HAS THE TIME COME FOR FREELANCERS AND SMALL BUSINESSES?

INTRODUCTION

“All the forces in the world are not so powerful as an idea whose time has come” (Victor Hugo)

So has the time now come for freelancers and small businesses? There are powerful forces at work in society and the economy which suggest that there is major disruption occurring in the labour market which is opening up real possibilities for small businesses to compete more effectively.

This is particularly the case in the digital and creative occupations which are key drivers in future economic growth.

The view is gaining ascendancy is that work can now be done more effectively by ever expanding “clouds” of independent employees rather than a fixed number of permanently employed individuals. The argument is not about the social rights and wrongs of different employment models but rather about which is the most efficient employment model which is most likely to bring about success in the emerging, but highly competitive, digital economy.

THE GROWTH IN SELF EMPLOYMENT

The key indicator of this emerging new employment model is the rapid rise in self employment. The graph below shows the growth in the number of self employed people in the UK over the recent past. The steep upward trend began at about the start of the century when the total was 3.2 million to 4.4 million in 2014 (2014 labour force survey)- a net growth in some 1.2 million . This now represents over 14 % of the workforce and this is expected to increase to at least 17% by 2017!

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Figure 1: Self employed numbers in the UK 1992-2013 (Source )

At the same time there has been a significant rise in the number of people who describe themselves as primarily home based. The two trends are clearly highly interrelated; the diagram below shows the heavy overlap between the categories with some 58% of home workers stating they are self employed

Figure 2: Overlap between self employed and home workers in 2013 ( Source:ONS )

Within this overall growth in self employment there are some other quite striking characteristics (see infographic):-

Traditionally self employment has been dominated by manual professions such as Agricultural and Construction workers. This has now changed, with nearly 75% being skilled workers and 50% of these being Managers and Professionals

In parallel to this, the self employed now tend to earn on average more than their work based equivalents reflecting this shift

The self employed tend to work fewer hours- with 40% working less than 30 hours per week.

The average age has also, not surprising, increased. This may however, be a one of phenomena related the effects of the recent recession and may well fall again in the future for the reasons discussed below.

So this trend towards greater levels of self employment, much of it home based. Fuel mainly by professionals and managers is one of the most striking features of the evolving labour market in the UK. It is instructive to consider what forces in the economy and society are driving this trend .

THE FORCES BEHIND THE DISRUPTION IN THE LABOUR MARKET?

It is possible to see these changes as the result of the convergence of a number of powerful economic and social forces that are driving change. These forces are shown diagrammatically below:

Figure 3: Forces for disruption in the employment market

It is important to understand what is behind each of these forces and the strength at and importance of each of these factors to see the fundamental nature of the forces involved:

1. The recession

The global recession which hit in 2008 led to a drop in the total number of available jobs. This, in turn, caused a large number of people to lose their jobs. With few new jobs for older people they found it very difficult to find new ones. In addition, younger people who has not previously had jobs, coming into the labour force for the first time also found it difficult to find jobs. These factors caused a large number of people to look elsewhere for employment and either start their own businesses or become freelancers. Freelancers come in all shapes and sizes including: sub-contractors, self employed consultants, entrepreneurs, temps and interims- to name but a few! Between 2011 and 13, the numbers grew by 367,000 people or some 10% per anum.

The recession has therefore been a major “push factor” for people to move towards self employment and it has become an accepted way of life for an increasingly large number of people. The traditional taboos about not being in permanent employment are being slowly eroded and it is rapidly being accepted as a viable alternative.

2. The internet

The inexorable rise in the internet has been, perhaps, the major feature of the 21st century. This has manifested itself in terms of the employment market in ‘inter alia’ in three ways:

Firstly, the growth in communications and cloud technologies has effectively broken the close link between workplaces and work. Fewer and fewer jobs now require true face to face contact on a daily basis. This allows distributed workforces to be viable in a way they were not in the past. The breaking of the link introduces an inherent potential flexibility into employment models which facilitates flexible organisational structures. This can be seen in the growth of home working outlined above and shows that the increase in home working is very much paralleled the increase in self employment.

Secondly, new job opportunities are being disproportionately created in the “digital” industries themselves and this is turn making the proportion of jobs where physical location is less important much greater. Some forecasters suggest that 4 out of 5 new jobs with be digital jobs and they will come to dominate the economy in a relatively short period of time.

Thirdly, it has led to the emergence of “frictionless “, digital, employment marketplaces. This can clearly be seen in the numerous CV matching type services where employers and employees are brokered. This is even more important in the area of freelancers as there are even greater numbers of potential buyers and sellers and less likelihood of HR professionals being involved to lubricate the process. A number of online marketplaces have emerged which allow the successful matching of freelancers with appropriate job opportunities. Some of the major ones, with a significant UK presence, are shown in the table below:

Name website date size notes

freelancer https://www.freelancer.co.uk/ 2003 11 mill registered

Australian based/GlobalAcquired vWorker

Elance/oDesk

http://www.elance-odesk.com/ 1999 38.mill registered

US basedRecent merger

People per Hour

http://www.peopleperhour.com/ 2008 670000 UK based/global

Guru http://www.guru.com - 1.5 mill US based/Global

3desk http://www.3desk.com/ 2012 477000 Mainly UK but global reach

fiverr http://www.fiverr.com/ - - Small project based not people.

Figure 4 The main Freelancer websites in the UK

Clearly the existence of functioning freelance marketplaces greatly facilitates the ability of flexible business models to operate efficiently.

3. The emergence of the millennials (generation Y)

In addition to the group of people who have largely been forced by circumstances to look at self employment and the emergence of facilitating technologies, perhaps the biggest driver for change is the bursting into the workforce of the Millennials. Millennial is the label given to people born between 1981 and 2000 who are now entering the workforce. By 2020 they will form nearly 50% of the workforce (they are all already born!), so their impact cannot be underestimated.

The evidence is that they are radically different from previous generations. For them technology is a given- they are the “always connected” generation: Digital natives. The evidence is also that they largely reject the concept of working 9-5 and they value flexibility and freedom of choice. They want to work on things they are interested and want to choose who they work for. They are loyal to brands but not to companies.

For this generation then probably some the most skilled individuals will opt for freelancing as it best fits with their values and desired lifestyle choices. The statistics are already showing a rapid increase in professional type self employed occupations and this is likely to continue as it becomes easier and more accepted to be self employed.

The message for employers is therefore clear- if you want to attract young digital talent: you have to offer employment which fit in with their aspirations and not with traditional “career based” models.

4. The growth of small businesses

In the past small businesses were very much seen as subcontractors to large businesses providing specialist functions or serving small niche or local markets that were too small for big businesses to bother with. They were very much at the bottom of the food chain living off the crumbs of the big businesses table. How things have changed.

Small businesses and indeed micro businesses or “solopreneurs” are now seen as key components to any dynamic economy. They are the driving force behind innovation and competitiveness and form an increasingly large part of the employment scenario in any economy and account for a growing proportion of employment.

This turnaround has been facilitated by a number of factors including; the rise in the status of entrepreneurs and the rewards available to them has attracted top talent; the sheer pace of change meaning that only agile and responsive organisations can innovate at the pace the market demands, and; finally the huge leveling effect that technology has had, cloud technology

means that small businesses can have access to the latest systems and processes that were the domain of large companies in the recent past.

Entrepreneurship is now taught in universities and many graduates now see this as the natural future path as opposed to large Corporates or the Professions.

These changes have made this sector hungry for the best talent in the marketplace and able to offer incentive packages and lifestyle options that are significantly different from the traditional corporate and professional offerings

5. Increased flexibility and agility

A further feature of business everywhere both in small, but also in large businesses, is the need for flexibility and agility to meet the rapidly changing of the global competitive environment. Traditional employment models based on long term career development and permanent employment often do not provide the flexibility and agility required so employers themselves are turning to alternative more flexible models. This can be seen in the growth of full outsourcing of some functions and the greater use of external agencies and freelancers.

Therefore in addition to the factors that are leading to an increase in the number of skilled people wishing to offer their skills on a self employment basis, there is a concomitant increased realisation of the benefits of having amore flexible workforce from the employers’ side as well. Both the supply and demand factors are therefore working together to redefine the nature labour marketplace.

So the next question to address is:- what are the implications for these changes for small businesses?

WHY FREELANCERS CAN BE RIGHT (OR NOT) FOR SMALL BUSINESSES

Clearly there are 3 potential genearl employment models available to small businesses: permanent employment, outsourcing (agencies) and freelancers these all have different benefits and drawbacks.

The table below attempts to summarise the pro’s and con’s of each of these models:

Employees Agency FreelancersPro’s Control

Total Commitment Business intimacy Build skills & IPR

Wider skills External ideas Project management No utilsation risk

50% cheaper (less overheads)

Greater commitment Customer intimacy Work in teams No utilisation risk

Con’s Carry utilisation risk

Inflexible limited skills Management

overheads

More expensive Contract management Changing personnel Sell you what they

have Little knowledge gain

Specific skills only Dependent on

individuals Strategy and

management overheads Little knowledge gain

Figure 5 Pro’s and Con’s of different employment models

Clearly, the right choice is very much dependent on the precise position each business finds itself in at any particular tine. However, there are some strong reasons why freelancers might be particularly worth considering for small businesses that simply do not have the need for the full time dedicated resources themselves and are put off by the high costs associated with Agencies

Freelancers can offer a number of key benefits; firstly, they provide the access to skills that are needed but are not required on a full time basis. This provides businesses with the flexibility and agility required. Secondly, the costs are typically around half those associated with straight agencies. This is largely because the business doesn’t have to bear the overheads in terms of management, employment on costs and accommodation that agencies have to include in their costs: and; thirdly, freelancers can become intimately coupled into the business and therefore all of the benefits of familiarity with the business accrue: its objectives and its clients. This means they can offer many of the characteristics of permanent employees.

There are, however, a number of quite significant drawbacks from using freelancers; firstly, you have to manage them! If the tasks are not seen as being important enough to warrant close management attention, or the management is not so inclined, then outsourcing may be a better option. Secondly, you are dependent on an individual and if that person leaves- his knowledge leaves with them! Clearly, in an agency situation, they can play in other staff. It is the management and flexibility you pay the premium for in outsourcing arrangements (it should be noted that Outsourcers are one of the major employers of freelancers to provide this flexibility themselves).

HAS THE TIME COME?

This is not a new view of the future of work and Charles Handy as long ago as 1981 in his book “The age of unreason” proposed that in the future organisations might look like “Shamrocks” (see figure below) with small permanent cores supported by flexible pools of resources.

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So, has the time now come for the concept of flexible resourcing, and in particular the more widespread adoption of freelancers businesses as a whole and small businesses in particular, to establish itself firmly in the labour marketplace?

What is clear is that there are now very significant forces at play in the marketplace that are driving change:

An increasing demand from individuals for the self employed lifestyle means the existence of the supply of high quality freelancers to the extent it may be difficult to attract full time employees of the right calibre on traditional employment contacts.

Online marketplaces also now exist to facilitate “speed dating” between businesses and freelancers.

The rise of entrepreneurship and the realization that economic dynamism depends on increasingly on small businesses which require both high quality skills and flexibility/ agility to prosper.

Are these disruptive forces strong enough to bring about a fundamental change in the labour market?

I suspect whether or not the shamrock model is fully embraced will depend upon whether businesses that fully buy into this model prove to be demonstrably more successful than those than adopt more traditional approaches.

The arrival of the Millenials into the workforce over the next few years, both in their attitude to work and to entrepreneurship, may just push the labour market to its tipping point!

So in Victor Hugo’s terms: is the idea yet too great to resist- has it’s time finally actually come? Just maybe it has.

Richard Masters (richard@rjmasters.co.uk) June 2014