Freelancers deep dive

Nov 19 2011

We spent our time during this sprint learning much about the world of sole proprietors and freelancers, as well as zooming out on broader trends in food services and retail. We also learned how to better manage different team member working styles and developed a stronger team bond as a result. Since we have many learnings to share, I’ll divide reflections about this sprint into three separate posts:

1. Sole proprietorship pain points + trends

2. Food service + retail trends

3. Insights on different work styles and strengthening team bonds

Sole proprietorship pain points 

We devoted most of our time to the world of sole proprietorships / freelancers, and the root tension we found here was the tradeoff between flexibility, autonomy, and pursuing one’s freelance passions on the one hand (benefits) vs. loneliness, having meaningful impact, and constant hustling to solicit business on the other (burdens). Reducing the burdens while preserving the benefits could create tremendous value for existing freelancers while attracting new crops of individuals to freelance work, perhaps even making solo work the default choice for a new generation of American professionals. The major pain points we heard were:

1. Customer referrals. Across the board, we found a very disproportionate amount of time spent by freelancers to build their work pipelines — whether through marketing, advertising, networking and hustling, or asking peers for referrals. We heard universal frustration that grooming an income-stable work pipeline can occupy >80% of their working hours, certainly the vast majority of their daytime hours, leaving their actual work to late at night. We heard a uniform desire to concentrate on actual creative work rather than the “busy work” of soliciting business.

2. Loneliness. Working as a freelancer typically means working alone, which can feel isolating if you’re not otherwise part of a community. For one freelancer, we even learned that loneliness ultimately outweighed the flexibility and autonomy benefits of working solo, driving him back into the corporate world. Various co-working spaces and unions[1] attempt to address this problem through shared spaces + resources, but there may be an opportunity to go further, perhaps through collaborative work or other means. The point is: being part of a community is central to one’s professional life, and loneliness is a very deep pain point for freelancers today.

3. Administrative burdens. Along with the time burden spent developing a client pipeline, freelancers say they spend too much time simply processing administrative paper work — responding to e-mails, coordinating meeting and calls, ordering supplies, sending packages, preparing invoices, managing bank accounts, tracking receivables, and more. We heard a universal desire to reduce these administrative burdens and allow more time to focus on creative work — i.e., what the freelancers is being hired to do in the first place. The holy grail would be to provide the kind of support a seasoned personal assistant would typically provide. Apple’s Siri product certainly awakens the imagination to what is possible with mobile virtual assistance; there might be further areas of innovation that can be applied specifically to the work of freelance professionals.

4. Payments. You don’t typically have much recourse as a freelancer if a client delays payment owed to you. We learned that collecting fees can create tension, particularly for freelancers who are serving clients that are not established, reputable payers. This can especially happen in creative freelance work, like design and photography, and it can create awkward tension because, on the one hand, the freelancer wants to avoid being deprioritized by default to the bottom of the client’s payables list: she needs to get paid not only for her own livelihood but also to pay sub-contractors + suppliers she may have purchased from. At the same time, the freelancer needs to preserve relationships with clients and wants to avoid “rocking the boat” by pursuing collections too aggressively, since they often depend on repeat client business, as well as word-of-mouth referrals from clients. Pushing too hard can jeopardize both. One freelancer told us he uses Freshbooks to send automatic recurring e-mails to tardy clients; when clients question why all the e-mails are being sent, he can say it’s simply how the system is set up, and his hands are tied until they pay their bills. Clearly, collection of payments creates enough agony to be a real pain point for freelancers that is ripe for a better solution.

Sole proprietorship trends 

In addition to the pain points we heard from freelancers, we also problem-solved as a team around where we believed key trends were going for the country’s 21 million sole proprietors over the next 12-24 months.

1. Rise of the freelance economy. We see a significant expansion of people pursuing non-traditional non-corporate careers as freelancers. At a time when the recession over the past 4 years has gutted notions of career stability and retirement security, many people (both employed and laid-off) are deciding the corporate world no longer offers the stability or security benefits they believe they should receive in return for surrendering their autonomy to a company. We heard in conversations over and over, underscoring our market research, about the desire for more flexibility and autonomy by young professionals and a renewed search for professional purpose. Concurrently, we also learned that, as large numbers of baby boomers approach + enter retirement, many are realizing their nest eggs are insufficient to support proper retirement, and are therefore being forced to work additional years before being able to truly retire. Rather than returning to the corporate world, many are choosing to work independently, open micro businesses, or simply pursue personal passions in generating extra family income.

2. Women in the workforce. Women will accelerate the rise of the freelance economy as they increasingly demand flexible work schedules and locations. According to a recent WSJ article, 31% of American women with academic degrees voluntarily quit their jobs.[2] Many of these women will choose not to return to the corporate world because they are unwilling to unconditionally sacrifice family life for career advancement, and they also don’t want to be penalized for being perceived as only partially committed to their work if they choose to spend more time with their families. As the traditional family caregivers, they will deeply influence trends in both the freelance and corporate economies through their migration patterns and preferences for flexible work arrangements.

3. Labor arbitrage. We believe the Internet’s distribution power will increasingly drive down the cost of lower-skilled freelance work, particularly work that can be accomplished entirely via laptop and web connection. Tasks like low-level computer programming or website construction (where detailed specifications are provided in advance) — as distinguished from true software engineering or product design — will be especially susceptible to arbitrage by low-wage workers in countries like India. Even some higher-skilled work like basic data analytics or even fairly high-skilled work like basic radiology analysis are increasingly getting outsourced. In the long run, the only sustainable way to advance as a freelance professional will be to continue leveling up technical and communication skills and productivity.

4. Trust. With the proliferation of resources and options enabled by the web, along with the expansion of professionals entering the freelance economy, credentials-based trust will be ever more important in distinguishing “signal” from “noise.” Whether it’s Facebook Likes, Twitter followers, Yelp stars, or payment security seals of approval, consumers of all kinds will increasingly look to external credentials to judge the trustworthiness of people and services on the web.

5. Healthcare. Healthcare, already a high barrier to pursuing freelance work, will stubbornly continue to be one of the biggest obstacles — and risks — to self-employment. And even as Obamacare awaits adjudication by the nation’s high court, no matter what the outcome is freelancers realize that health insurance will be a major cost and risk they must grapple with if they pursue freelance work full-time. If the law (and particularly the universal mandate) is struck down, health insurance consumers will need to prepare for continued annual double-digit cost increases, following the trend lines of recent years (and non-consumers will continue to remain uninsured at their peril); if the law is substantially upheld, consumers will have an additional venue to purchase insurance (i.e., state exchanges) but coverage will be fairly basic and it will be a mandatory expense all individuals must budget for (even those who would prefer not to buy coverage). In a down economy such as now, that will simply stretch individual budgets even more. Moreover, as the prospect of an automatically triggered, across-the-board slash in Medicare reimbursements looms should Congress fail to approve a federal deficit reduction plan by the end of 2011, care providers are undoubtedly gaming out different scenarios for price increases on services to plug any revenue shortfalls that may consequently occur; that would drive healthcare costs higher for everyone.

6. Work local. We see an overall trend of people working increasingly from home. Although one applied environmental psychologist we spoke with believed that centralized offices will be preserved in the near-term, research we found suggests that attitudes about the workplace are shifting significantly toward more flexible schedules, working from home, and — given innovation in connectivity tools — more remote collaboration on team projects. In fact, Cisco found in a recent student survey[3] that:

- 3 / 5 of students feel they have the right to work remotely with a flexible schedule

- 7 / 10 students believe being in an office regularly is unnecessary

- 1 / 4 students believe productivity increases by working from home

- In 2010, 60% of workers of all ages believed it was unnecessary to to be in an office

- In 2011, that number rose to 69%

In my next post, I’ll discuss the insights and trends we found in food and retail — stay tuned!

[1] Such as Freelancers Union.

[2] http://blogs.wsj.com/japanrealtime/2011/11/14/japanese-women-quit-unrewarding-careers/

[3] http://mashable.com/2011/11/08/work-from-home-2/ referencing the Cisco report found here: http://www.cisco.com/en/US/netsol/ns1120/index.html

Andrew Chen is a tech entrepreneur and startup founder in the San Francisco Bay Area. You can follow him on LinkedIn, Twitter, Quora, and Google+.

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