The Future is Freelancing?

Recently, Shane Snow (CCO of Contently) penned an article called “Half of us May Soon Be Freelancing: 6 Compelling Reasons Why.”

Shane believes that the future of journalism is freelancing and is working to make that happen – he is the COO of Contently, which was founded to help freelance journalists succeed. Fortunately, he doesn’t adopt the position that all business will become freelance-based – he says that “I don’t believe the majority of businesses will ever become completely freelance or remote (core staff need to be in-house and work in proximity at any company of a certain size; local service-based businesses need people on site, though those can be freelancers).”

Quite right: there are reasons to have people on site, and to have employees on payroll.

To understand that, let me outline a different perspective on freelancing.

My go-to to understanding the formation and structure of businesses is Ronald Coase; specifically, his article on The Nature of the Firm. The basic premise is that a firm exists where it is cheaper to do transactions within a company than outside of a company. As a crude example, if you have a graphic designer in house you can ask them to do something; if you go outside the company, you normally have to deal with asking for a quote (which entails generating a RFQ, etc); additional overhead in billing; less commitment on resource allocation; difficulty meeting deadlines; and so on.

As a note: “transaction costs” include pretty much everything, from the costs of locating a freelancer, vetting the freelancer, risk of getting the wrong person, costs of communicating, etc.

For a company, hiring employee full time makes sense as long as you have the work to justify it – a company is basically negotiating a lower rate for buying in bulk, and committing to future purchases. Employees can agree because they decrease their risk (not having business) and increase their utilization (no more accounts receivables, marketing, lead generation, contract negotiation, etc).

So, there’s a natural place for freelancing: it’s where companies want less-than-FTE work of a certain kind, the transaction costs are sufficiently low, and the freelancer is not risk-averse and/or is in high demand.

Consequently, anything that reduces transaction costs will increase the rate of freelancing (of, if you’re feeling extra fancy, the “natural rate of freelancing”). Online marketplaces that make it easy to establish contracts and monitor work; online portfolios that show work done; ratings by people (freelancers rating companies and companies rating freelancers); and so on.

The fun factor is the internet, because the internet effectively expands the market – it removes much of the impact of geographical location. Not completely, because people still prefer in-person contact, but in general you’d expect that to be factored in rates or business allocation (so, a freelancer who is nearby will get selected over a remote freelancer).

Overall, I don’t think this is a particularly notable change in theory – but it certainly is notable in practice.

How much time in a college degree?

I’ve been going through some university lectures recently (Stanford SEE, iTunes U, and MIT OpenCourseWare) and, of course, I’ve created a spreadsheet to allow me to track completeness and prioritize.

Currently, I have 13 courses setup in my Excel spreadsheet, for a total of 308 lectures and 319 hours.

I wasn’t sure how to contextualize that number, so I did a rough check on lecture hours during my college years (something, oddly enough, I never did in college).

If you assume 18 credits per semester– where each credit is meant to map to one hour per week of lecture time – and have 8 semesters, which each averaging 13 weeks, that gives us 1,872 hours of lecture-time (the recommended 15-credits per semester works out to 1,560 hours)

That’s pretty inexact – for instance, many of my 4-credit courses at Skidmore had only two 1:20 classes per week, for under 3 hours per week. Others were spot-on (two 1:50 minute lessons/week) and others were more (e.g. with a lab).

If we round that number up and assume 2,000 hours of work – well, for starters, that’s close to the number of working hours in a year. It’s interesting to compare the learning value from one year of work with the learning value of all classes you attended in college. I understand that (i) it’s not directly comparable (building skills vs. knowledge) and (ii) work at college includes homework (5 hours per week? 10 hours? 20?).

Still, it’s a helpful benchmark in my mind, particularly when moving into a new domain that you’re unfamiliar with.

Employee Investment Payoff

Earlier today, I posted in a forum on the topic of employees using their own money to purchase equipment that they could then use at work.

An example was a second monitor, which has documented productivity improvements.

My contribution was to observe two things:

  1. Pre-Tax vs. Post-Tax: A company purchases equipment at a discount relative to the employee, since the company deducts the cost before taxes.
  2. It’s a tiny expense: As an example, I calculated that spending $600 on a dual-monitor setup for an office employee earning the average income for “Professional and Business Services” would be beneficial if the employee saved less than 2 minutes per day (over a 3 year time period).

It’s a pretty simply calculation:

  • The average hourly wage is $25.13. But that’s not the cost to the employer of having an employee there – benefits accounts for 27.8% of total compensation. The cost per hour is actually $34.83.
  • Dual monitors are unlikely to last only one year. Let’s assume a 3-year replacement period.
  • The breakeven point is the employee saving 5:45 each year.
  • If we assume 250 working days per year (50 weeks), that’s 00:01:22 (one minute 22 seconds) per day.

Of course, you could argue that (i) increases in employee productivity don’t map directly to profit, and (ii) that’s very difficult to measure.

But it’s interesting to note how fast some businesses are to waste time, and how slow to authorize relatively minor expenses (e.g. $600) to improve employee productivity.

That’s a failure of accounting, in my mind.

I’ve included a very basic spreadsheet below.