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How First-Time Independent Workers Can Avoid Getting Burned

Many newcomers to self-employment have no experience running a business, a fact that some companies take advantage of.

How First-Time Independent Workers Can Avoid Getting Burned
[Photo: ArthurHidden/iStock]

More people are working for themselves than ever before, but that doesn’t mean the new ranks of gig workers, so-called “solopreneurs,” and everybody in between are finally freed from experiencing the corporate world–far from it.

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The clients that independent workers take on inevitably put them (back) into contact with work cultures, expectations, and financial pitfalls that many had hoped self-employment would mean a clean break with. And that’s true not just of the businesses independents contract with but also of the third-party platforms that match both parties up. Here’s a look at how to navigate that dynamic and some of the risks it contains.

A Brave New World For Many

A recent McKinsey & Company survey estimated that as many as 68 million people in the U.S. work for themselves. Some may have been lured into self-employment with the dream of becoming their own bosses. For them, the transition was deliberate and liberating. Others took on solo work simply out of necessity, for instance after being laid off.

Regardless, the growth of independent work is coinciding with the rise of populism and trade protectionism, two currents in American politics and society that we’ve seen accelerating in 2016 as traditional employer-employee work arrangements continue to erode. The more companies hire contract workers rather than employees, the more people will find themselves in unfamiliar territory.

And the fact is that most new independents have no experience running a business, let alone branding and marketing themselves, and that leaves many of them vulnerable. Startups and platforms have emerged to support the gig economy, leading many new independents to outsource essential business functions like customer acquisition. But all methods of starting your business in the gig economy aren’t equal, and plenty of corporate clients are likely (intentionally or not) to take advantage of that.

The three main approaches to getting started as an independent–gig work, contracting, and solopreneurship–vary widely, largely depending on a few basic criteria that differs for each of them:

  • the ease of getting basic operations up and running
  • who actually owns the customers
  • who sets the prices

Each one may put independent workers on the hook for other businesses’ cultures, expectations, and decisions–sometimes to a dangerous degree.

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Gig Work

Typically task- or project-based, gig work is often short in duration, with terms set by a company that has access to a large customer base for gig workers to tap into. These are the Ubers and Lyfts of the world–their business models rest in part on how easy they make it for workers to get started earning an income. You can obtain clients without doing much to sell your services. And that quick access to customers can give first-time giggers a much-needed burst of enthusiasm and momentum right out of the gates.

While many gig-oriented companies advertise the ability to be your own boss, the experience can feel more like that of a traditional employer-employee relationship (despite many of those companies’ ardent protestations to the contrary, including in court), minus the benefits and stability.

In these arrangements, companies typically retain control over the customers and set the prices, which means they can unilaterally change the fee structure without gig workers’ consent (or even notice). If the company has a hard time attracting customers, for instance, they’re likely to pass off the cost of promotions on to their workforces. There’s also little way to brand yourself on gig platforms, so you’ll have to teach yourself the marketing and sales skills you need if you ultimately decide to leave the platform and go it alone.

A short-term gig might be a good fit if you need to earn extra money on the side of a full-time job, make money fast after an unexpected layoff, or support yourself while in school. But be careful about considering this a long-term career path. Some who’ve tried that don’t exactly recommend it.

Contract Work

Often synonymous with “freelancing,” contract work has become easier than ever with marketplaces like Upwork, which offer experienced professionals the resources to build a robust freelance business. You can set the price and determine the work you want to take, giving you more control than you’d typically have over gig work. Still, there are downsides to this business shortcut, too.

For one thing, the leading freelancer marketplaces often take 10–20% of your income as a fee for finding the business. For another, it can be hard to stand out against the hordes of other freelancers, many of them similarly qualified. To build your reputation on a given platform and attract enough work, you may have to lower your rate. As your only revenue source, you’re dependent on the platform to connect you with high-quality work and clients who treat you with respect.

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This is where your clients’ work cultures can do some real damage to your livelihood. Wittingly or otherwise, customers contracting with professionals on these marketplaces can tend to see them as commodities, leading them to bargain intensely over price. When disputes arise, the platform may side with the client, and you may find yourself out of work.

If you don’t have an extensive network, freelance marketplaces may be a good way to hunt down your first clients. Even then, though, your contract may restrict you from taking those customers when you leave, so you’ll have to create your brand from scratch. If you plan to work for yourself indefinitely, it’s usually smarter to use these marketplaces only to get started building your brand and marketing funnel.

Solopreneurship

As a solopreneur, you’re wholly responsible for your income, which means you’re armed with the best defenses against disrespectful or exploitative clients–which you’re also free to ditch when you need to.

Building a brand takes time, so you may have to trade early revenue for having a greater say over your business. The main reason to take this path, though, is ultimate command over your customers, price, and work. It certainly takes more effort to get there, but in my experience, being in charge of your own business can be incredibly empowering.

That said, self-promotion is a major obstacle for many new solopreneurs who’ve never had to sell themselves outside of a job search. Gig work and freelance marketplaces are attractive because they let you avoid having to confront those marketing challenges (and attendant anxieties) head-on. But once you do, you own the tools for revenue generation, and ultimately give yourself the best chance for long-term success as a result.

Trading Risks For Rewards

Working for yourself might feel like finally gaining more freedom, but it also introduces far more risk. In the case of gig and contract work, someone else effectively owns your revenue stream; you’re just renting space.

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What you gain in quick income, you give up in control, leaving you vulnerable to shifts in budget, the vagaries of state law, and broader economic changes–not to mention an array of pressures from idiosyncratic clients. And as a contract or gig worker, should the marketplace you rely on shutter without warning, you’re left hanging–there are no vital financial lifelines like severance pay or unemployment insurance.

Relying on a third party platform for your entire customer base leaves you tethered to someone else’s business. So be careful about banking your livelihood on a platform that you don’t own. However you choose to work for yourself, always put your brand and business first.