Surge in US small businesses started as side hustles

The percentage of small businesses that were launched last year by owners who were working for someone else soared nearly two-fold from 2022, according to new data.

A recent survey of 1,300 new business owners conducted by payroll firm Gusto found the share of new business owners working full-time or part-time for another employer while starting their business surged from 27% in 2022 to 44% in 2023. 

Gusto principal economist Liz Wilke told FOX Business in an interview that when she saw the numbers, she thought, "Wow, that is a really big jump…and when you have a big jump like that, it's usually not just one thing."

ONE-THIRD OF SMALL BUSINESS OWNERS WORRIED THEIR COMPANY WON'T SURVIVE 2024

Wilke believes there are multiple factors that contributed to the surge. One, which is not specific to 2023, is that the rise in remote and hybrid work has created a lot of flexibility for time and space for people to work at their regular jobs and side jobs alike.

However, she said there were also a few things at play last year that led to the jump from 2022.

"One is 2023 sort of saw the crest of inflation after a full year-and-a-half to two years of really hard inflation – things are still quite expensive," Wilke said. "That, coupled with the fact that the economic outlook really feels a little wobbly to some people right now."

That combination along with the fact that people no longer have to quit their jobs to start a business the way entrepreneurs used to in the past is fueling the trend.

She reasoned that when people's budgets became tighter, those working on side-hustles had the option to slow-roll their businesses, take time to develop their products and build up their savings before they take the leap to full-time business owners.

HOUSE COMMITTEE WARNS DOL NEW INDEPENDENT CONTRACTOR RULE THREATENS SMALL BUSINESSES

The survey found that while many startup founders quit their regular jobs to focus on their new venture at some point, 49% of workers who started their business as a side gig are still working at their old company.

Another aspect Gusto asked respondents about was generative artificial intelligence, which burst onto the scene with the release of OpenAI's ChatGPT in late 2022.

Nearly three quarters of the companies surveyed who were using some generative AI tools were using it for a marketing purpose, such as building out a website, building content or writing content. The second most common use for AI was sales, with 41% utilizing AI tools for that purpose.

Given how much time AI tools can trim from those types of time-intensive tasks, Wilke believes the rapidly-evolving tech is also playing a part in the increase in side-hustle ventures.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

"I don't think it's accounting for all of the jump," she told FOX Business. "But I wouldn't be surprised if side hustlers weren't really using some generative AI tools to cut a lot of the time commitment that's required at the very start of a business when they're really just trying to their brand out, get a reputation, build some revenue streams."