Mike O'Donnell | May. 07, 2018

The Gig Economy Vs. Small Businesses 

It is a well-documented fact that the relative number of new small businesses hiring employees is declining each year. At the same time, an increasing number of go-it-alone solo entrepreneurs are emerging as the gig economy heats up and people start side-businesses in addition to holding down regular full-time jobs.

The end result is that big businesses are getting bigger, small businesses with employees aren’t getting started, and, more people are choosing to have a day job combined with an “after-work” gig job.

These trends have significant implications for the US economy, which no one seems to be talking about, so let me start that conversation here.

In Colorado during 1995, 12,759 new small businesses with employees were created, each of which hired an average of 7.3 people that year. After five years, each small business from the class of ’95 that was still around had an average of 14 employees on their payroll, and this grew by year ten to 16 employees per firm.  

The 15,536 new small firms with employees that opened for business ten years later in 2005 hired an average of only 4.6 people each. After five years, each firm from that class of ’05 that was still in business had an average of 8 employees on their payroll, which increased by year ten to 11 employees.

The 15,492 new small businesses with employees that launched in 2015, a fewer amount in Colorado than ten years earlier, only hired an average of 3.8 people per firm during their first year.

Technology is obviously the biggest reason why startup small businesses can get by with fewer employees than in “the olden days” although the implications, nonetheless, for the Colorado economy are huge.

In 2005, the labor force in Colorado grew by 40,377 to 2,587,078, with 176% of new jobs being created by startups– new small businesses created 71,192 jobs that year and existing small, medium, or large businesses lost 30,815 jobs in total. 

Twelve years later, in 2017, the labor force in Colorado grew by 92,834 persons to 3,029,796 with 63,267 (68%) of those new jobs that year being created by startup small businesses.  

This shift in Colorado from a dependence on new small firms backfilling jobs being eliminated by older/larger businesses, to entrepreneurs being responsible for about two-thirds of the new jobs, is an interesting one because Colorado has been largely shielded from the extremes of economic cycles in the past because the state has always been entrepreneurial-centric.

Unnecessary and unneeded new regulations that the government sector has added over the last few decades has made it more challenging for entrepreneurs to start and grow successful small businesses in Colorado these days. This has resulted in the creation of relatively fewer new small businesses, each of which is creating fewer jobs than in previous years. When the next economic downturn hits, the fiddler will need to be paid, and I, for one, am not necessarily looking forward to the end of that dance.

Colorado was once a very entrepreneurial state. Now, despite its reputation as a hub of entrepreneurship, it is much less of an entrepreneurial state than it once was. If you, like me, would like to see more competition, more innovation, more choice, and, less dependence on businesses “too big to fail”, please share this short article with whichever elected official you respect and ask them to do what they can to re-engage the entrepreneurial spirit that originally made Colorado the great state it is today. The alternative, of course, is a less great state. And none of us want that.