Small Business Labs

What are Digitally Native Franchises?

Forerunner Ventures is best known for funding early direct-to-consumer, online brands like Warby Parker. Bonobos and others.  

Their latest investment thesis is "digitally native franchises," which they describe as online platforms that enable people to start their own business with meaningful ownership and flexibility, but also the playbook and support of a centralized platform.

As the Forerunner chart below shows (click to enlarge), they see digitally native franchises as providing independent workers more control, freedom, and financial upside than gig workers - and greater support and less risk than traditional small business ownership provides.

Forerunner says the drivers of digitally native franchises are:

• Broad, rising interest for people to be able to work themselves (though current market conditions can make that daunting)
• An unbundling of historical service industries (healthcare, education, personal finance, home services, and more)
• New tech making structures more efficient and scalable (yes, AI)

Forerunner uses Fora Travel, which they have invested in, as an example. Forerunner describes Fora as:

"a unified platform enabling anyone with a passion for travel to monetize that expertise as a modern travel agent."

We're not sure how different a digitally native franchise like Fora is from the many existing online platforms that connect small businesses and solopreneurs to customers.

But given Forerunner's success at spotting and building new businesses, we think following their efforts in the digitally native franchise space is well worth doing. 

TechCrunch has a good article on digitally native franchises and Forerunner has a detailed white paper on the topic.

McKinsey 2023 Technology Trends

McKinsey recently released their 2023 Technology Trends Outlook. The list is pretty similar to last year's, which we also covered.

The one big difference from last year, unsurprisingly, is the addition of generative AI. The other 14 trends on this year's list are repeats from last year.

McKinsey has, in our opinion, one of the better descriptions of generative AI:

"Generative AI can automate, augment, and accelerate work by tapping into unstructured mixed-modality data sets to enable the creation of new content in various forms, such as text, video, code, and even protein sequences."

Although generative AI is new to their trends list this year, McKinsey, like everyone else, is forecasting it to have a significant economic impact. Key quote:

"Generative AI is poised to add as much as $4.4 trillion in economic value from a combination of specific use cases and more diffuse uses—such as assisting with email drafts—that increase productivity."

McKinsey ranks the trends on three metrics:

• Innovation: based on related patents and research efforts
• Interest in the technology: based on recent news and web searches.  
• Amount of investment in the technology in 2022 (size of bubble in the chart)

McKinsey also provides an adoption rate score for each technology.  

As the McKinsey chart below shows (click to enlarge), applied AI is the leading technology with a high innovation score and relatively strong interest and investment scores.

Looking closely, you will find generative AI bottom-left on the chart. And if you were rank-order the technologies, generative AI would come in 14th out of 15, just edging ahead of quantum technologies.

The McKinsey article provides a detailed analysis of each of the 15 technologies on their list.  

We like McKinsey's approach because they go beyond just looking at the technology and include data on the drivers of adoption.  

Anyone interested in tech trends will find McKinsey's list well worth reading. In addition to the summary, there is a more comprehensive 81-page report.

The Advantages of Semi-Retirement

Yahoo Finance's Could Semi-Retirement Be Right For Me defines semi-retirement as:

"a transition stage to full retirement during which people usually work fewer hours, either at their former employers or in a new part-time job. Semi-retirement can generate additional income while also providing engagement, satisfaction and even better mental and physical health."

Generating income is a key reason many are semi-retired. 

But as The Atlantic's Semi-Retirees Know the Key to Work-Life Balance points out, most semi-retirees seek more than income from their semi-retirement work.

And they especially value work flexibility. Key quote:

"...semi-retirees tend to look for roles that grant a sense of purpose, the ability to keep learning, and, perhaps more than anything, flexibility."

Historically, flexible work the semi-retired look for was hard to find. The vast majority of full-time and even part-time jobs required a commitment to fixed schedules.

But thanks to the growth of the gig economy, various forms of self-employment, and more flexible traditional jobs, semi-retirement is much easier than in the past.

But it still requires research and planning.

Fidelity's Guide to Working Less and Living More suggests 4 key things to consider before jumping into semi-retirement:

• Think through your long-term financial needs before embarking on semi-retirement.
• To make it work, know exactly how much money you spend and where you can cut back if necessary.
• Understand the costs of health care once you leave an employer's plan.
• Do some self-reflection to determine what you want to get out of semi-retirement.

Fidelity also suggests starting thinking and planning about semi-retirement well before you plan to semi-retire. Key quote:

"It's best to begin planning—and saving—during your wealth accumulation years to capitalize on employer benefits and the power of compounding."

We regularly interview people who fit the description (but rarely self-describe) as semi-retired. And based on what we've heard, Fidelity's planning advice rings true.

A key reason we study semi-retirement is that older workers have the highest levels of self-employment.  

And more baby boomers looking to semi-retire instead of fully retiring means more independent workers.

America's Factory Boom

Recent Census data shows that construction spending by US manufacturers more than doubled over the past year. 

The chart below (click to enlarge) is from Axios' A manufacturing investment supercycle is starting. It shows "spending on manufacturing construction — new factories — is tracking at a $189 billion annual rate, triple the average rate in the 2010s ($63 billion)."

According to Axios, the main driver of this boom is incentives provided by recent federal legislation - the Inflation Reduction Act, the Infrastructure Law, and the CHIPS and Science Act. Key quote:

".. there are billions flooding into large, expensive megaprojects to manufacture batteries, solar cells, semiconductors and much more."

Another factor is the reshoring of manufacturing. This is a longer-term trend accelerated by the pandemic and trade issues with China.  

America's factory boom will not just benefit the owners of manufacturing megaprojects. Small manufacturers will also benefit from the incentives - as suppliers to the new megaproject manufacturing facilities.

And once the factories are built, manufacturing output and  employment will increase, which is good for the overall economy.

Excellent Schwab Podcast Explains Survey Selection Bias

Every so often, we write an article knowing few people will read it.  And let's face it, survey sample selection bias is not a hot topic.

But you should read this article because survey selection bias is a growing problem.

This is because easy-to-use online survey tools allow people who are untrained in survey methods to easily and quickly create and field surveys.

Schwab's Choiceology podcast Survey Says covers what selection bias is and why it's a problem.  

The podcast starts with the story of the 1936 presidential election, which Franklin Roosevelt won in a landslide over Republican Alf Landon.

What few know about that election is that the Literary Digest presidential poll, considered the gold standard of presidential polls at the time, predicted Alf Landon would not just win - he would win in a landslide. 

This, of course, was a huge miss. Key quote from Social Science History's "President" Landon and the 1936 Literary Digest Poll:

"The disastrous prediction of an Alf Landon victory in the 1936 presidential election by the Literary Digest poll is a landmark event in the history of American survey research in general and polling in particular."

The prediction was so bad that the Literary Digest - a respected and successful magazine - went out of business two years later.

The failure was due to selection bias. Simply put, the Literary Digest's survey sample heavily overweighted Landon supporters. This led to an erroneous prediction that Landon would win.  

Because we're industry analysts, we review dozens of surveys yearly. More than a few suffer from selection bias, and we know not to trust their results.

So if you're a user of surveys or someone who fields surveys, you need to know about selection bias - and how to identify and avoid it.

And listening to the Schwab podcast is a quick and easy way to do this.  

Commercial Real Estate Industry Facing The Perfect Storm

Commercial real estate is getting a lot of media attention, with most articles forecasting stormy weather ahead for the industry.

For example, the title of Goldman Sachs's recent podcast on this topic is Navigating the 'perfect storm' in commercial real estate.

The Wall Street Journal's Commercial Real-Estate Woes Run Deeper Than in Past Downturns is also gloomy. Key quote: 

"Landlords are contending simultaneously with a cyclical market downturn and with secular changes in the way people work, live and shop. The sudden surge in interest rates caused property values to fall, while the rise of remote work and e-commerce are reducing demand for office and retail space."

Fortune's Office vacancy will increase by 55% by the end of the decade as hybrid and remote work push real estate to an 'inflection point' again paints a grim picture. Key quote:

"As much as 330 million square feet of U.S. office space could become vacant and unused by 2030 due to remote and hybrid work, according to a report released Wednesday by global real estate firm Cushman & Wakefield. When added to another 740 million square feet of space that will become vacant from "natural" causes, the total is around 1 billion square feet of unused office space building up over the next seven years."

And the retail industry continues to get hit by the shift to online shopping - and has to also deal with challenges related to remote work.  

Yahoo Finance's Retail store closures 'to sharply accelerate going forward': UBS research covers a study that estimates that "50,000 retail stores will close out of the current base of 940,000 stores in the United States by 2027, excluding gas and food service stations."  

If things turn out to be as dire as these articles are saying, it will have significant negative impacts on the overall economy.

We're more optimistic than these articles.  

But small businesses and independent workers with exposure to the commercial real estate industry should think through how they will deal with a major downturn in the commercial real estate market. 

Update The New York Times published A Bleak Outlook for Manhattan’s Office Space May Signal a Bigger Problem this morning.  It's hard to keep up with all the gloom and doom commercial real estate stories these days.  

The impact of Recent Layoffs on Freelancing

Historically, job security has been one of the main attractions of a traditional full-time job.

But research (click on the chart below to enlarge) from the long-running MBO Partners State of Independence study shows a growing share of independent workers believe independent work is more secure than a traditional job. 

The study has also found that the share of traditional jobholders saying independent work is less risky than a traditional job is also growing, increasing from 18% in 2018 to 33% in 2022. 

Put another way, 7 in 10 independents and 1 in 3 traditional employees say independent work is more secure than traditional employment.

And the rash of layoffs in tech is reinforcing this view.  

Two recent articles on this topic caught our eye.

Vox's Tech Workers are Increasingly Taking Contract Jobs covers the recent tech industry layoffs. Key quote:

"Part of what's leading more people to independent work is that regular employment doesn't look so hot right now in certain industries ... All of a sudden, contract work isn't looking so bad."

The article also points out something we often hear in our interviews - because most independent workers have multiple sources of income, they feel more secure than if they were relying on a single employer:

"It's almost like diversifying your stock portfolio," she said. "Instead of working for one company, I'm going to work for several because if one of them doesn't have work, the other ones do."

The Information's Tales from the Shredder: How a Quarter-Million Fired Tech Workers Are Picking Up the Pieces focuses more on the human impact of getting laid off.  

Our favorite quote is from a laid-off tech worker that illustrates the lack of security of traditional jobs:

"They paid us well; they gave us good severance," he said. "But the experience made me feel like I was just a tool. If they need you, they hire you. If they don't need you, they discard you."

The choice between a traditional job and freelancing generally comes down to an evaluation of the pros and cons of each.

And anything that makes traditional jobs less attractive - like a lot of publicity about layoffs - makes freelancing more attractive, and means more workers making a choice will choose freelancing. 

Emergent Research (that's us) works with MBO Partners on the State of Independence study series.

What are DINKWADs?

Regular readers know that two of our favorite topics here at Small Business Labs are new buzzwords and pet trends.

So we had to cover DINKWADs, a new to us buzzword.  

It stands for "dual income, no kids, with a dog."  

DINKs is an old buzzword. It was coined when yuppies (a 1980s buzzword for young urban professionals) started pairing up.   

DINKWADs adds, "with a dog."

The Insider's Meet the DINKWADs: The TikTok legion making everyone jealous with their double incomes, no kids, and a dog covers this new acronym and trend. Key quote:

"The allure of the DINKWAD lifestyle is solely based on financial and personal freedom from any responsibility," Ahmed said. Instead, Benfield and Ahmed love to travel and are both passionate about not having children. They have a beloved rescue mutt named Yvie instead."

The same type of quote appeared in the old DINK stories, but without the mention of dogs.

But since the acronym DINK was coined, the trend toward pet humanization has dramatically accelerated.

And now, pets - and especially dogs - have become viewed as family members and kid substitutes. 

And you can pridefully show you're a DINKWAD by wearing a DINKWAD t-shirt (available from Etsy).

We cover trends like this because declining birthrates have significant, long-term economic and social impacts.

Key quote from our article U.S. Birthrate Hits Another All-time Low:

"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."

See our Demographics and Pet Trends sections for more on this topic.

Skift's Travel Industry Megatrends

Skift is a travel industry analyst firm and one of our favorite sources on travel trends. Much of their content is behind a paywall, but they also produce free content (we subscribe to several of their newsletters).  

We follow travel trends because of our interest in remote work and digital nomads. We're also active travelers, so we like travel trends.  

They recently released their 2023 Travel Megatrends report. It covers 22 travel and travel industry trends.

Two trends jumped out at us. 

Blended Travel Comes of Age covers the growth of travel that includes work and leisure. Key quote:

"The pandemic has led to a permanent change in how we live our lives between work and the personal. No longer just a trite category called "bleisure," the idea of blended traveling is front and center for every major travel company now. How new strategies focused on the blended traveler will emerge more clearly in 2023, as the industry recognizes the whole traveler holistically." 

As the Skift chart below shows (click to enlarge), the share of business travel that includes a weekend has increased substantially since the start of the pandemic.

Because of the growth of blended travel, the entire travel industry is trying to figure out how to serve this market segment better.

The other trend that caught our eye is The Anywhere Traveler Puts New Destinations on the Map. Key quote:

"Millennials now surpass Boomers as the largest sector of the U.S. population, giving rise to a new class of "anywhere travelers." This group has a strong passion for experiences that take them to less obvious destinations. These habits, in their own way a new form of balancing overtourism, will put new destinations in focus."

We like this trend for several reasons.  

First, It illustrates one set of impacts due to the aging of baby boomers. Aging boomers will have many economic and societal impacts, and these, in our opinion, are being underestimated.

And second, the Anywhere Traveler will increasingly be a remote worker or digital nomad.  

The other 20 trends are also interesting, and the report is well worth reading for anyone interested in shifts and trends.

Wunderman Thompson's 100 Trends to Watch in the Coming Year

Wunderman Thompson's Future 100: 2023, which is one of our favorite annual trend reports, was released this week.

It's one of our favorites for several reasons.

First, since a global marketing agency produces it, the production values are outstanding. It's well-written, and the pictures and illustrations are fun and often intriguing.

Second, who else puts out a report with 100 trends? It's almost too much to go through.

And finally, the report includes 10 consumer trend categories covering everything from beauty to work. Click to enlarge the chart below.

We always have our favorite trends from this report.

This year they include The Artisan Wave, Situationships, Non-Linear Work, and Deepsea Tourism. See the report for descriptions.

And we're always interested in their top 3 destinations. This year they are Morocco, Kyoto, and Tanzania. We've been to all three and they're great places to visit.

If you're interested in consumer trends, this report should be on your reading list. It's free.