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SMALL WORLD AFTER ALL

Extra-small businesses are an appealing escape from the corporate jobs we hate

Scanpix Denmark/Ida Guldbaek Arentsen/via REUTERS
Speeding ahead to a world of extra-small businesses.
  • Allison Baum
By Allison Baum

Venture investor, Trinity Ventures

Silicon Valley is obsessed with billion-dollar businesses. We are constantly hyping our unicorns—there are now more than 200 of them. As a result, it is easy to forget that 99.9% of US businesses are, in fact, very small. The US alone has more than 20 million XSMBs (extra small businesses). Firms with fewer than 20 employees are growing faster than any other category of small business, which together employ nearly 50% of the private workforce, and the ranks of the gainfully self-employed are swelling. Collectively, they are a force to be reckoned with.

As we transition to a more digital, distributed, and data-driven world, the future of work will be built not by the largest companies in the world, but by the smallest. If the past decade in tech was defined by unicorns, here are five reasons why the next decade will be shaped by XSMBs.

1. Working a regular job is no longer a reliable way to create wealth—but starting your own business is

Despite America’s reputation as a land of opportunity, social mobility is on the decline, with people born into low socioeconomic status more likely than ever to become stuck there. In 1940, 90% of young adults earned more than their parents. Today, only 50% of adults make more money than their parents.

It’s not that companies aren’t doing well. In fact, they’re doing great. Corporate profit margins are near all-time highs. However, the riches are going disproportionately to executives and investors, pushing US income inequality to its highest level in 50 years, while technology is increasing business efficiency but displacing workers, causing wage growth to decouple from productivity. And that trend is only the beginning, as AI accelerates the replacement of workers.

2. Younger generations are more entrepreneurial, and entrepreneurs tend to be more politically active than their corporate counterparts

Deeply affected by the financial crisis and its resulting professional uncertainty, millennials care about flexibility over stability and values over profits. Tagged as the entrepreneurial generation, an estimated 66% of millennials want to start their own business—and many of them already have. According to the Freelancer’s Union, over 40% of the working population ages 23-38 is currently freelancing in some form. By some counts, the freelance workforce is growing three times faster than the overall workforce—and is expected to form the majority of the US workforce by 2027. To Gen Z, freelancing will feel more the norm than the exception.

Meanwhile, freelancers in the US tend to be more politically active than their corporate counterparts, and 72% claim they would cross party lines for candidates that support independent work. So it’s no surprise that policies designed to protect freelancers and XSMB owners are gaining momentum. From the Affordable Healthcare Act, to California’s AB5 reinforcing a recent US Supreme Court ruling to prevent the misclassification of contractors, to New York’s 2017 Freelance Isn’t Free Act, local officials and the federal government are slowly updating policies that are meant to make individuals the ones in charge of their jobs, not the other way around.

3. Minorities will soon be the new majority, and they are leaning out of structures that aren’t built for them to succeed

As of the end of 2019, women make up the majority of the US workforce. By some estimates, minorities will make up the majority of the American workforce by 2045. They already make up an increasing share of the millennial and Gen Z populations, suggesting their influence will only continue to grow in both the workplace and the consumer economy.

As a result of legislation requiring equal pay, and the revelations of recent movements like #MeToo and #TimesUp, corporate hiring practices have become more sensitive to the legal definitions tied to diversity-related issues. However, culture lags policy. Many corporate cultures are still not properly leveraging or including their diverse candidates, who often report feeling ignored, marginalized, or underutilized.

It is no longer necessary, though, to grit your teeth and tolerate a toxic work environment in order to make a living. Whether you decide to set up your own online store on Etsy or Shopify, market your skills on freelance platforms like Upwork, drive for Uber, deliver for Doordash, or crowdfund your creative idea on Kickstarter, you have more options than ever before for making money on your own terms.

4. Automation hurts traditional workers while helping entrepreneurs and employees at XSMBs

By one recent estimate, 54% of the US workforce is not confident that their job will even exist in 20 years, contributing to the growing perception that a portfolio career path, comprised of multiple projects at one time and several different types of jobs over the course of a career, is actually a safer choice than a traditional, linear corporate path that is at risk of disruption. It is actually the highest educated workers who stand to lose the most from automation. But they could benefit instead if they ran their own businesses and outsourced rote tasks to software and artificial intelligence.

In fact, business owners and freelancers are already reaping the benefits of technology, as software has slowly dismantled the gatekeepers who previously prevented newcomers from competing with the established elite. Not long ago, post-secondary degrees in business, technology, or science were considered by many to be non-negotiables for gaining the credibility, confidence, and network to start a company. Today, you can find much of the same type of content in bootcamps, coding schools, online courses, or digital degrees.

If you’re getting a new business up and running, not only do you not need a higher degree—you don’t even need to hire a back-office staff. Now you can simply use apps like Quickbooks for your accounting, TurboTax for your taxes, Squarespace for your website, Square for your payment processing, and Justworks for human resources. Perhaps even more significantly, the need for huge marketing budgets to purchase TV and print advertisements are no longer necessary in an age where you can inexpensively target your audience via social media ads and influencers.

5. We are redefining what success looks like

In a world of increasing change, uncertainty, and automation, success requires thinking like an owner and not an employee. The lonely cubicle is being replaced with the freedom to work at our own pace, at our time of choosing, in the space we desire. We are also seeing a reversal in the responsibilities of the boss and the individual. Your employer can’t provide you with a path to long-term stability, nor can they tell you how to create the most value in your role today (even if they wanted to). That’s up to us—and gradually we are redefining the criteria for “security” and “risk” and changing the benchmarks for “success” and “failure.”

Whether you are an investor, an employer or an employee, you should be paying attention to the rise of XSMBs. The mainstreaming of micro-entrepreneurship is already quietly changing how we work today, and it will define the workforce of the next generation.

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