Small Business Labs

Poverty in America

In September the U.s. Census Bureau released the Supplemental Poverty Measure: 2017. It reports that 13.9% of Americans lived in poverty in 2017, which is statistically the same as in 2016.

This leads to the obvious question what is - and why is there - a supplemental poverty measure.

The reason is the "official" poverty measure was designed in 1963 and defined as three times the "subsistence food budget" for a family of any given size. Because of data limitations, the "subsistence food budget" was based on 1955 data on food consumption. 

If a family's gross income before taxes is less than 3 times the subsistence food budget, the family is considered poor. 

This methodology has a number of flaws. For example, It's based on pre-tax income. But bigger issues include is it doesn't factor in other cost of livings (rent, etc.), it doesn't include support programs like food stamps or the earned income tax credit and it assumes the cost of living is same everywhere in the U.S.

It also assumes we eat the same things as we did in 1955 and, relatively speaking, they cost the same.

Due to these problems, the supplemental poverty measure was developed in 2010. The chart below shows how the both the official and supplemental poverty rates from 2009 to 2017.

The good news is the poverty rate has been drifting down since 2011. The bad news is kids 18 and under have the highest poverty rate - 15.6%. This means about 1 in 6 American kids live in poverty.

More on the FIRE (Financial Independence, Retire Early) Movement, Independent Work and Edge Communities

Last month we covered the growing Financial Independence, Retire Early (FIRE) movement and how it relates to the rise in independent work. 

The quick summary of that article is the trends driving the interest in the FIRE movement are similar, and in some cases the same, as the trends driving the growing interest in independent work.

In particular the desire for increased work/life autonomy, control and flexibility are key drivers of both movements.

While the FIRE movement is definitely gaining momentum, it's not without it's critics. Famed personal fiance guru Suze Orman, for example, doesn't like it. 

In fact, in the interview below she says:

“I hate it. I hate it. I hate it. I hate it.”

Her main reason for hating it is if you retire early, you have to live a long time off your savings because you aren't generating income. She believes this is very risky and if something goes wrong, it could lead to financial ruin.

This seems like a reasonable criticism.

FIRE movement proponents have answered that it's not about not working, it's about financial independence and the freedom that comes with it. 

For example, according to the Mr Money Mustache (one of leading FIRE movement blogs) article What Everyone Gets Wrong About Fire,

Financial Independence does not mean the end of your working career ... Instead it means, “Complete freedom to be the best, most powerful, energetic, happiest and most generous version of You that you can possibly be.”

It goes on to point out that most of those achieving their FIRE point (what they call the point at which a person have saved enough money to live off) plan to continue to work in some form.

This is very similar to what we hear from independent workers. They want the freedom and flexibility to pursue work they enjoy.

The Fire Movement is a great example of an edge community, which are relatively small groups of people who are doing something that is behaviorally out of the mainstream. 

Much of our time is spent studying edge communities. We do this because that's where new trends and ideas often start. 

Another interesting feature of edge communities is some/many of the people participating in them are doing things that are considered anywhere from odd, to nutty, to even dangerous by the mainstream. 

But over time some edge community behaviors move into the mainstream. Examples include Christianity, hula hoops, yoga, rock and roll and many, many others. 

We're not suggesting that yet for the FIRE movement. But it has gained enough adherents and attention to warrant watching.

Bleisure Travel Continues to Increase

We first reported on bleisure travel, which is the the blending of business and leisure travel, back in 2015. 

AAccording to the folks at the expense reporting and management firm, SAP Concur, it continues to gain popularity. 

Key quote from their blog post Do You Bleisure? The Word We Love to Hate is Gaining Popularity Across the Globe:

... according to new SAP Concur travel and expense data gathered between January 2017 and December 2017 ... “bleisure” trips increased by 20% from 2016 to 2017. And during this time, more than 2.2 million bleisure trips were taken by business travelers around the globe, making up 10% of total business trips.

Back in 2015 bleisure travel was considered something that millennials mostly did.

But the SAP Concur data shows these days all ages are taking advantage of bleisure travel opportunities. Again from their post:

On average, millennials make up the largest share of bleisure travelers in the world, accounting for 38% of all bleisure trips in the Americas region in 2017, however Generation X (31%) and baby boomers (31%) are not far behind!

In case you're wondering where people go on their bleisure trips:  "In the Americas the top destinations are NYC, Chicago, and Los Angeles; in EMEA, Tel Aviv, London, and Paris; and in APAC, Tokyo, Singapore, and Shanghai."

These locations are not surprising. They're all major business hubs that also attract a lot of leisure travelers.

Also not surprising is Airbnb is a growing supplier of bleisure travel accommodations. 

According to Conur's data, 70% of expensed trips using Airbnb lodging include a Saturday night stay, compared to just 10% of trips with hotel bookings.

One of the most famous bleisure travelers is Marco Polo, so the the trend is not new.  But it seems to be becoming much more popular.

More on Agility from Gallup and Catalant

After posting on corporations looking to increase their agility on Tuesday, we found two new reports on business agility in our mailbox on Wednesday.

Gallup pointed us to their report The Real Future of Work: The Agility Issue. Here's their pitch on the need for increased business agility:

The old axiom "adapt or die" has never been more relevant than it is today. Consider just three rapid changes organizations are confronting:

• radically shifting customer demands
• lightning-fast advances in technology
• new demands from the emerging millennial (and even younger) workforce

Organizations that don't have the capacity to adapt quickly to trends such as these will be passed by their competitors - or even put out of business. 

In case you think increasing agility is easy, Catalant's report The Obstacles to Agility disagrees. 

According to this report everyone agrees agility is important. But most feel their organizations aren't good at it. Key quote:

According to pre-event survey data, respondents gave the selected drivers of business agility ... an average importance rating of 9/10. Yet, across the board, companies are struggling to achieve agility within their organizations. As noted by the survey results ... In fact, 61% of respondents gave their organizations an average agility performance rating of 6/10 or below.

The Catalant report chart below shows how other agility factors were rated.

This busy week of agility reports shows how big a topic this topic has become. 

The State of the U.S. Heartland

Brookings and the Walton Family Foundation teamed up to produce The State of the Heartland.

It's a detailed study of the U.S. Heartland using 26 socioeconomic variables to assess how the region's economy has been performing since the Great Recession. 

The quick summary is The Heartland is doing just fine.

Their definition of the Heartland, BTW, consists of 19 mostly inland states, with the only surprise potentially being the inclusion of some of the deep south states.

No doubt the Walton Family Foundation's involvement influenced this definition. But we think it's useful to have southern states included. In fact, we'd like to see similar reports for all U.S. regions and states.

The three key study findings, according to the report, are:

1. The Heartland economy is doing better than is sometimes portrayed.  Growth measured by job and output growth have been steady, if not stellar, since 2010 with all of the Heartland states adding jobs and 18 increasing their output. Prosperity has also been slowly rising as all 19 states enjoyed increased standards of living, all 19 posted increases in the average wage, and 12 saw productivity increases.

2. The Heartland, however, is not monolithic: Its economy varies widely across place. In this regard, the region is a checkerboard of sub-regions, states, and local communities where some Heartland places are thriving while others are deteriorating—just as in other regions. 

3. Serious deficits in the region’s human capital and innovation capacity pose the most serious challenges to improving future prosperity. On this front the factbook’s indicators depict a region that is—in most places—struggling to amass the human and technology capacity needed to support broad-based prosperity.

The study website has lots of interactive features that lets you play with the data, including the ability to zoom in by state. It's well worth visiting.

Regular readers know we've long been bullish about the Midwest (we're also biased, since we're from that part of the country). We even included it in our Top 10 Small Business Trends list in 2013. 

We did this because The Heartland has a lot of offer, including low costs and high levels of livability. And as this study states, they need more human capital.

So if you're looking for a place to live, consider The Heartland.

The Robot Business is Hard - Rethink Robotics Shuts Down

With all the noise around AI and robotics these days, you'd think this is a great time to be a company that makes robots.

And in many ways, it is.

According to the International Federation of Robotics, an industry body, worldwide sales of robots increased by 31% in 2017. 

But it turns out the robot business is tough and making money isn't easy. 

Because of this, robotics pioneer Rethink Robotics recently shut down. 

Rethink made two robots - Baxter and Sawyer - that were designed to be safe for humans to work around and easy to program. They were also relatively cheap by robot standards, starting at about $22,000. 

They raised $150 million and for awhile Rethink was considered a sure bet to be a winner. For example, we featured Baxter in our 2013 article The Rise of Robo Sapiens because we were so impressed by the company.

Their pitch was their robots were "cobots", meaning they could work along side and collaboratively with humans. It obviously helped their pitch that Baxter and Sawyer both looked cute - including facial expressions. 

But as the Boston Globe's Businesses want robots that are problem solvers stated:

"While robots may be a big part of the future, building and selling them in the present can be exceptionally difficult."

According to the article, Rethink's robots simply didn't solve business problems as well as robots from competitors. The article also pointed to some business missteps, especially around distribution channels.

That Rethink was forced to shut down instead of being acquired means demand for their robots was at best modest and the business not financially sound. 

Rethink's demise shows how hard it is to build and sell robots. But it also shows the robotics industry is maturing - Rethink failed in large part because their competitors were better. 

Despite its demise, Rethink played an important role in moving the robotics industry forward.

As the IEEE Spectrum article Rethink Robotics, Pioneer of Collaborative Robots, Shuts Down (which is where we got the sad Baxter picture above) points out, Rethink "developed a new class of factory robots that could safely work alongside people."

Expect to see more cobots in the future.

U.S. Non-Profit Sector: Big, Growing and Mostly Comprised of Small Non-Profits

The Johns Hopkins Non-Profit Economic Data Project recently released new data on the the non-profit sector of the economy.

The data is for 2016 (the most recent available) and was developed in conjunction with the U.S. BLS (click here to go the BLS's non-profit data landing page). 

The quick summary is:

• The non-profit sector is big. It employs about 10% of America's private workforce, making it the 3rd largest industry sector in America.
• The non-profit sector is growing. Between 2007 and 2016, nonprofit employment grew by nearly 17% while for-profit employment grew by less than 5%.
• Most non-profits are small businesses. Over 80% of all non-profits spend less than $1 million per year in total expenditures.

As the Johns Hopkins chart below (click to enlarge) shows, the non-profit sector also has the 3rd largest payroll of the major employment sectors.

We've long forecast that the non-profit sector would out grow the for-profit sector of the economy. We continue to forecast this. The trends driving this growth include:

• The Internet and other technology makes is making it easier to start and operate a non-profit and especially small non-profits.
• Baby boomers, looking for encore careers and a way to give back, are starting growing numbers of non-profits.
• Millennials, who have a strong interest in social service, are starting non-profits.
• Non-profits and social service organizations are in many cases replacing governments as the key solvers of social problems.
• Revenue generating business models have become more common, which is leading to more self-sustaining non-profits. 

Despite the size and growth of this sector, it's are often overlooked by companies serving small businesses.

It shouldn't be.

Silicon Republic on What is in Store for the Future of Work

The tech site Silicon Republic recently had a full week of stories on the future of work in the careers section - 15 stories in total.

Our favorite is These are 3 of the most pervasive future of work myths. 

The article's 3 myths, which we agree with, are:

1. AI will totally replace humans.
2. We're entering a work-free future
3. Only stem skills will be important

See the article for more on why these are myths.

And see the whole series. It's well worth a look.

Use of Contract Labor by Small Businesses Continues to Grow

The IRS released their 2016 tax data on sole proprietors. 

The data covers business receipts, deductions, and net income reported by taxpayers on Schedule C of tax Form 1040.

This includes the vast majority of small businesses, including small businesses that report on a pass-through basis (LLC's, etc.). 

 In 2016 about 25.5 million sole proprietors reported about $1.422 trillion dollars in gross receipts. 

As with prior years, sole proprietor spend on contract labor caught our eye. 

As the chart below shows, U.S. sole proprietors spent about $56.8 billion on contract labor (freelancers, temps, etc.) in 2016, up from $34.4 billion in 2010.

 

This is an increase of 65% between 2010 and 2016. 

Over the same period, spending on salaries and wages (meaning traditional employees) rose from $73.7 billion to $90.9 billion, an increase of 23%. 

Way back in 2003, contract labor was only about 20% of the labor costs of sole proprietors. By 2010 it has risen to 31%. And in 2016 it reached 39%. 

This is similar to the non-employee share of the workforce at large corporations, which has also increased substantially over the last two decades.

Expect to see the growing use of non-employee labor by firms big and small to continue.

The FIRE Movement (Financial Independence, Retire Early) and Independent Work

The New York Times article How to Retire in Your 30s With $1 Million in the Bank nicely covers the "... growing movement of young professionals who are intently focused on quitting their jobs forever."

It's called the FIRE movement and the acronym stands for Financial Independence, Retire Early. Key article quote on the main drivers behind the movement:

"Millennials especially have embraced this so-called FIRE movement ... seeing it as a way out of soul-sucking, time-stealing work and an economy fueled by consumerism."

As with most movements, there are different forms. Again from the article:

"Some practice “lean FIRE” (extreme frugality), others “fat FIRE” (maintaining a more typical standard of living while saving and investing), and still others “barista FIRE” (working part-time at Starbucks after retiring, for the company’s health insurance). To be “firing” is to slash one’s expenses to maximize saving while amassing income-generating investments sufficient to support oneself. To have “fired” is to have achieved that goal."

One of the movement's bibles is the 1992 book Your Money or Your Life. 

It's a "how to" book on reducing consumption, increasing savings and focusing more on the non-material aspects of life. 

So what this got to do with independent work?

The answer is the trends driving the interest in the FIRE movement are similar, and in some cases the same, as the trends driving the growing interest in independent work. 

Key article quote from Vicki Robin, coauthor of Your Money or Your Life:

"It’s about having agency, Ms. Robin said: “The worker in this economy has very little sense of control over their existence. People are expendable. You’re a young person and you look ahead and you say, ‘What’s there for me?’”

A large body of research shows that agency is a key reason people become independent workers and like independent work. Agency, for most independent workers, means work flexibility, autonomy and control.

Research also shows a growing number of people are willing to trade income for agency. This, obviously, includes those in the FIRE movement and many independent workers. 

The overlaps between the FIRE movement and growth of independent work is an example of converging trends. And when trends converge, it's a strong signal the related driving trend is powerful and likely to become mainstream. 

In this case the convergence is around people seeking greater agency in both work and life. This is clearly a mainstream desire, but it's also becoming something a growing number of people are willing to change their work and lives to achieve.

As a side note, the founders of Emergent Research read and were influenced by Your Money or Your Life when it first came out. We ended up following what would now be called a fat FIRE lifestyle that led to us leaving traditional employment in our early 40's.

However, we didn't fully retire.

Instead we became high agency independent workers, focusing on work that interests us and we enjoy while making sure we also have plenty of time for our other interests.

We suspect many in the FIRE movement will become independent workers. The logic behind doing so - a continued source of income, engaging work and lots of time for passions and interests - is simply too powerful not to.