The Surge in New Small Business Applications

Applications to get a tax ID as part of starting a business jumped a dramatic 77% in Q3 from the prior quarter. 

This was the largest increase ever in business applications - and there's nothing even close.

As the U.S. Census chart below shows (click to enlarge), both solopreneur business applications (referred to as "Applications Other than High-Propensity") and High-Propensity Business Applications (those indicating they are planning on hiring employees) significantly increased in number. 

An interesting aspect of this data is the difference between the current surge compared to the slight uptick in applications during the last recession (2008-2009).  

There are several likely reasons for this surge.  

First, it's much easier and cheaper to start a small/solopreneur business than it used to be.  This is especially true for gig economy businesses. 

Another reason is that the CARES Act stimulus started running out in late Q2, which meant the 30 million Americans relying on the added benefits needed to find alternative income sources.

A third reason, which comes from our interviews, is that many people see starting a small/solopreneur business as a better post-COIVD option than returning to a traditional job.  

The business applications data comes from IRS Employment Identification Numbers (EIN) applications.  EIN's are the tax id number that identifies a business.  Not all small/solopreneur businesses have EINs. Some, and especially independent workers working part-time, use their social security numbers instead.  But almost all employer businesses have EINs.  

An important point to note is that not all EIN applications result in a small business being started.  Census data shows around 15% of EIN applications lead to a small/solopreneur business being started over the following  2 years.

Our research on small business formation shows about 9% of those who say in surveys they plan to start a small/solopreneur business over the next 2-3 years in our surveys end up doing so. 

We've also found that people who have applied for an EIN and opened a business bank account are much more likely to follow through and start a business, with about 18% of those doing so.  So our data is pretty consistent with the Census.

It's too early to know if this surge is a one-time event, or whether it signals a substantial uptick in small/solopreneur business formation going forward.  

We are forecasting an increase in the number of small and solopreneur businesses post-COVID, but nowhere near Q3's 77% increase.

We'll have more on our forecast in the near future.

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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.

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The Broader Impacts of Prop 22 Passing in a Landslide

Proposition 22, a California ballot measure calling for the exemption of rideshare and delivery drivers being classified as employees, passed by what could be called a landslide - 58% for vs. 41% against. 

Prop 22 passing is a major win for Uber, Lyft, DoorDash and other app-based rideshare and delivery firms. 

It means they won't have to reclassify their drivers as employees, which would have been required had the measure failed.

But as CNBC's What Uber, Lyft Prop 22 win could mean for the future of all freelance work points out, Prop 22 passing has broader impacts.  Key quote:

Independent contractors across the country might breathe a sigh of relief in that California voters sent a message to the state’s legislators that AB 5, the law which was enacted to classify freelancers as employees, is widely unpopular. Other states, including New Jersey, Massachusetts, New York and Illinois, have been among those considering crafting legislation to force companies to deem freelancers as employees. Now those states can more clearly see the risks, experts say.

Worker classification is another issue that is handled very differently by blue and red states.  Blue states tend to have stricter laws requiring workers classified as traditional employees than red states.  

And since California is one of the bluest of blue states, Prop 22 passing by such a large margin will very much be noticed by elected officials of other states - and also at the Federal level. 

Key quote on the broader impact from CNN's Prop 22 passes in California, exempting Uber and Lyft from classifying drivers as employees:

Robert Reich, a public policy professor at UC Berkeley and former Secretary of Labor in the Clinton administration who endorsed a No vote, told CNN Business last week that the outcome of the vote will be "very significant."

 

"Uber and Lyft figure if they win in California they can win political fights in the rest of the states, and probably Congress," said Reich in an e-mail.

 

Prop 22 passing is hardly the end of the political and legal wrangling around the gig economy and freelance worker classification.  To paraphrase Churchill, it's probably not even the beginning of the end of these battles.

 

But perhaps it's the beginning of a process that results in well thought out legislation that clearly defines who is, and is not, and independent contractor.  

 

The articles listed above nicely cover the potential broader impacts of Prop 22 passing, so we won't bother repeating them.  See them for more details.

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The Wannabe Digital Nomads

One of the more interesting findings of the MBO Partners 2020 Digital Nomad study is the large number of Americans who aren't currently digital nomads who say they want to be.

Key quote from Bloomberg's When You Can’t Work From Barcelona, Boulder Might Do, which covers the study:

"... there is a massive and growing reserve army of digital-nomad wannabes — people who tell the survey-takers they’re planning on going nomadic in the next two or three years, or at least thinking about it."

The chart below, also from the Bloomberg article, shows that 19 million Americans say they plan to become digital while another 45 million say they are considering it.

As the article points out, we call these wannabes "armchair digital nomads" because most will not follow through and become digital nomads.  

Instead, they will follow digital nomads on social media and treat the trend almost as a spectator sport.  But the large number of wannabes shows there is a lot of interest in digital nomadism.

In our work we've learned survey questions asking aspiration questions or questions on hot topics often result in a large number of false positives.  And the huge number of people saying they are going to become digital nomads is a good example.

Another example is asking people if they're going to start a business.  We've found only about 9% of those who say in surveys they will be starting a new small business over the next 2-3 actually do so.

We don't yet know how many wannabe digital nomads will follow through and become one - there isn't enough historical data to make an estimate.  But if even a small percentage of the wannabes follow through and become digital nomads,  it will be enough to keep the trend growing.

Emergent Research worked with MBO Partners on this study.

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Academic Studies Show Gig Work Increases Entrepreneurship an Acts as a Safety Net

Two recent academic studies illustrate several of the benefits of the gig economy. 

The University of Chicago Booth Review article Does the gig economy promote entrepreneurship? covers a study showing that gig economy employment helps people make the leap to entrepreneurship and start their own businesses.  Key quote:

Gig work may encourage the formation of new businesses by giving potential entrepreneurs a way to supplement their income during the lean times that many new ventures experience, the researchers explain. And if these entrepreneurs start a business and it fails, gig work gives them something to fall back on.

MIT Management's How the gig economy can reduce unemployment and debt reports on a study showing how the gig economy can act as a safety net.  Key qutoe:

A new working paper by John Nickerson, a visiting professor at MIT Sloan, presents a compelling picture of how the gig economy may alleviate situations like this, dampening demand for unemployment insurance while reducing both credit card debt and delinquency rates. 

These advantages of the low friction, highly flexible work the gig economy provides are something we've long covered.   

The gig economy gets a lot of criticism.  But it's clear from a growing list of studies that gig work is beneficial for a lot of people.

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The U.S. Has 1.7 Million VanLifers

VanLifers are people who travel, work and live on the road in vans, RVs, and other vehicles. 

And according to the recently released MBO Partners research study on digital nomads, there are about 1.7 million VanLifers roaming the country. Emergent Research (that's us) worked with MBO Partners on this study. 

VanLife, which is a subset of the broader digital nomad trend, has been popularized in part by millions of #VanLife posts on Instagram, Pinterest, Facebook, and Twitter.  

These posts tend to show pictures of young, adventurous, photogenic millennials - often with adorable dogs - enjoying the great outdoors in beautiful places.

For example, the picture below is from the blog of the #VanLife Hearnes family and shows them having fun while touring Utah with their dogs.

You can also find all sorts of pictures on social media of VanLifers doing yoga on the beach or next to a mountain.  

But the VanLife movement is much broader with all age groups participating, including aging baby boomers living, working, and traveling in RVs. 

Although 2020 was the 3rd year of MBO Partners' ongoing digital nomad study, it was the first year specific survey questions on VanLifers were included.  So there's no historical data to compare the numbers with.

But we're sure they increased substantially this year as COVID-19 has resulted in digital nomads staying closer to home (see last week's post on the study for more details). 

One indicator of the growing interest in VanLife is Van manufacturers have noticed.  

Business Insiders RV makers are rushing to cater to the new 'work from anywhere' crowd as the pandemic continues to force people to rethink their lives covers the surge in demand for RVs and Vans. Key quote:

"Many RV, camper van, and travel trailer makers have started catering their road travel builds to accommodate the rising popularity of digital nomads and "work from anywhere" crowd amid the pandemic."

The VanLife is a trend that has been accelerated and amplified by the pandemic.

We believe post-COVID the shift to work from anywhere and hybrid work models will result in the continued growth in the number of VanLifers over the next few years.

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Digital Nomad Numbers Skyrocket Thanks to Work From Anywhere

The number of U.S. digital nomads grew from 7.3 million in 2019 to 10.9 million in 2020, a 49% increase.

This data comes from COVID-19 and the Rise of the Digital Nomad, which is the report on the third year of an ongoing research series on digital nomads conducted by MBO Partners.

Emergent Research (that's us) works with MBO Partners on these studies.

The increase is driven by the unleashing of traditional employees due to the shift to work from anywhere policies caused by the pandemic. 

As the report chart below shows, the number of digital nomads with traditional jobs roughly doubled from 2019 to 2020.

Over the same timeframe, the number of independent workers reporting they are digital nomads increased by a relatively modest 12%.  

Independent workers had substantially more location freedom than traditional employees prior to the pandemic, so the impact of COVID-19 on where they worked was much less pronounced.

COVID-19 has also changed what it means to be a digital nomad.  Key quote from the report:

International flight and travel restrictions have made it harder to travel abroad, while health and healthcare concerns have also made travel less attractive. Because of this, only 1 out of 4 (24 percent) American digital nomads said they plan to travel internationally over the next year.

Instead, a resounding majority (76 percent) of American digital nomads are exploring the U.S. Most (52 percent) are also reporting they plan on visiting fewer locations but spending more time at each stop, which is consistent with trends in the travel industry as a whole. Relatedly, 41 percent report they are spending less time traveling. And 40 percent report that, while they are traveling, they tend to stay closer to home to be near family and healthcare providers.

Going forward, we expect continued growth in the number of digital nomads.  The shift to remote work and work from anywhere will allow more traditional employees to pursue their passion for travel.  

We also expect digital nomads to return to international travel once the pandemic over.  The interest in travel and experiencing new places and cultures is simply too strong for this not to happen.

We'll have more on digital nomads and the findings from this study in the near future.

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3D Printing 2.0

Desktop Metal, a leader in 3D printing with printers than can build metal parts, is going public. 

Supporters of the company claim this is the beginning of a much more successful era for 3D printing, which they're calling 3D printing 2.0.

As the Crunchbase article 3D Printing Investment Going Vertical As Big Exit Looms points out, 3D printing has been around a long time and, so far, has not lived up to its hype.  Key quote:

Transformative technologies often get massively overhyped at the early stage. In the case of 3D printing, the breakout moment was supposed to be 2012, when a new generation of desktop 3D machines hit shelves. Soon, they were to be nearly as commonplace as smartphones.

Needless to say, that futuristic vision didn’t pan out.

But as we pointed out in our 2017 article 3D Printing Moving Past Prototyping to Large Batch Manufacturing, even in 2017 3D printing had become an important vertical market manufacturing technology. 

The reasons supporter of 3D printing claim it's turned the corner and will quickly expand are fairly straight forward.  They say the technology has reached the point where it can effectively compete with traditional large scale manufacturing systems.  And systems like Desktop Metal's that allow the printing of metal parts greatly expands the market.

3D printing is actively used in a lot of industries to manufacture things.  Again, from the Crunchbase article:

From jet engine parts to teeth straighteners to lab-grown chicken nuggets, startups and established manufacturers alike rely on the technology to create new products and add efficiency and customization to production of existing ones.

And everyone is forecasting that 3D printing will continue to grow rapidly.

The phrase "this time it's different" is well known as the phrase most likely to be wrong when used in forecasting.  

But sometimes this time really is different.  And after many false starts, this appears to be true for 3D printing.

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Work is Going Hybrid and it Will Have Major Economic and Societal Impacts

CNBC's JPMorgan will have staff cycle between office and remote work in a move that may remake Wall Street covers a plan by the bank to institute a rotational work location model that includes in-person and remote work. 

Key quote:

“We are going to start implementing the model that I believe will be more or less permanent, which is this rotational model,” Pinto told CNBC in a Zoom call from London, where he is based. “Depending on the type of business, you may be working one week a month from home, or two days a week from home, or two weeks a month.”

JP Morgan isn't the only company planning on this.

According to a survey by the HR consulting firm Mercer, 73% of the firms surveyed plan to implement a hybrid work environment that includes both in-office and remote work.

And a Gartner study found that 82% of executives surveyed plan on allowing employees to work remotely at least some of the time. 

They are doing this, at least in part, because although most employees don't want to return to the office full-time, most want to return to the office at least some of the time.

Most companies also want employees to show up at the office some of the time.  They think it improves cultural, social cohesion, teamwork and innovation.  

So both employees and employers are saying they prefer the hybrid model.  

Axios also covers this topic in their article Remote Work Won't Kill Your Office.  Key quote:

The big picture: Since the onset of pandemic-induced telework, companies have oscillated between can't-wait-to-go-back and work-from-home-forever. Now, it's becoming increasingly clear that the future of work will land somewhere in the middle — a remote/in-person hybrid.

Surveys conducted in the six months since most people started working from home show that less than 10% of Americans actually want to work remotely all the time, according to a new Barclays analysis.

So it looks like the hybrid model is going to be the winner, at least over the next few years.  

If this happens, it will have major economic and societal impacts due to dislocations caused by changing commuter patterns and shifts in where people choose to live.

Urban centers will most likely be impacted the most due to the decreased number of workers commuting to city center offices. They will also likely see some residents leave.  

Suburbs will likely benefit due to existing suburbanites spending more time and money in their communities. 

Suburbs will also likely see an increase in new residents, due to people leaving the cities in search of lower costs and more space. But many of these workers will still need to be in commuting distance since a hybrid model means going to the office on a somewhat regular basis.

Smaller cities will also likely benefit because a large number of people will likely have enough flexibility to move even farther away from the office. 

The shift to remote work is getting a lot of attention, but we're still a long way from fully understanding the extensive impacts this shift will likely have.

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Slow Travel, VanLife and Digital Nomads

Marriott's Taking Pause: How Slow Travel Is Changing the Way We Explore takes a look at the "slow travel" trend.

Slow travel, which is considered an offshoot of the slow food movement, focuses on spending more time in fewer places.  

Instead of attempting to squeeze as many sights or cities as possible into their trips, the slow traveler explores a destination and experiences the local culture. 

The slow travel trend has been around for years, but prior to the COVID-19, it attracted relatively little attention. 

The pandemic has changed this.

Due to travel restrictions and health concerns, slow travel is in vogue - especially with the large group of workers who can now "work from anywhere" thanks to the pandemic.

The new slow travelers like the less frenetic pace associated with longer stays. They also report being more productive workwise when they travel less.  

Van manufacturers have noticed.  

Business Insiders RV makers are rushing to cater to the new 'work from anywhere' crowd as the pandemic continues to force people to rethink their lives covers their surge in demand for RVs and Vans. Key quote:

"Many RV, camper van, and travel trailer makers have started catering their road travel builds to accommodate the rising popularity of digital nomads and "work from anywhere" crowd amid the pandemic."

We'll be publishing more detailed data on the boom in digital nomads and #VanLifers soon. But the quick summary is lots of people have taken to the road since the pandemic started.  This is especially true for those with traditional jobs who can now work from anywhere.

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The K-Shaped Recovery

There's much talk these days about a K-shaped recovery. This is a recovery where professionals and those with higher wealth and income are hurt less by the recession and recover more quickly than moderate and low-income Americans.

The K-shape is driven, in part, because industries that employ high percentages of low and moderate wage jobs are not recovering as quickly as other industries.

The chart below is from the U.S. Chamber of Commerce article The K-Shaped Recovery and the Cost of Inaction.  Key quote:

"Long gone is the notion that we’ll have a V-Shaped Recovery—a deep economic decline followed quickly by a sharp rebound. Instead, what we’re looking at is a recovery that will be vigorous for some sectors while others remain in freefall."

The Chamber article illustrates this by pointing out that "the financial services sector, for example, has already recovered 94% of its pre-pandemic employment. Leisure and entertainment, on the other hand, has only brought back 74% of the workforce."

Another factor is remote work. A much higher share of high wage jobs can be done remotely than low wage jobs. This has resulted in much higher levels of unemployment among low wage workers.

Cutting the data by income reinforces the idea of a K-shaped recession.

According to an NPR survey and covered in their article Nearly Half Of U.S. Households Face A Financial Crisis 54% of those with household incomes below $100,000 reported serious financial problems due to the pandemic, compared with only 20% of those with incomes above that threshold.

And, of course, the stock market's recovery heavily favors the wealthier.  The top 1% of Americans in terms of wealth own over half of all stocks and mutual funds and the top 10% own about 87%. 

That doesn't leave a lot for the other 90%.

Recessions have always increased economic inequality and hurt the wealthy less than those with low and moderate-incomes.  

But this one seems particularly hard on the low to moderate-income group.  

In terms of the recovery's shape, we think it will be both a swoosh and K-shaped.  One reason it will be both is the k-shaped jobs and industry recovery will keep the overall economy from fully recovering quickly. 

We think the economy will get to 90%-95% of pre-pandemic levels by the end of the year, but the last %%-10% - which are big percentages in terms of the economy - will take much longer. 

Unfortunately for the small business sector, it over indexes in industries that are not recovering quickly.  This is one reason we continue to forecast that a large number of small businesses will close this year.  

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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.  

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Study Finds Most Rideshare Drivers Want to be Independent Contractors

A recent survey shows that most rideshare drivers prefer being independent contractors instead of employees, including a slight majority of full-time drivers.

The study was sponsored by Uber (we'll get to that later) and conducted by two political consulting firms, one that leans Democratic and one that leans Republican.  Key quote from the report on the two firms and their work:

"Uber engaged two independent and well-respected research firms, Democratic-leaning Benenson Strategy Group and Republican-leaning GS Strategy Group to come together in a bi-partisan independent research project to explore the needs and concerns of app-based Drivers ..."

The study's key finding is that 64% of drivers report they prefer being independent contractors, with 24% saying they would prefer being a traditional W2 employee. The chart below (click to enlarge) is from the detailed study results report.

And as the study chart below shows (click to enlarge), a key reason most drivers prefer being an independent contractor is the flexibility it provides.  

This, of course, is no surprise to anyone following this topic. 

Almost every independent worker and/or rideshare driver study that has a representative sample we've seen shows that flexibility is a key reason people prefer being an independent worker.  And we've been at this a long time and have seen hundreds of studies.  Browse through our independent worker section to see many examples.

This study was sponsored by Uber, which means those opposed to Uber and drivers' classification as independent workers will attack it because of their involvement. We understand that having a corporate sponsor can lead to bias.

But in this case, the research firms released their full question set and answers.  This means you can dig through the questions and data and look for bias.  We did this and found that overall the study and survey questions were well constructed and methodologically sound. 

However, we found several cases of leading questions where the phrasing likely influenced the survey takers' responses. The study's agree/disagree questions also used a 4 point scale, which tends to inflate both positive and negative responses compared to a 5 point scale.

But as you can see from the chart above, the key study question on whether or not drivers want to be employees or contractors used a 5 point scale.  

We also found leading questions that both benefited Uber and went against them.  So at least in our opinion, the leading question and scale issues balanced out. 

Add in the fact that the study findings are consistent with almost every study done on this topic (including ours), and it's hard to argue the study is biased.

But a long time rule of PR is if you can't attack the message, attack the messenger.  In the case of studies, this translates to if you can't attack the study methods or results, attack the researchers and/or the research backers.  

So expect this study and its results to be attacked because Uber was involved.  

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