Small Business Labs

Led by Retail, The Surge in New Business Applications Continues

The new business application surge, which started last summer, continued in April, with about 488,000 applications submitted.  

This data comes from the U.S. Census' Business Formation Statistics and based on IRS Employment Identification Numbers (EIN) applications.  

Most of the applications are what the Census calls "applications other than high propensity" (grey in the chart; click to enlarge).  These are applications from businesses that are unlikely to have employees, such as freelancers, independent contractors and other types of solopreneurs.

The industry with the highest number of applications in April was retail trade, with 96,000 applications.  This is a bit more than twice the rate of retail trade business applications prior to COVID-19.

In addition to the surge, both charts also illustrates the longer-term shift away from shift employer business applications (high propensity applications, in yellow) and towards applications from solopreneurs.

Back in 2003-2007 80% of new retail trade business applications came from firms planning on hiring traditional employees.  In April, only 33% did.  

This same shift to solopreneur firm applications is occurring in most industries.  For example, the shift is even more pronounced in professional services than it is in retail.

At this point it's clear the surge in applications is real. 

But more work needs to be done to understand who the new applicants are, what their plans are, and how many will actually form new small businesses.

U.S. Birthrate Hits Another All-Time Low

One of the interesting statistics from the 2010 U.S. Census was their finding that the U.S. birthrate hit an all-time low in 2010.  

At the time, demographers tended to blame this on the great recession and many forecast birthrates would increase as the economy got stronger.

But fertility rates didn't improve. 

In fact, they got worse and steadily declined from the all-time low of 1.72 in 2010 to a new all-time low of 1.64 in 2020.  

Key quote from the Washington Post's U.S. birthrate falls to its lowest level in decades in wake of pandemic:

Before the pandemic, American women were already having fewer children, doing it later in life or choosing to not have children at all. The newly released data indicated a sharpening of that trend. The U.S. birthrate fell across races, ethnicity and almost all age groups.

Falling birthrates also, obviously, means fewer births.

The chart below, from Bloomberg's U.S. Births Drop to the Lowest Level Since the 1970s, shows the impact on births from the last decade's declining birthrate.

Declining fertility and birth rates have enormous social and economic implications.

They lead to reduced economic growth, make it harder to pay for social programs (especially social security and Medicare) and cause economic dislocations due to changing demand patterns.

On the plus side, they lead to more people buying pets.

We have more on these topics in our Demographics and Pet Trends sections.  

The Post Pandemic YOLO Movement

YOLO is an acronym for "you only live once", which was popularized by the rapper Drake a decade ago.

We learned this interesting fact from the New York Times article Welcome to the YOLO Economy.  

The article describes the growing number of people who are, in the words of the article, "quitting prestigious and high-paying jobs to pursue risky passion projects."

Key quote from the article:

Several people in their late 20s and early 30s — mostly those who went to good schools, work in high-prestige industries and would never be classified as “essential workers” — told me that the pandemic had destroyed their faith in the traditional white-collar career path. They had watched their independent-minded peers getting rich by joining start-ups or gambling on cryptocurrencies. Meanwhile, their bosses were drowning them in mundane work, or trying to automate their jobs, and were generally failing to support them during one of the hardest years of their lives.

And because they've lost faith in the traditional career path, they've decided to strike out on their own in some way.  

There is a growing body of evidence indicating that the number of independent workers (freelancers, self-employed, gig workers, etc.) has increased substantially since last fall.  

Among the examples, most of which are anecdotal, is the surge in new business applications by solopreneurs.

The pandemic clearly has many people re-evaluating their lives. 

And while we don't think the vast majority of traditional jobholders will leave them for self-employment, it's becoming clear many are.

We'll have more on surge in self-employment in the near future.

Post Pandemic, the Hybrid In-Office, Remote Work Model is the Most Favored

By late last summer, it became clear that most companies would likely move to a hybrid working model, which combines increased levels of remote work with in-office work.

The Washington Post's recent article The hybrid office is here to stay. The shift could be more disruptive than the move to all-remote work covers the growing number of companies announcing they're going hybrid.  Key quote:

"The post-vaccine workplace is taking shape, and for many it’s going to be a hybrid model, allowing more remote work but with clear expectations that some days a week will be in the office."

The reason hybrid work is winning is surveys consistently show most workers and their bosses think hybrid is the best way to go.

For example, PWC's study It’s time to reimagine where and how work will get done found that "less than one in five executives say they want to return to the office as it was pre-pandemic."

As the study chart below shows, most executives think employees need to be in the office between 2-4 days.

The PWC study also found that most employees think they should be in the office 2-3 days.

Not surprisingly, most companies agree and say when they return they expect their employees to be in the office 3 days a week.

The Washington Post article's title mentions that this shift will be disruptive.  But the focus of the article is on it being disruptive for companies.

The shift to hybrid work models will also have major economic and societal impacts due to dislocations caused by changing commuter patterns and shifts in where people choose to live.

And we're just beginning to understand what these 2nd order impacts are and what they will mean.  

The Rising Net Worth of the Less Affluent

Bloomberg's The Comeback of the Bottom Half covers Federal Reserve data showing that the less-affluent 50% of Americans saw their net worth rise the fastest over the past decade.

Key quote:

The rich had a great run, but they didn’t even come close to the percentage gains in real wealth seen by the bottom 50%. These amounted to 21.9% over the past year, 125.6% over five years and 526.2% over 10 years, compared with the one-percenters’ 10.3%, 33.8% and 83.9%.

The article chart below shows the dramatic increase in the bottom 50%'s wealth since the Great Recession.

While very good news, the article points out there is still long way to go.  The strong decade of growth only gets the lower 50%'s share of household wealth back to about half of where it was in 1992.

The rise in wealth for the lower 50% over the past decade is certainly good news and, hopefully, it will continue.

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.