. 

And we're starting with one of the most interesting and surprising findings: 

Most full-time independent workers now consider independent work to be more secure than traditional jobs.

As the study chart below shows, the percent of full-time independent workers reporting that independent work is more secure than a traditional job has grown from a minority share of 32% to a solid majority of 56% over the past decade (2011-2020).

This is interesting both from a sentiment perspective as well as the magnitude of growth. Its' also interesting the growth was relatively steady across the study timeframe.

When we ask in interviews why independents feel more secure, we hear three common themes:

1. Because they control their work and business, they feel more secure than being at the mercy of an employer and a boss. 

2. They feel that having multiple clients and diversified income streams is more secure than relying on a single income source.

3. Due to layoffs, company failures, changes in corporate directions, and a broader lack of corporate loyalty to their employees, they report that traditional jobs are no longer as secure as they once were. This makes independent work feel more secure on a relative basis.

The pandemic has amplified all three themes, and the third in particular.

Even though independent workers have been hit hard economically by COVID-19, most believe they are better off than those who have lost their traditional jobs and their entire income source.  

There are several other reasons why independents feel more secure.

Over the ten years of this study, there's been a growing array of products and services that make it easier to be a successful independent worker. These include low-cost, Internet-based tools, services, and online marketplaces for everything from billing and project management to marketing and sales. 

The ACA (Obamacare) was rolled out early in the study series, making it much easier for independents to get health insurance. Health insurance is often considered the most important job benefit, and prior to the ACA the lack of affordable health insurance options for independent workers was a major problem.  

Independent work is also viewed much more positively than it was a decade ago. Because of this, consumers and businesses are more open to hiring independent workers, making it easier to find and retain customers than a decade ago. 

One of the biggest reasons people don't pursue independent work is that they consider it too risky - and much riskier than a traditional job. And while most non-independents will continue to see it that way (we'll have more on this topic in the near future), more people now realize that independent work can be as secure, or even more secure, than having a traditional job.

Because of this shift, more people will likely choose to become independent workers in the coming years.

The Stunning Financial Success of Gig Economy Marketplaces

Last week Airbnb and DoorDash went public with breath taking valuations.  Airbnb closed Friday with a market capitalization of $83 billion and DoorDash's came in at $55 billion.

As the chart below shows, they aren't alone.  Other gig economy online marketplaces have also achieved huge financial success.

To put these numbers in perspective, Airbnb is worth more than Marriott ($42 billion) and Hilton ($29 billion) combined. 

Other notable firms to compare with include the global chemicals giant Dupont ($47 billion), the large financial institution Capital One ($41 billion) and the food and cereal giant General Mill ($36 billion).

Interestingly enough, the much maligned Uber ($92 billion) tops the list.  While their core business of rides has been hit hard by the pandemic, their food delivery business has benefitted. 

As the Financial Times article Airbnb and DoorDash IPOs leave gig economy issues unresolved points out, most of these firms are still not profitable.  Key quote on the combined losses of Airbnb, DoorDash, Uber and Lyft: 

But that has not translated into profits. Even the flattering financial metric these companies prefer to be judged by — adjusted earnings before interest, taxes, depreciation and amortisation — showed all four to be lossmaking in the 12 months leading up to their listings, with some $3.3bn in red ink between them. So are their business models half-baked, or just half-evolved?

And the Wall Street Journal article Sizzling Tech IPO Market Leaves Investors Befuddled also points that even the companies themselves are stunned and concerned about their valuations.

Stock prices and market caps are subject to rapid change (to say the least), and as the financial ads say, past performance is not an indicator of future results.

But the rapid rise (most of the firms on the chart above are less than 10 years old) and financial success of online gig marketplaces show how big and important the gig economy and independent work have become.

The Pandemic Accelerated Rise of Ghost (Cloud) Kitchens

The global marketing agency Wunderman Thompson's article Ghost Kitchens covers the growing popularity of delivery-first dining and the related growth of ghost kitchens, which are also called cloud kitchens.

Ghost restaurants are delivery only, online restaurants that skip storefronts and deliver food straight to the customer. 

And one reason we're covering this topic is yesterday the food delivery firm Door Dash went public in spectacular fashion, ending the day worth a stunning $60 billion.

The food delivery business has been growing for about a decade and the rise of ghost kitchens was already a trend prior to the pandemic.  But COVID-19 has massively accelerated this trend and greatly expanded the market.

And according to Euromonitor, the growth trend will continue. They're predicting food delivery will be $1 trillion global business by 2030.  Key quote from a Restaurant Business article on the forecast:

The firm predicts that by 2030, food delivery could account for up to a third of consumers’ $3 trillion food spend globally. That includes roughly 50% of drive-thru business, or $75 billion, and 50% of takeout, or $250 billion. It will also take share from frozen meals (35%),  packaged cooking ingredients (30%), dine-in (25%) and packaged snacks (15%).

The Wunderman Thompson article does a nice job of covering the trend, so we'll not bother rehashing their article.

But they end with a very positive view of the long term outlook for ghost kitchens:

Global head of food and beverage research Michael Schaefer predicts that ghost kitchens will define the restaurant industry over the coming years in the same way that third-party delivery services have marked the industry over the past 10 years.

Marie Claire and the Mainstreaming of Freelancing

The magazine Marie Claire was first published in 1937 and describes itself as "the site that women turn to for information on fashion, style, hairstyles, beauty, women's issues, careers, health, and relationships."  

The magazine has long targeted working women, so it's not surprising they are covering freelancing.

But what's a bit surprising is the extent they are covering it. 

Marie Claire is currently featuring a multi-article Guide to Going Freelance as its top content offering right now.  

The guide starts with The Grey Area Economy, which covers the growing role freelancers are playing in the economy and some of the issues they face.  Think of it as an overview of freelancing.

The guide continues with three other articles, each of which covers a specific freelancer-related topic.  These are:

• How to Afford the Freelance Life
• Maximize Your Productivity as a Freelancer
• Freelancing With Benefits? You Bet.

All the articles are well done and contain useful information, especially for those thinking about becoming a freelancer or new to freelancing.

But what makes this interesting from a trends perspective is this coverage is a clear sign of how mainstream freelancing has become.  It's now a major topic in general interest publications.

It wasn't that long ago when this was not the case.  

TechCrunch's 5 Startup Trends for the 2020s

TechCrunch's 5 startup theses that will transform the 2020s looks at 5 broad startup themes that will define the next decade. 

These are:

1.  Wellness: TechCrunch defines wellness more broadly than most.  They say it encompasses building "... humanistic societies with strong social fabrics that enliven, enrich, and build meaning for our lives …". More concrete is their view on the needs of our health system.  Key quote:

Then there’s the health system in general. While America deservedly receives huge criticism for its overpriced and under-insured system, health systems worldwide face incredible pressures to improve efficiency. How do we make care better, more personalized, and more open? How do we reduce costs while ensuring that care is accurate and delivered expeditiously? There is huge work to be done to make health a key component.

To increase wellness for individuals, we need to increase wellness for our societies, building systems that are designed for the humans that inhabit them. Flexibility with security, engagement with individuality, expression with support. Our existing systems are already antiquated — and we haven’t come up with anything better.

2.  Climate: Again, they take a broad approach and include everything from infrastructure to food to the need for greater resiliency due to climate change.  

3.  Data Society: The key quote sums up this one:

Remember when data was the new oil? Well, we now have so much data that it is all effectively worthless (supply and demand always seem to show up, don’t they?) While enterprise data infrastructure has improved at least the management of these databases, it’s still amazing how little data enriches our decisions, offers new avenues for analysis, and quite frankly, just makes our lives better on a day-to-day basis.

We find this interesting because we've worked on multiple data analytics and data driven AI projects with our clients, some of which are leading edge users of AI technologies. 

And because of this experience, we agree much more needs to be done to make the analysis of big data truly useful.  

4. Creativity:  We consider this the most interesting of the five.  Key quote from the article:

Creativity has never been more important, nor frankly less valued … How do we empower more creative arts and ensure that artists (very broadly conceived) have the income, time, and support they need to contribute original art to our global discourse? 

We would add increasing creativity in all aspects of business will also be key to improving both business performance and society over the next decade.

5. Fundamentals:  This is about improving our basic R&D capabilities.  Key quote:

We need a massive infusion of new ideas around how to build the best engine for fundamental research and discovery.

We follow startup trends because they've proven to be useful signals on the future of technology.  

We've quoted more liberally from the article than we usually do because it's an Extra Crunch article and behind a paywall.  We're happy Extra Crunch subscribers and think those interested in startups and tech trends will find it well worth the $99 annual price tag.

We're also hoping by plugging their service TechCrunch won't be mad at us for the extensive reprinting of their article.

Most Want to Return to the Office, at Least Part-Time

A recent study by Colliers, a global real estate services company, found that 83% of those working from home due to COVID-19 would prefer to continue doing so after the pandemic ends.

As the study chart below shows (click to enlarge), 45% said they'd like to work from home 1-2 days per week.

Only 15% said they'd like to work from home full time.

Other studies have similar results.  A study by PWC, for example, found that 72%  say they’d like to work away from the office for at least two days a week post-pandemic. 

The Colliers study includes an interesting chart (see below and click to enlarge) showing what people miss about being in the office.

The top reasons tend to be related to social interactions.  This is not a surprise.  Loneliness is consistently listed as one of the top challenges associated with remote work.

It's clear that remote work will grow in the future.

But it likely will be a hybrid model with most employees splitting their time between home and the workplace.  

The Rise of Synthetic Biology (and Synthetic Biology Platforms)

According to the National Human Genome Research Institute synthetic biology is:

"... a field of science that involves redesigning organisms for useful purposes by engineering them to have new abilities. Synthetic biology researchers and companies around the world are harnessing the power of nature to solve problems in medicine, manufacturing and agriculture."

Synthetic biology is not a new trend. About a decade ago it was hailed as the next big thing.  But like so many technologies, it's taken a while for the reality to catch up to the early hype.

But a number of new bioengineering technologies and advances, and especially CRISPR, are enabling a wave of new synthetic biology products and companies. 

Tech Crunch's Synthetic biology startups are giving investors an appetite reports on this trend.  Key quote:

"There’s a growing wave of commercial activity from companies that are creating products using new biological engineering technologies."

The best known synthetic biology company is probably Impossible Foods. 

They use plants and bioengineered additives to create plant-based food that looks and tastes like meat. 

But the TechCrunch article mentions several other examples, with our favorite being Pivot Bio.

They are creating self-fertilizing cereal crops like corn, wheat and rice.  This would eliminate the need for nitrogen fertilizers, which are major global pollutants. 

Another interesting example is Bolt Threads. Among other things, they are creating a synthetic alternative to silk using the same proteins as spiders use.

And, not surprisingly, there are synthetic biology platform companies helping to build the industry.  Another quote from the TechCrunch article:

"Platform companies like Ginkgo Bioworks  and Zymergen have large libraries of metagenomic data that can be applied to products like industrial chemicals, coatings and films, pesticides and new ways to deliver nutrients to consumers."

Both of these firms already have multi-billion dollar valuations.

There's little doubt that, at some point, synthetic biology will fundamentally change the world.  And it's starting to happen.