Small Business Labs

Why Freelancers Need to Experiment with ChatGPT (and other AIs)

The history of technical innovation is consistent.

Initially, new technologies cause both economic dislocations and new opportunities. But the longer-term net effects of the vast majority of technical innovations are positive due to the creation of new opportunities and jobs.

We think that ChatGPT, and other forms of AI, will follow the same path - at least for the next 5-10 years.   

In other words, AI will create economic winners and losers, but the net economic and job impacts will be positive.  

We've been experimenting with ChatGPT for months and found it improves our productivity, cuts our costs, and frees us to spend more time on value added activities.

Even better, after working with ChatGPT, we're not worried about AI replacing us anytime soon (by that we mean at least for the next 5 years or so). 

The reason is that our work is helping clients discern signals from noise.

And while ChatGPT is great at generating content (noise), it's not good at discerning signals - at least for the kind of work we do.

Like us, many other freelancers will benefit from ChatGPT and AI.  

But there will also be freelancers replaced by AI. 

Workers doing low to medium-skilled knowledge work, especially in content creation, will be at the most risk. AIs will provide the most significant productivity gains in these areas, reducing the demand for freelancers to do this type of work.

We think all freelancers and independent workers should be experimenting with ChatGPT and, if appropriate, other forms of AI. 

The objectives of these experiments are to understand the following:  

1. Can AI can automate some or all of your work?
2. If so, can you use AI to automate some of your work, freeing time to provide additional or higher-value services?  

If the answer to (1) is no, your business is unlikely to be impacted by AI.

If the answer to (1) is yes, and (2) is no, you are at risk of being replaced by AI. You need to figure out how to provide different services or higher-value services.

If the answers are yes to (1) and yes to (2), you have an opportunity to benefit from AI.

The good news is that ChatGPT is a very approachable technology. 

Getting started doesn't require specialized knowledge or training - although getting proficient takes time and practice.  

ChatGPT is a game-changing technology for many jobs and industries.

Freelancers need to understand this technology - and how it will impact their business.  

The End of Dream Jobs Means More independent Workers

Two work and job-related articles jumped out at us recently.

The first is Buzzfeed News' The Fantasy of the Dream Job is Gone covers the growing number of layoffs in tech and finance. Key quote:

Layoffs at some of the country's most prestigious companies are the latest sign that no one's job is ever safe.

The second is Fast Company's From the Great Resignation to the Great Refusal—here's what the 5 'Great Rs' mean for the future of work. Key quote:

We are no longer centered on where we work, but rather on where work fits in our lives, and there is no putting this genie back in the bottle.

Because we study why people choose to be independent workers and small business owners, we spend a lot of time on how workers compare traditional jobs with independent work.

We've found the teeter-totter is a good metaphor for how workers compare and choose between traditional jobs and independent work.  

At a high level, workers choosing between the two balance the security, predictable income, benefits, and career paths of traditional work versus the autonomy, control, and flexibility of working independently.

The recent tech and finance industry layoffs and the massive pandemic-related layoffs have made it clear that no job - and the predictable income and benefits that come with it - is completely secure.

Also, the pandemic accelerated existing trends toward people wanting more flexibility, autonomy, and control over their lives and work.

Both of these shifts make traditional jobs less attractive - tilting worker decisions towards independent work.  This is true even for "dream jobs." 

And this likely means more people will choose independent work, and the recent surge in independent workers will continue.   

Mastercard on the Creator Economy

Mastercard's study - The creator class: How micro business is fueling the next wave of entrepreneurialism - provides an excellent overview of those identifying as digital content creators. Key quote:

Scaling up from a hobbyist to a full-time entrepreneur has never been easier, thanks to democratization around social media, as well as advances in payment technology, Web3 principles, and monetization models. 

We don't know what "Web3 principles" refers to, but we still like the quote - mainly because we agree that scaling a hobby into a business has never been easier.

The report chart below (click to enlarge) shows the primary motivations for becoming a creator. These are consistent with why people give to becoming independent workers or small business owners.

The report covers the challenges creators face. They are not surprising to anyone following the creator economy - burnout, inconsistent income, and lack of control. Key quote from the report:

The pressure to always be creating is intense, as 89% of creators report experiencing burnout. A similarly high percentage feel beholden to algorithms and platforms that are constantly shifting, as 86% of creators feel they do not have control over their content. Financial challenges — from rising costs to inconsistent income streams — are also pervasive for over eight in ten creators.

Our one quibble with the study is that it doesn't actually say how many income-earning creators there are.

The report says there are 22 million content creators in the U.S., but also says "nearly two-thirds of creators envision turning their endeavors into businesses."

This leads us to believe the study found about 7-8 million content creators who consider their content creation activities to be a business, with the rest considering it a hobby or potentially a pre-business.

But that's a minor quibble, and we like the study overall and recommend it to anyone interested in the creator economy.

AARP: Almost Half of Older Workers are Independent Workers

AARP's Gig Work on the Rise Among Older Adults as Demand for Workplace Flexibility Grows covers the gig economy parts of a broader study AARP conducted on workers who are aged 40+. 

AARP found that independent work is the main job for 27% of American workers aged 40+.

The AARP survey question below explains how they defined gig/independent work:

"Q25: In your current job / main job / most recent job are you an independent contractor, an independent consultant, a gig worker, or a freelancer?"

This is a pretty narrow question. It only covers services and even then leaves out a few independent worker services areas. It also only covers main jobs, leaving out side gigs and second incomes.  

But AARP also asks a broader question that includes non-main job work activities:

"Q29: Please check the box beside each of the ways that you independently earn money on a regular basis."

As the AARP chart below shows (click to enlarge), 48% of workers aged 40+ said they regularly work independently.

Discovering this data point requires careful reading of the small print at the bottom of the slide (highlighted in blue), which says, "52% of respondents reported: I do not earn money independently."  

After some quick math, this means 48% - almost half - of the respondents earn money doing independent work. 

The gig economy data is just a small part of the broader AARP study. This once-every-five-year study looks at the overall attitudes and motivations of working adults ages 40 years.

It's well worth reviewing for anyone interested in older workers.

The impact of Recent Layoffs on Freelancing

Historically, job security has been one of the main attractions of a traditional full-time job.

But research (click on the chart below to enlarge) from the long-running MBO Partners State of Independence study shows a growing share of independent workers believe independent work is more secure than a traditional job. 

The study has also found that the share of traditional jobholders saying independent work is less risky than a traditional job is also growing, increasing from 18% in 2018 to 33% in 2022. 

Put another way, 7 in 10 independents and 1 in 3 traditional employees say independent work is more secure than traditional employment.

And the rash of layoffs in tech is reinforcing this view.  

Two recent articles on this topic caught our eye.

Vox's Tech Workers are Increasingly Taking Contract Jobs covers the recent tech industry layoffs. Key quote:

"Part of what's leading more people to independent work is that regular employment doesn't look so hot right now in certain industries ... All of a sudden, contract work isn't looking so bad."

The article also points out something we often hear in our interviews - because most independent workers have multiple sources of income, they feel more secure than if they were relying on a single employer:

"It's almost like diversifying your stock portfolio," she said. "Instead of working for one company, I'm going to work for several because if one of them doesn't have work, the other ones do."

The Information's Tales from the Shredder: How a Quarter-Million Fired Tech Workers Are Picking Up the Pieces focuses more on the human impact of getting laid off.  

Our favorite quote is from a laid-off tech worker that illustrates the lack of security of traditional jobs:

"They paid us well; they gave us good severance," he said. "But the experience made me feel like I was just a tool. If they need you, they hire you. If they don't need you, they discard you."

The choice between a traditional job and freelancing generally comes down to an evaluation of the pros and cons of each.

And anything that makes traditional jobs less attractive - like a lot of publicity about layoffs - makes freelancing more attractive, and means more workers making a choice will choose freelancing. 

Emergent Research (that's us) works with MBO Partners on the State of Independence study series.

Digital Nomads are Life Goal Champions

Independent workers (freelancers, independent contractors, gig workers, etc.) who are also digital nomads score significantly higher than independent workers in general and workers with traditional jobs in achieving their life goals.

The chart below (click to enlarge) is from the MBO Partners research brief Life Goals: Explore the Great Realization In Depth.

It shows that Independent digital nomads score the highest in 7 of 8 life goal categories. They tie for the highest score in the 8th goal, spending enough time with family.

Digital nomads score exceptionally high on getting the most out of life (79% report achieving this life goal), continued personal growth (74%), and ensuring their life has a purpose (71%).

In addition to scoring high on life goals, independent digital nomads have among the highest work satisfaction rates of all workers. Ninety-two percent of independent digital nomads report being highly satisfied (81%) or satisfied (11%) with their work and lifestyle.

No doubt, visiting new places, being exposed to new cultures, and meeting new people all play a role in these high scores.

Another factor is that most digital nomads report high work/life flexibility, autonomy, and control levels. Our research shows that independent workers who report having work/life flexibility, autonomy and control also report high levels of work satisfaction and happiness. 

See the research brief for more details.

Emergent Research (that's us) worked with MBO Partners on this study.

Gig Economy Doctors

Locum tenens - "one holding a place" in Medieval Latin - is the healthcare industry's term for doctors, nurses, and other caregivers working in temporary roles.  

It's also the name of a temp staffing firm that places doctors and other healthcare professionals at hospitals and other healthcare facilities.

The company LocumTenens recently released The Future of Work: Redefining the Role of Physicians in the Gig Economy. 

As the study chart below illustrates (click to enlarge), 73% of doctors surveyed said they would be interested in local contract work, and 63% said they would be interested in a contract position that required travel.

The reasons doctors are interested in gig work are pretty much the same as others who say they are interested in gig work - better work/life balance and more flexibility, autonomy, and control.

And just as the pandemic has many questioning the role work plays in their lives, so are doctors, nurses and other healthcare professionals.   

Key quote from healthcare consulting firm Oliver Wyman's HEALTHCARE WORKERS MOVING TO GIG WORK IN RECORD NUMBERS:

"COVID-19 has battered the healthcare workforce. Historically known for their resilience, the pandemic has left doctors, nurses, and other front-line workers not just exhausted, but bitter, traumatized, and questioning their passion and commitment to a calling they once loved. In search of greater work-life balance and mental wellbeing, many are considering major changes to their work-life, from moving to gig work to leaving the profession altogether ..."

One of Oliver Wyman's recommendations to hospital executives is "strategically utilize gig workers".  

We think they will accept this advice, and the healthcare industry will see steady increases in the number of gig doctors in the coming years.  

Independent Workers and Their Life Goals

Since the pandemic, people have been reevaluating work's role in their lives. And for many, work-life balance, the ability to pursue passions, and health and wellness are taking center stage as top priorities.

MBO Partners' study Life Goals: Exploring the Great Realization in Depth explores the life goals of independent workers (freelancers, gig workers, self-employed, etc.) and how successful they are at achieving them.

The key finding of this study is that independent workers outperform traditional jobholders in achieving their life goals.

The study chart below (click to enlarge) illustrates the top 3 life goals reported by a survey of traditional and independent workers.

As the chart shows, independent workers outperform traditional workers in all 3 of the top categories.

Independent workers scored higher in all areas except financial goals. They scored lower than traditional workers in earning a steady income and being on track for retirement.  

Interestingly, they scored statistically the same for the goal of creating wealth. This is likely due to both types of workers scoring low on this achieving this goal.

One goal that caught our attention was continued personal growth. Almost two-thirds (64%) of independent workers reported achieving this goal versus 54% of traditional workers.

Based on our interviews with independent workers, the need to continue to upskill and adapt to changing demand associated with independent work is likely why independents score higher in this area.

Of course, not all independent workers are successful at achieving their life goals.

The study found that about one-third of independent workers score poorly regarding life goal achievement. In most cases, this group reports not having the work/life flexibility, autonomy, and control that more successful independent workers have.

MBO Partners collaborated with future of work expert Connie Steele and her firm, Flywheel Associates, on this study. Flywheel Associates provided input, guidance, and survey questions from their annual State of Work and Career Success study.

Emergent Research (that's us) also collaborated on this study.

See the report for more information.  

The Lifestyle Employment Contract Versus Freelancing

Mercer's study, Rethinking what we need from work, found that "employees are more focused on securing their financial, physical, and emotional health and well-being than by achievement and climbing the ladder."

Because of this, they are proposing firms shift to a lifestyle contract to attract and retain talent (click on the Mercer report chart below to enlarge).

The new contract suggests 6 areas employers should focus on if they want to win the war for talent:

1. Step up efforts on retention
2. Align to shifting workforce needs
3. Focus on financial health
4. Reimagine well-being at work
5. Accelerate diversity, equity, and inclusion
6. Build a more flexible future

When you look under the hood at most of these areas, Mercer suggests employers offer greater work flexibility, autonomy, and control.  

These are, of course, key reasons workers choose to pursue independent work and freelancing.  

We've long viewed the choice between having a traditional job and freelancing as a competition.  

And most traditional jobs offer much less work flexibility, autonomy, and control than freelancing does. And we've long wondered why more firms don't provide at least some of the flexibility, autonomy, and control freelancing offers.  

And perhaps, they will.  

One of Mercer's focus areas, financial health, is where traditional employment has always had an advantage over independent work.

And because of this, it's a good area for employers to double down on in their competition with freelancing for talent (and their competition with other firms).  

Before the pandemic, we were seeing a trend of employers offering more flexibility, greater work/life balance, higher pay, and better overall financial support.

However, there is much talk - especially in the tech industry - about cutting back on these changes. And if we have a recession, there will be more talk.

Our hope is that more companies will adopt some form of the lifestyle employee contract.

Either way, we think the appeal of freelancing and independent work will be sufficient for their numbers to continue to grow.

Accounting Rules Favor the Use of Freelancers by Corporations

According to The Harvard Business Review's February magazine article How Financial Accounting Screws Up HR, accounting rules and practices mistakenly favor using nonemployee labor instead of employees.  

The main reason is the treatment of employees as a fixed cost. Key  quote: 

"...a number of rules have been prompting a major effort by companies to move work to nonemployees. One involves treating wages and salaries as fixed costs. Such costs are a big worry for investors because if business and revenue decline and those costs can't be cut, the profitability and value of the business collapse in a hurry ...

Why wages and salaries are ever considered fixed costs in the United States is a puzzle given that virtually all employment there is "at will," which allows companies to end it unilaterally for any business-related reason. 

The other accounting rules favoring the use of nonemployee labor the article points to are:

• Using per-employee statistics as key performance metrics: Using nonemployer labor reduces the number of employees, which improves per-employee metrics like sales per employee, profitability per employee, etc. 
• The use of nonemployee labor can increase a firm's reported gross margins: Direct labor costs are included in a firm's cost of goods sold. This reduces a firm's gross margin, a metric investors closely scrutinize. Nonemployee labor is much easier to categorize so it's not included in the gross margin calculation than employee labor costs are.
• It's generally harder to get approval to hire an employee than it is a contractor: This is not an accounting rule, but a common financial practice at most corporations.

Based on our corporate consulting work, our work with investors, and our experiences working at corporations, we agree that accounting rules and practices are tilted towards the use of nonemployee labor.

And many corporate decision-makers do not fully understand the impacts of these rules and practices on resource allocation and hiring decisions.

So shining a light on these issues is important.   

But even if the accounting rules and practices are changed - and we think they should - the use of freelancers and nonemployee labor by corporations will likely continue to grow.

The reason is simple.

The main trends driving the use of nonemployer labor - the need for greater business agility and flexibility, the challenges of hiring in-demand labor, the greater productivity and efficiency of nonemployee labor in some instances, and the desire by many skilled workers to be independent - significantly outweigh the accounting impacts.