According to a recent Gallup Poll, the rate of startup activity in the U.S. is actually decreasing. Experts speculate that there are a host of factors causing this decline. Is it the high overhead costs of starting a business? Funding problems? Up until 2008, startups were outpacing business failures by about 100,000 per year, but in the past few years that number has declined dramatically. In fact, the percentage of businesses closing each year since 2008 has remained constant at about 9 percent.
Despite copious amounts of research, there has been no definitive answer as to what exactly is causing the rate of US startups to decline year over year. However, the recent Gallup research suggests a crucial factor impacting the decline is associated with the decline in personal savings rates. Securing adequate financing and sustaining lines of credit poses a challenge for many entrepreneurs, which typically derive from personal savings. Starting a business in general requires huge overhead from the needed office space to equipment and employees, so it’s no wonder that we’re beginning to see startup activity decline and instead being replaced by those looking for freelance work instead.
Around the same time startup activity in the US began declining, we saw an increase in traditional workers looking to freelance as a supplemental income after the recession. Now, more than 53 million Americans qualify as freelancers with that number expected to increase. Could this rise in the freelance economy be the answer we’ve been looking for to increase startup activity again in the US?
Freelancing Improves the Economy by Increasing Jobs
Freelancing provides job opportunities to those who are unable to work full-time by offering the flexibility and freedom to work as much or as little as they like based on schedules or other limitations. According to an unemployment report, there were 50,000 new US-based freelance jobs in 2013 and 32,000 new people looking for those jobs revealing the growth of freelance job opportunities outpacing job-seeker growth by 7 percent. This upsurge in freelance job opportunities is imperative to improving the economy and reversing the startup decline in the US because as President Obama has previously stated, “the nation succeeds when we have a thriving middle class.”
Creating good paying jobs with flexible work hours, which freelancing opportunities provide, is the key to growing US startup activity. In fact, the independent workforce is up nearly 10 percent from 2011 with 18 million freelancers generating $1.2 trillion in total income in 2013, up 30 percent from 2012. While freelancers were formerly hired for one-time creative assignments, both small and large companies are now turning to freelancers for more complex and modern tasks than ever before. Skills range from research and gathering data to drafting social media and blog posts.
Freelancers Are More Affordable
One of the most costly expenses for entrepreneurs and small businesses is the hiring process and this can be a risky one. Uber is famous for classifying its drivers as independent contractors, so the company is able to save a considerable amount of money by only paying drivers when there is a job that needs to be done. Uber drivers experience a lot of waiting around for customers to request cars, but they are not getting paid for this time, which is saving the company a considerable amount of money.
So, the switch from independent contractors and freelancers is not only a risky one but a costly one. Hiring a freelancer allows entrepreneurs and small businesses to grow, as we have seen with Uber, without the cost of bringing on full-time employees. Entrepreneurs are usually deprived of time and strapped for cash, yet they are always faced with the question of how to pay for help during the startup phase. A freelancer can solve both of these issues allowing entrepreneurs to accomplish more work at a lower cost with less risk.
The cost savings that we see associated with widening access to freelance talent can then be used for personal savings to secure adequate financing to successfully start a business. With the abundance and variety of outsourcing talent, the restrictions and strategies of how startups are utilizing freelancers is being redefined. Once looked at as supplemental help, freelancers are now becoming an integral part of the workforce, allowing companies to scale up while maintaining a core staff and keeping overhead costs minimal.