Gen Z is building hands-on businesses with AI beneath the surface

Introduction

For the first time on record, Gen Z entrepreneurs started more businesses than Baby Boomers in 2025. This marks a generational shift in the same year that the oldest members of Gen Z turn 28 and the oldest Baby Boomers turn 79, and comes at a moment when AI is transforming entrepreneurship.

Gen Z is the generation most fluent in AI. They’ve incorporated it into their lives at a higher rate than any older generation and are much more likely to use it to launch their companies. But it has not fundamentally shifted the types of companies that they start. Similar to young adult entrepreneurs a decade ago, Gen Z founders are concentrated in hands-on, in-person industries. 

In this report we take a deep dive into Gen Z entrepreneurship, drawing on a nationally representative sample from more than 500,000 small businesses in Gusto’s platform data, and on a survey sample of over 1,000 founders who started a business in 2025. 

Gen Z still owns a small share of all small businesses today, about one-in-twenty, the share you would expect from a generation only now reaching its late twenties. Like young adults of prior generations, Gen Z owners build hands-on, in-person businesses; unlike older generations, they tend to do that work in collaboration with AI.

These findings counter the common misperceptions that Gen Z entrepreneurs cluster in a handful of tech- and media-adjacent sectors, or that AI’s effect on lowering frictions to entrepreneurship will be narrowly felt in Professional Services. AI acts as a lubricant making it cheaper and easier to start and run a business, regardless of industry; but founders must still have their own entrepreneurial spark. That has not changed. 

Key Findings

• More than 70% of Gen Z entrepreneurs used AI to help start their businesses in 2025, higher than any other generation, and nearly two-thirds say that AI made the process of starting a business faster and cheaper. We estimate that about 300K Gen Z small businesses wouldn’t have started their business in the same form in 2025.

• Gen Z entrepreneurs are at least twice as likely to run in-person businesses than older generations. Gen Z-owned businesses are much more likely to be in agriculture, hospitality, or hands-on trades than those owned by older generations.

• Gen Z entrepreneurs are building businesses that are 17% less exposed to AI than older generations. Two things drive it: they start business in less AI-exposed industries, and within those industries they do more of the in-person work and hire fewer people to do AI-exposed work.

• Gen Z owners are motivated by the pull of opportunity, not by a lack of traditional jobs. Only 8% of Gen Z entrepreneurs started their business because they or a partner lost a job. 

• In real estate, finance, and professional services, Gen Z owners run businesses up to 49% more AI-exposed than their elders. Where AI fits the business model, young owners lean in harder rather than away, following the work into the corners of the economy AI can reach.

More than 70% of Gen Z entrepreneurs used AI to help start their businesses in 2025

More than seven in ten Gen Z entrepreneurs used AI tools to help launch their business in 2025, a substantially higher share than for any other generation and nearly double the usage rate among Baby Boomers (42%). Many people in Gen Z are natively using AI tools in their daily lives, which have allowed them to build trust and the skills necessary to get the most out of the technology.

More than two-thirds of Gen Z entrepreneurs say AI made starting their business faster and cheaper

Gen Z entrepreneurs overwhelmingly told us that AI played an important role in starting their business. They were 27% more likely than Millennials to say that using AI to start their business saved them time and money. Which suggests that AI lowered significant barriers to starting a business.

More businesses were started by Gen Z entrepreneurs than Baby Boomer entrepreneurs in 2025, and AI was a necessary tool for many of these new business starts. Gen Z founders were twice as likely to say that they would not have started a business without AI than older entrepreneurs. Last year 5.6 million new business applications were filed, and 9% of new business starts were from Gen Z entrepreneurs. Taken together, this means that nearly 300K Gen Z businesses would not have existed in the same form without access to AI tools.

While Gen Z entrepreneurs are developing the skills, ideas, and customer bases for their business, many are using AI as a partner with which they test ideas or handle administration so that the founder can focus on building the business.

AI is making it easier for Gen Z entrepreneurs to start their business. Many young entrepreneurs are using AI differently than people in older generations. More than half of Gen Z entrepreneurs said that they used AI to help them develop business ideas, and were much more likely than any other age group to say that they used AI to handle administrative tasks. Gen Z entrepreneurs lean on AI to handle tasks so that they can focus on what’s core for their business.

Gen Z entrepreneurs are over represented in hands-on, in-person industries

Gen Z small business owners are much more likely to run in-person businesses than older generations. For example, they are more than twice as likely to run an agriculture (e.g., animal or crop production) or hospitality business, and more likely to own recreation or retail businesses. Meanwhile, they are less likely to open businesses in office-based industries like finance, real estate, or professional services.

The above chart shows this clearly. It shows the ratio of the generation’s share of owners of a given sector over the generation’s overall share of all small business owners. This means that a 1 indicates that the generation is as represented among that sector’s owners as it is among owners overall. While Millennials and Gen X are barely over- or under-represented among owners in any single sector, Gen Z’s owners cluster in in-person industries and away from office ones.

Some of this may be structural: many health care businesses (e.g., urgent care clinics, dentist offices) require years of specific training and licensure before someone is qualified to open a practice, and Gen Z hasn’t had the opportunity to launch these businesses yet. However, other industries, like technology or information, have much lower credential barriers and our observed underrepresentation may represent a preference against running businesses in these industries.

Gen Z owners are least exposed to AI

The typical small business spends a little over a third of its payroll, about 36%, on tasks that AI can do. Gen Z entrepreneurs spend much less, only 30%, at the businesses they own. We classify each role in a business by how much of its work today's AI can do (following Eloundou et al. 2024), then measure the share that is AI exposed, weighting by pay so the work a business invests most in counts most.

This isn't a story about Gen Z businesses being smaller or less mature. Gen Z-owned businesses have an average of 8.7 employees while businesses with older owners have about 10 employees, and Gen Z-owned businesses are no more likely to be solopreneurs. The same gap shows up, and grows, on a stricter measure: the share of payroll going to the most-automatable roles, the ones AI could mostly run on its own. There, Gen Z owners spend 18% against about 24% for older owners, and the difference widens at larger firms, where Gen Z falls to 15% while older owners hold around 24%. 

Gen Z-owned businesses are also only modestly younger than those owned by older generations, about 4 years on average. Some of that gap is mechanical, since most Gen Z owners founded their own company rather than taking over an existing business. The point is that the difference is small in absolute terms, a few years rather than a generation, so Gen Z's lower AI exposure is not an artifact of running newer, less-established businesses.

Gen Z industries are least exposed to AI

Gen Z are more likely to run businesses in hands-on and in-person sectors. Importantly, these are the sectors with the lowest share of firms whose staff is highly exposed to AI. Gen Z businesses are generally concentrated above the dotted line in the chart above (indicating that these industries are overrepresented by Gen Z) and to the left of the chart (a low share of firms with highly exposed staff).

That doesn't mean AI has no role, or that Gen Z owners avoid it. Half already use AI in their business, and three-quarters of new Gen Z entrepreneurs used it to launch. What's low is the AI-exposure of the work itself: the businesses Gen Z builds, hands-on and in-person, don't run on the kind of work AI can do. They aren't steering around it. They're opening restaurants, farms, and salons, where the work happens in person. When they do build a business where AI can help, like a real estate office or a finance shop, they staff those AI-exposed roles more heavily than older owners do. The exposure follows the kind of business they build, not a decision to keep AI out. And it predates the technology: Gen Z has favored this hands-on, in-person work for the last half decade.

The mix of Gen-Z-owned businesses has changed little over the past half decade, even as the number of Gen Z owners grew several times over. They are about as concentrated in hands-on, in-person industries today as they were in 2020, well before AI tools went mainstream in late 2022. And it isn’t a Gen Z quirk. In national survey data, owners in their late twenties built nearly the same mix of businesses a decade ago: in 2015 that age group was Millennials, and they too clustered in these industries, with construction the largest, at almost exactly today’s rates (authors' analysis of Current Population Survey microdata, IPUMS CPS). The pattern tracks age, not generation, and predates AI by years. 

Gen Z owners are are motivated by the pull of opportunity, not by a lack of traditional jobs

This isn’t a shift that Gen Z is being forced into – either due to financial necessity or due to a lack of more conventional career opportunities. 

Few Gen Z entrepreneurs started their business in 2025 because of financial necessity: only 8% started because they or a partner lost a job and only 13% started their business because they needed or wanted to supplement income. More often than not, Gen Z entrepreneurs started their business because they saw an opportunity to make an impact. These include taking a new business or service to market, more ownership of their career, or making an impact on their community.

CPS data confirm that these young entrepreneurs are choosing business ownership as the way to start and establish their careers: Among young adults, transitions from employment into self-employment have increased, while transitions from unemployment into self-employment have been stable. Gen Z entrepreneurs who start businesses are doing so after having a regular job, not after having searched without success for a regular job. 

Gen Z owners are more than twice as likely as older owners to be doers, not just managers

The sector mix is only half the story. In these industries, the work AI can do is the management and back-office work, and the owner is often the one doing it. The chart shows which owners. Older owners run their businesses from the management seat: 68% call their own job management. Gen Z owners are on the floor instead, in in-person service or trades, with just 26% in management. Because the owner’s own work counts in the business’s exposure, an owner who works the counter rather than the back office pulls the whole firm’s exposure down.  This holds within industries: in every sector we can measure, Gen Z owners are less likely than older owners to identify their roles as management, so this is about the owner’s role and not the mix of industries Gen Z picks. Our measure captures the tasks AI can do across a firm's roles, but not a different kind of opportunity: AI taking on the administrative side so a hands-on owner can spend more time on the work only they can do.

As we continue to watch Gen Z entrepreneurs, measuring this handoff will become an important and possible multiplier for their businesses. Gen Z is increasingly comfortable with this technology, and leaning into AI to help with administrative tasks related to the business or brainstorming and growing product offerings may be natural extensions of what they’re already using AI for.

There are a handful of places where the pattern flips, and it's the best evidence that none of this is Gen Z avoiding AI. If they were, they'd avoid it everywhere. However, in real estate, finance, and professional services, Gen Z owners run businesses more exposed to AI than older owners, not less. In finance, 64% of payroll goes to AI-exposed roles against 51% for older owners; in real estate, 24% against 16%. Where the business runs on the kind of work AI can do, Gen Z staffs it more heavily than older business owners. 

The low exposure everywhere else was never a strategy to keep AI out. It was the hands-on work their businesses are built on. Why they lean in further than older owners, rather than just matching them, we can't say from these data. It may be that younger owners in these fields build leaner, more digital teams, concentrated in the roles AI reaches. However, Gen Z’s approach toward building businesses is consistent: they follow the work.

Conclusion

Gen Z is changing who is starting businesses in the U.S. The companies they build sit, for now, outside much of what today's AI can do. That isn't avoidance. It's the product of the hands-on, in-person work they choose, and the fact that they tend to do that work themselves rather than manage it. Where AI fits the business, in finance, real estate, and professional services, young owners lean in further than their elders.

What it shows is a generation being deliberate: Gen Z is comfortable with the technology, quick to use it in their own lives and to launch their companies, and at the same time building businesses around the work they most want to do. As Gen Z's share of ownership grows, that pairing is worth watching.

Methodology

Survey results are from the Gusto 2026 New Business Formation Survey, a nationally representative sample of 1,051 founders who started a business in 2025.

Platform analysis is based on the following data:

Sample. We draw on more than 500,000 small businesses in Gusto's payroll data and weight them to match the U.S. small-business population, using the same two-stage approach (industry by firm size, from Bureau of Labor Statistics and Census Bureau data) as Gusto's Small Business Jobs Report. The result is nationally representative of small businesses with fewer than 50 employees.

Measuring AI exposure. We score each role by how exposed its tasks are to AI, using the occupational exposure measure from Eloundou et al. (2024). We use their "beta" measure, which treats a task as exposed if AI, together with the software tools built on top of it, could cut the time to do that task by at least half. We use beta rather than the narrower "alpha" measure (what a model can do on its own) because businesses meet AI through tools and products, not the raw model, so beta better reflects the technology owners actually have access to.

From roles to firms. We measure exposure as a share of payroll dollars, not headcount, so each role counts for as much as the business pays for it, on the assumption that higher-paid roles tend to carry more of the business's value. We report two views. The first is the share of the wage bill spent on exposed work, our headline measure (about 36% for the typical business, 30% for Gen Z owners). The second is a stricter cut: the share of payroll going to the most-automatable roles, the ones AI could mostly run on its own (18% for Gen Z, about 24% for older owners).

Identifying the owner. We identify each business's principal owner by job title or FLSA status; where neither marks an owner, we take the highest-paid employee. We see only owners who take W-2 pay, so owners paid solely through distributions or K-1 income are not visible in our data. As a robustness check, we narrowed the definition to owners marked by title or FLSA alone, dropping the highest-paid fallback, and found similar results.

CPS data attained via IPUMS.

Sarah Flood, Miriam King, Renae Rodgers, Steven Ruggles, J. Robert Warren, Daniel Backman, Etienne Breton, Grace Cooper, Julia A. Rivera Drew, Stephanie Richards, David Van Riper, and Kari C.W. Williams. IPUMS CPS: Version 13.0 [dataset]. Minneapolis, MN: IPUMS, 2025. https://doi.org/10.18128/D030.V13.0