Sofapreneurs are making small change to business

Talk to the owner of a place like Shoe Shuffle, an independent shoe shop in the English seaside town of Hastings, and you expect to hear some fretting about the threat from online retailers.

But it is not the Amazons of this world that trouble Richard Meikle, the shop's owner. It is the people with empty garages and time on their hands.

"You can buy online in bulk now, get it delivered to your home doorstep out of China, then sell it straight out of your house," he says despairingly.

Thanks to sites such as Alibaba and eBay, you can be an import-export magnate without leaving your sofa. Thanks to Airbnb, you can be a boutique hotelier.

For some politicians, disheartened by slowing economic growth and sluggish productivity, this phenomenon makes their eyes light up. Microentrepreneurs. Disruption. Digital innovation. Challenger businesses. New words in the lexicon of the “sharing economy”.

Politicians have long lauded entrepreneurship as the key to innovation and productivity growth, but the evidence for the economic impact of new businesses remains flimsy at best.

No more productive

Research by Nesta, a think tank, found the average new British business between 1998 and 2007 was no more productive than the average pre-existing business, even five years after it started. Of all the businesses started in 1998, only 3.9 per cent had reached 10 employees or more by 2008.

Academics Paul Nightingale and Alex Coad say the mistake we have been making is to apply the label "entrepreneurial" to two very different types of business. We are lumping together the small number of high-performance "gazelles" that really do boost the economy, they say, with the majority of new businesses, which are "marginal, undersized, poor-performance enterprises" – or "muppets" for short.

Many of these companies do not want to be fast-growing, innovative disrupters, and why should they?

When we apply the entrepreneur label to every newly self-employed person and every new cafe, we set ourselves up for disappointment.

We are in danger of compounding that mistake by applying the same label to the new crop of sofapreneurs making money from digital platforms such as eBay, Airbnb and Etsy.

Many of them are not even doing it full-time. Freelancer sites like PeoplePerHour say many of their users are “five to niners” who log on after work. Shoe Shuffle owner Meikle believes his home-based competitors are simply doing it for “beer money”, so small are their mark-ups.

Economic benefits

JPMorgan Chase estimates that 1 per cent of US adults earn money from these online platforms. Of this group, most rely on the platforms for less than a quarter of their income. Nor are people becoming more reliant on them over time.

Still, these new platforms do have economic benefits. JP Morgan’s analysis suggests people are using their free time or spare assets to cushion fluctuations in their incomes. That is valuable in a world of fragile economic growth, stagnant wages and insecure employment. In some cases, they are giving people a means to earn money who might otherwise struggle to do a traditional job, for instance because of health reasons or caring responsibilities.

Lower prices

They may also lower prices for consumers – albeit sometimes by undercutting small businesses like Shoe Shuffle. Governments will have to make sure they cannot compete unfairly by simply avoiding tax.

One of the biggest benefits is the hardest to measure. Many of the people I’ve interviewed who moonlight on these platforms say that it gives them a sense of agency or satisfaction they do not have in their day jobs.

Last year I spoke to Einar Parker, who spent his days working on the production line at a car seat factory. He began making jewellery and set up his own shop on Etsy in his spare time.

“You don’t think a lot when you’re on an assembly line, but I’ve got something to think of, coming up with ideas,” he explained. “That is my escape.”

Sofapreneurship is not going to usher in a new era of innovation and productivity growth. Still, it seems to be making people a little richer and a little happier, and that is no bad thing.

– Copyright The Financial Times Limited 2016