Introduction
Starting a business can be expensive. You might have significant costs, like marketing and payroll, before you make your first sale. And even when revenue starts coming in, it’s hard to predict when you’ll turn a profit.
In recent years, more entrepreneurs have protected themselves against that uncertainty by holding onto their day jobs and running their new businesses as side hustles. Last year was a turning point for the side hustle’s popularity, according to a Gusto survey of 1,300 business owners who started their companies in 2023: 44% of new business owners launched a company while working for another employer in 2023, up from 25% in 2022.
Financial concerns motivated many of those side hustlers: 71% of people who said they wanted or needed to supplement their household’s income were side hustlers, compared to just 23% of entrepreneurs who ran their new company full-time.
The rise of the side hustle also reflects the impact of the racial wealth gap. Nearly half of non-white business owners worked for another employer while starting a company last year, compared to 40% of white business owners.
Close to Half of New Businesses Were Started As Side Hustles
Last year saw a big jump in the percentage of small businesses that were started as side hustles, from 27% in 2022 to 44% in 2023. However, nearly half of those people who reported having started their business as a side hustle in 2023, said they were no longer working for someone else in early 2024.
That isn’t a surprise. While it’s cooled off since mid-2022, inflation has remained above pre-pandemic levels, and major expenses like housing and child care have become increasingly unaffordable. Keeping their day job can give an entrepreneur more financial stability as they get their business off the ground.
Financial Concerns Are a Top Motivator for Side Hustlers
Entrepreneurs who cited financial reasons for starting their businesses were much more likely to be side hustlers than full-time entrepreneurs. In 2023, just over three-fourths (76%) of people who started a business because they wanted or needed to supplement their household’s income were side hustlers, compared to a quarter (24%) being full-time entrepreneurs.
People with non-financial reasons for starting a business, like wanting more flexibility (56%) or taking advantage of new technology (57%) , meanwhile, were more likely to be full-time entrepreneurs.
One reason side hustlers may be more financially motivated is that they tend to have less financial support from other members of their household than full-time entrepreneurs. New business owners who were the only or primary source of income for their household in 2023 were more likely (47%) to start their business as a side hustle than new business owners who were not their household’s primary source of income (42%).
Side Hustlers Have Similar Funding Needs as Full-Timers, but Different Funding Sources
Contrary to the popular image of side hustles as inexpensive, asset-light businesses, side hustlers have similar funding needs as full-time entrepreneurs. Side hustlers were actually slightly more likely than all new business owners to need more than $5,000 in start-up funding in 2023. Where side hustlers differ is in where they get their funding.
Full-time entrepreneurs are more likely to obtain financing or be able to provide their own initial funding than side hustles. In 2023, less than half of people who used a private business loan (47%), Small Business Administration-backed loan (42%), or private capital investment (40%) to start their business were side hustlers. More than half of the businesses that used each type of financing were owned by full-time entrepreneurs.
It may be that side hustlers keep their day jobs in part because they have more trouble getting access to outside funding, believe that they might not be approved for funds, or because they prefer not having to deal with the effort and expense of obtaining and, in some cases, paying back those funds.
Young Entrepreneurs Of Almost All Ages Are Embracing Side Hustles
Side hustles are popular for entrepreneurs younger than 55 years old. Young business owners may not have had time to build much wealth, especially compared to new businesses started by people who were 55 or older. Over half of entrepreneurs 45-54 started their businesses as side hustles, drawing on their earned experience to start a new venture.
Conclusion
Entrepreneurs who want to bolster their finances are increasingly deciding to keep their day jobs when starting their businesses. As a result, the popularity of side hustles surged in 2023. If that trend continues, more than half of new businesses could begin as side hustles in the coming years.