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Happy Independence Day week!

As we celebrate the independence (and 250^th anniversary!) of our nation, let’s also celebrate and salute business owners who operate independently. The United States and independent business owners have a lot in common! Entrepreneurs and independent business owners follow the values that our founding fathers put in motion all those years ago.

Think about it. What are some of the key traits that we celebrate as a nation?

Freedom, pursuit of happiness, self-governance (no kings or big bosses), autonomy to create our own path, and a spirit of innovation and creativity. Sound familiar?

Many of these traits can apply to small businesses with employees as well as those who are solo, but let’s take a moment to really celebrate the true independents this month – the solopreneurs, freelancers, consultants, gig workers, independent contractors, sole proprietors, and the like.

A growing trend

Did you know that over 80 percent of the 33+ million U.S. small businesses (those with less than 500 employees) are actually solo business owners (no employees)? That amounts to nearly 29 million people doing their own thing.

That’s a pretty substantial number, and it is trending upward. Ten years ago, the number of new business applications (a measure of new business growth) found that about 55% of these applications were for “applications other than high propensity”. In Census-speak that means that over half of the applications were for businesses not likely to hire any employees, while the remaining 45% (high propensity) were likely to have payroll and grow larger than the no-employee businesses.

That rate has increased from 55% in 2013 to 63% in 2018 to around 68% today. And the expectation is that this rate will only continue to grow. Why is that?

In the past, your first job out of college (or high school) was potentially for the only employer you ever had. Individuals worked their way up the ladder, with clear job stability, paths for advancement, generous employee benefits (remember pension plans?), and definite company loyalty.

Oh how times have changed! Big firms are much more inclined to only hire for their core services and outsource the rest (HR, IT, Custodial, etc.). And they seem to be more focused on short-term stock growth than investing in their employees over the long term. Individuals who are laid off without a friendly word, perhaps by Zoom or email, are not so inclined to want to find another giant company that could do the same to them in another year or two. And the Federal Government was once considered the most stable employer, but that reputation has certainly changed as well.

A changing world

The more the big businesses outsource, the more independent contractors have popped up to fill the jobs that once were filled by employees.

But it’s not just the shift in big business that is driving this move to independence. So much else has changed over the years that makes it easier than ever to create your own path and control your own destiny.

Some of the top shifts:

• The Gig Economy – Even if you don’t want to create your own business out of nothing, there are currently many opportunities to find ways to earn money without a traditional job. Some are admittedly lower paying options, like Uber driver or Instacart shopper. But there are others that offer higher rates of pay.
• Gen Z – The new generation of students graduating from high school and college are not interested in a traditional path and seek autonomy. They don’t want their work to define them, but instead want to be able to fit their work around their other passions.
• Job Insecurity – Big Tech firms have been laying off quite generously to boost their bottom line (and following the post-pandemic hiring surge). This leaves many former employees interested in a path where they control their own destiny.
• Technology – AI and other software tools are making it easier than ever to be a “7-figure small” business that can operate online and serve many customers with a combination of personal service and automation. And don’t forget the fact that the internet didn’t even exist (!!!) back in the 80s and 90s. All of this technology allows us to work from anywhere (digital nomads) and on our own time schedule.

Hiring Independents

No matter their title (solopreneur, freelancer, contractor, etc.), this surge in independent workers offers tremendous value to other small business owners. For example, small businesses who have ‘outgrown’ a bookkeeper but don’t have the funds or the need for a full time Chief Financial Officer can hire a fractional CFO. And those without a dedicated marketing person marketing can contract with a solopreneur who specializes in digital marketing, or hire someone on Fiverr or Upwork to create the graphics for a new marketing campaign (don’t get me started on replacing all these with AI!).

Independent businesses can also help small businesses with hiring gaps. Freelancers can help fill staffing gaps or even allow a small business to expand its services and capabilities without taking on more W2 employees. This is a great way to cover overflows when you need extra help but aren’t ready to commit to another full-time employee. Or to cover certain skillsets that are only needed occasionally for projects, but not enough to bring someone on full-time.

Independent business owners also benefit from working with other independents. Think about how you spend your own time. If you can bill at a rate of $250 an hour for your services, then perhaps it makes sense to pay a bookkeeper to handle accounts receivable and payable at a much lower hourly rate, so you can concentrate on increasing billable hours.

Finally, consider the value of partnerships and collaboration among small business owners. Other small business owners are not your competitors. Focus on your ability to work together, referring business to each other when you are swamped – or if it’s not quite the right fit. And look for opportunities to market complementary services to the same target audience.

Happy and Independent

Right now, over 45% of the global workforce is self-employed (and nearly 40% of the US workforce). That rate is only going to grow, with the same study showing that over half of Gen Z are freelancing, with their primary motivations being flexibility and skill development. We are moving to a portfolio driven career path – taking on multiple side gigs or focusing on increasing skills through a variety of jobs.

With the addition of AI tools, there are more and more freelancers in the “knowledge worker” category than those taking on low-skill work. As a matter of fact, nearly 90% of freelancers say they have more work opportunities now than a year ago, as compared to just 70% of full-time employees.

​Another study showed that the skills in greatest demand for freelance or independent contractors include AI skills, software development, and writing (even in this world of AI!)

Freelancers are more likely to use AI agents for task execution, to increase their capabilities with each job, to work remotely, to be satisfied with their pay, and to think that their best work opportunities are ahead of them – as compared to employees.

Small Business and Independents

One thing I am hearing from the small businesses around me is that hiring freelance is the easiest way to grow their business. As I mentioned earlier, many small businesses are choosing to take on freelancers rather than W2 employees. I’m seeing more and more companies partnering with freelancers to help them expand without additional payroll, to help them access unique skillsets (like a fractional electrical engineer), and even to build a team to compete against larger firms, even when your team is you and a bunch of freelancers!

If AI is taking entry-level jobs, it is also proving to be an equalizer for solopreneurs. Tools for writing, design, bookkeeping, marketing, and client communication - tasks that once required a full support staff - are now available to any independent worker with a laptop. Freelancers who use AI tools earn over 40% more per hour than those who don’t — and they save roughly eight hours of work per week. That’s not just a productivity boost. That’s a competitive advantage that was unimaginable just a few years ago.

The Future is Independent…

As students graduate from college in an uncertain work environment where it seems as if AI is taking over all the entry-level jobs, freelance becomes a new option to gain experience. Freelancing allows these new graduates to “earn income, build real-world skills, and take ownership of their careers right away” according to a Director at Upwork.

Gen Z has seen the ideal of working hard for an employer fall apart for Millennials as they get laid off. After the pandemic and its economic fallout, this new generation no longer trusts anybody else to take care of their future. The idea of a traditional 9-to-5 job doesn’t hold much appeal. These 20-somethings think more in terms of side hustles, multiple revenue streams, and a focus on flexibility and freedom.

Gen Z won’t be the last generation to reshape work. According to Visa research, three-quarters of Generation Alpha children (aged 8–14) already aspire to run their own business or side hustle — compared to just 13% who want to work for someone else. Nearly half have already used technology to earn money. Born entirely in the age of smartphones and AI, this is a generation that has never known a world without on-demand everything. If Gen Z disrupted the traditional employment model, Gen Alpha may make independent work the outright default.

How is your small business taking advantage of this growing trend toward Independents? Reach out with your observations at Kelly @SecondStageGrowth.com.

Happy Independence Day!