©2016 IRC Advisory. Kirsten Trusko, MBA, CIP, AMLCA. ktrusko@ircadvisory.com 415.860.7025

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IRC Advisory

The “OnDemand Economy” – $2.1T in Income for This New Breed of Entrepreneurs and Great Opportunity for Financial and Business Services Companies

What is the “OnDemand Economy”?

The definitions of the “on demand economy” (or “gig economy” vary, but generally state that it’s the growing trend of what used to be called “freelancers”. But now dramatic growth is fueled by technology and connectivity that empower individuals to become their own small business, working part to full time, using their own assets and skills (e.g. car, vacant apartment, clothing, expertise, etc.). With companies like Uber, Lyft, TaskRabbit, Etsy, AirBnB, UpWork, Freelancer, Tradesy, plus many more and growing – consumers can leverage what they have or know, to be an entrepreneur, in some cases at a scale and profitability that enable them to turn a part time interest into full time work.

Take UBER or LYFT as one category example of the fuel for part time and full time workers in the gig economy. College kids, teachers, realtors…people with flexible hours and wanting to earn a little extra money – can now sign up to drive others, using their own cars. There is also a growing trend of these drivers making enough money for this to BE their full time job. Once signed up with the company, they use the app to notify the company they are ready to drive, receive referrals directly from the company, who charge the card on file of the person who electronically hailed the car with their smart phone. No cash changes hands, and the driven and the driver each rate each other, for others to see. Drivers are paid via direct deposit to their registered bank accounts, once a week.

According to OpenMinds.com, “…every employee is a “microentrepreneur” in the “OnDemand economy.” I suppose if the Supreme Court has ruled that corporations are “people”, then it is not a far stretch for every employee to be a corporation. It is essentially the “Uberization” of the workforce”1

“Growing numbers of Americans no longer hold a regular “job” with a long-term connection to a particular business. Instead, they work “gigs” where they are employed on a particular task or for a defined time…. Borrowed from the music industry, the word “gig” has been applied to all sorts of flexible employment 2

The new technologies are supporting multiple different approaches to this growing economy – Gig, Online Gig, and Sharing.3

The ways these start-ups are changing work “isn’t just about the gig economy,” Marco Zappacosta said. “This is about the whole economy.” 4 Mr. Zappacosta runs an Internet start-up called Thumbtack that matches plumbers, yoga instructors and other workers with jobs, putting him in the middle of what is called the “gig

economy.” He recently met with politicians who are noticing the implications of the trend and trying to figure out how to protect and promote this work force. IRC’s research has surfaced that in just a sampling of 40 US based “gig” companies/platforms, they are reporting over 23 million individual entrepreneurs selling their goods and services.

                                                                                                                         

1 https://www.openminds.com/market-intelligence/executive-briefings/gig-economy-world-microentrepreneurs-implications-talent-management.htm/ 2  http://dollarsandsense.org/archives/2014/0314friedman.html  3http://americanactionforum.org/search/results/SW5kZXBlbmRlbnQgQ29udHJhY3RvcnMgYW5kIHRoZSBFbWVyZ2luZyBHaWcgRWNvbm9teSB8IFJlc2VhcmNoIHwgQW1lcmljYW4gQWN0aW9uIEZvcnVt 4  http://www.nytimes.com/2015/10/05/technology/politicians-turn-to-start-ups-for-grasp-of-gig-economy.html?_r=1  

 

©2016 IRC Advisory. Kirsten Trusko, MBA, CIP, AMLCA. ktrusko@ircadvisory.com 415.860.7025

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What’s Driving and Enabling this Growth?

These OnDemand companies, are enabling people to make extra income, and for some to make a living, by fulfilling one-time tasks or doing freelance work - fueling the rise of the OnDemand economy. Scott Galit, CEO of Payoneer, mentions what many freelancers have discovered in recent years: “Today's hyper-connected, "borderless world" has created unprecedented work opportunities for talented professionals, no matter where they're located”5.

Times are changing…to empower the best people, to serve the best companies, as a “gig” vs. an employee “…back then, if you said you were a consultant or freelancer, people wondered what was wrong with you. They would likely assume you had problems getting a job or weren’t a stellar employee. Today, consulting or freelancing for five businesses at the same time is a badge of honor. It shows how valuable an individual is. Many companies now look to these “ultimate professionals” to solve problems their full-time teams can’t. Or they save money by hiring “top-tier experts” only for particular projects.”6 What Are the Trends?

A 2015 study commissioned in part by the Freelancers Union estimates that about one-third of the work force, or 53.7 million people, now do freelance work, an increase of 700,000 from a year earlier.7

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Nearly three-quarters of the freelancers surveyed agreed that technology was making it easier to find work.9 That same report noted that about 60% received 25% or more of their income from freelance work. And financial software company Intuit estimates that this proportion will grow to some 40% by 2020.10 Millennials are poised to become largest demographic in the workforce in 2015 and will comprise 75% of all workers by 2030, according the US Bureau of Labor Statistics. This ever connected, tech-savvy, generation views earning a living much differently than earlier generations. They care more about the type, content and impact of where they’re investing time and toils, than how much money they earn or tying earnings to their perception of status. They want to pursue the work they find most interesting, while maintaining flexibility for a better balance in life than they saw in their parents and grandparents. A recent study shows that 79% of them would consider quitting their traditional job to freelance. 11

Multi-level marketing (MLM) companies also feed on this entrepreneurial self-employed spirit. Over 18.2 million people were involved in direct selling in the United States in 2014, with estimated retail sales reaching $34.5 billion, a

                                                                                                                         

5  http://www.businessnewsdaily.com/7959-freelance-pay-rates.html  6 http://www.wired.com/insights/2013/09/the-gig-economy-the-force-that-could-save-the-american-worker/ 7 http://www.nytimes.com/2015/10/05/technology/politicians-turn-to-start-ups-for-grasp-of-gig-economy.html?_r=1 8 https://www.freelancersunion.org/blog/2015/10/01/freelancing-america-infographic/ 9 http://www.nytimes.com/2015/10/05/technology/politicians-turn-to-start-ups-for-grasp-of-gig-economy.html?_r=1 10 http://fortune.com/2015/07/30/freelance-vs-full-time-employees/ 11 http://www.forbes.com/sites/michakaufman/2014/12/12/2015-forecast-youll-never-work-the-same-way-again/

 

©2016 IRC Advisory. Kirsten Trusko, MBA, CIP, AMLCA. ktrusko@ircadvisory.com 415.860.7025

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IRC Advisory

5.5% increase from 2013.12

Add to this your traditional self-employed business arena with housekeepers, career counselors, interior designers, wardrobe consultants, etc. The Bureau of Labor Statistics reported in January of 2014 that 14.4 million Americans were self-employed and of those, 9.2 million were unincorporated self-employed workers and another 5.2 million were incorporated.13 It’s never been easier to strike out on your own and scale up your business, earn fees from sharing your expertise and/or your stuff, and ply your craft from everywhere at any time. We’re increasingly living in a world where passion, collaboration, and technology all play a crucial role in the way make our livings.14

How Much Do Workers in the OnDemand Economy Make?

In 2014, Uber claimed that it was generating 20,000 new driver jobs every month and that median annual income was more than $90,766 in New York City and $74,191 in San Francisco,.15, with an average elsewhere of $39,000 a year.16 Etsy reported $1.93 Billion annual gross merchandise sales in 2014.17 Since its inception in 1995, Freelance.com, a place where employers and freelancers can meet, has distributed $462,562,084 in paid fees.18 Payoneer, a global payment platform, surveyed more than 23,000 freelancers from 180 countries to uncover trends in billing rates, experience levels and expectations when it comes to their work. According to Payoneer's data, the average freelancer works 36 hours a week at a rate of $21 per hour, giving them an annual pretax salary of more than $39,000. This is significantly higher than the average non-freelance wages in most of the countries in the survey.19 SimplyHired reports part-time tutors can earn $42,000 a year. In a 20-hour work week, that's about $40/hour. For freelance writers, Flexjobs says pay averages $33 an hour, though CareerCast has the average at $27. SimplyHired says total pay can hit $53,000 a year for freelance writers. Adjunct professors are another sector of the part-time OnDemand economy workforce and according to Flexjobs the average hourly wage for adjunct faculty is $37 and top earners can make more than $70 per hour. Payscale.com claims the median annual income is $31,316 for adjunct professors, but pay ranges from $15,112 to $105,713. 20 These are just some examples that show how people are becoming everyday entrepreneurs, earning enough to generate a living from their earnings.

How Does the OnDemand Trend Change Our Economy – Globally?

Entrepreneurs are referred to (especially in an election year) as national assets to be cultivated, motivated and compensated in a way to encourage entrepreneurial growth. According to Investopedia “They also create social change by breaking away from tradition and indirectly support freedom by reducing dependence on obsolete systems and technologies…. The most dynamic societies in the world are the ones that have the most entrepreneurs, plus the economic and legal structure to encourage and motivate entrepreneurs to greater activities.”21

According to Techonomy, in 2013 independent work generated $1.17 trillion in revenues, which equals almost 11% of the U.S. GDP. Freelancers also create new jobs themselves, with 25% of them hiring

                                                                                                                         

12 http://www.dsa.org/research/industry-statistics 13 https://hbr.org/2014/02/where-are-all-the-self-employed-workers/ 14 http://www.forbes.com/sites/michakaufman/2014/12/12/2015-forecast-youll-never-work-the-same-way-again/ 15 http://www.forbes.com/sites/eriksherman/2015/08/04/the-sharing-economy-giveth-to-workers-but-boy-can-it-taketh-away/ 16 http://www.idrivewithuber.com/how-much-do-uber-drivers-make/ 17 https://www.etsy.com/about/?ref=ftr 18 http://www.freelance.com/en/contents/about-freelance 19 http://www.businessnewsdaily.com/7959-freelance-pay-rates.html 20 http://www.nbcnews.com/business/careers/getting-gig-economy-part-time-jobs-pay-n390211 21 http://www.entrepreneur.com/article/78478

 

©2016 IRC Advisory. Kirsten Trusko, MBA, CIP, AMLCA. ktrusko@ircadvisory.com 415.860.7025

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IRC Advisory

others. “As the number of freelancers increases and they create more small businesses, maybe we’ll lose the stereotype that being a freelancer is tantamount to being ‘unemployed’.”22

What Are The Opportunities for the Financial and Business Services Industries in the OnDemand Economy?

Empowered by the platforms that enable them to start and grow their businesses, many in the OnDemand economy aspire to build these businesses to full time income, and/or to make enough money to materially enhance their current lives. A key step to many is this aspiration is to be treated as their own small business. One fictitious scenario…Jett Johnson is a teacher, but also has Jet’s Errands. She wants to use services that treat her as the business she wants to become, and offers specific services now needed in her business. She wants to keep her business and personal transactions separate. She needs products catering to her small business needs - checking, credit/debit/prepaid cards, loans for equipment or supplies, specialty liability or business insurance, plus travel, printing, cell and data, and more. She wants to acquire services under her business name – interactions, statements, messaging, etc. – referring to her as Jet’s Errands, vs Jett Johnson.

To a traditional business banker, these are small balance, low dollar transaction accounts – held by consumers. These gig businesses are often not worth soliciting, or servicing on a legacy banking platform. But with a highly electronic, efficient, mobile/online interaction platform – these small “businesses”/consumers can be served. Served with banking products, insurance, loyalty programs (to inspire loyalty over a competitor by the driver - for instance Uber vs Lyft), other discounts for key services and products, etc. This new sector can be a business opportunity - with their consumer/owners as long term loyal, sticky, profitable clients.

How big could this market be for financial and business services to the gig economy? In US figures…

- By 2020…40% of workers will be doing some freelance work23, and the US will have a total of 164.4 million employed people24

- This is 65.76 million gig workers, for an estimated annual US income - across part and full time workers - total of $2.1T25

So, here’s a market by 2020 of 65.76 million small businesses/freelancers/consumers needing financial services and business services. This will generate a need for new offerings, catering to their small business names and needs, with $2.1T in income to these new micro-entrepreneurs.

This doesn’t include the global opportunities - of companies, countries and workers - like Payoneer26 is already serving. With 3 billion global workers27, what percent will be freelancers/gig economy workers, and what do the numbers look like from a global view?

The shifting nature of the work force is driving a need for a repackaging of banking and business services, to secure these small businesses as long term profitable customers. There are big opportunities for financial services and business services providers– now, and as this trend evolves into a norm of how people work – for a new and growing opportunity that is just in its infancy.

                                                                                                                         

22 http://techonomy.com/2014/03/online-freelance-globalizing-world-work/ 23 Sources listed earlier in paper: Bureau of Labor Statistics, Intuit, Payoneer, NBC, 24 http://www.bls.gov/opub/mlr/2012/01/art3full.pdf 25 Note: $2.1T calculation: If an average annual compensation is $42000/year full time (see references earlier in the paper for a range), assuming 25% of workers work ½ time and 25% work ¼ time. This is using 2014 figures, not adjusted for 2020 growth. 26  http://www.businessnewsdaily.com/7959-freelance-pay-rates.html  27 3 billion total workers, not just freelancers, etc. http://www.theguardian.com/news/datablog/2011/jan/25/global-economy-globalrecession