The gig economy has been growing fast during the past decade as digitalization enabled it. Companies and small businesses are outsourcing creative works, market research, advertising management and all sorts of temporary gigs to freelancers and independent professionals, as this way of getting things done requires significantly less financial and legal commitments.
The reason I write this article is to highlight the risks of being a freelancer to those who are new to the industry. For a couple of years, I also worked as a freelancer, then I decided to scale up as the risks were outweighing the benefits.
The glorified freelance lifestyle vs the harsh economics of forced entrepreneurship
Freelancers and independent professionals found increased demand for their services, not because their offering was so attractive, but because outsourcing is more beneficial than employing a full-time professional.
The internet is commoditizing industries, and the freelance gig economy is going through the same. Freelancers are under a fierce price/value competition as more and more coercion entrepreneurs are flooding the market.
Coercion entrepreneurs, also known as forced entrepreneurs on the self-employed market are individuals who dropped out of employment or did not find a suitable job. You can see these guys becoming consultants, freelancers, one-person “marketing agencies” and sellers of “3-step program” self-proclaimed millionaires.
During 2020, as a result of the economical slowdown, hundreds of thousands of professionals found themselves out of their job, and their only viable alternative to make a living is to join the gig economy. Observing from this point of view, it is easy to understand why they call traditional employment and the education system to be a scam. It must be hard for them to be out of opportunities and compete on Fiverr and Upwork with sellers from Bangladesh. Ugh…
Being a freelancer in 2020 and 2021 is tough, because of the following reasons:
- The economical downturn caused by COVID-19
- Increased competition as forced entrepreneurs are flooding the freelance market
- Increasing expectations in service value
- Decreasing market prices due to increased competition
- The ongoing commoditization of skills, information and services
Risks to consider if you plan to freelance as a long-term career path
Being your own boss is attractive, and I get that working from Starbucks, or from home is a lot better than tolerating an asshole boss in the office. I did that too, it felt amazing to build my own empire.
Before you commit yourself to a freelancing as form of making a living, you better consider the following risks:
- Your skills might become outdated or obsolete one day
- Technology might replace you
- The ever-increasing competition will force you to reduce your rates or work more for the same
- Your freelancing revenue might not keep up with increased cost of living (inflation, family, etc)
- Clients might leave you
- In case of hospitalization, you will be out of business
- etc…
Short-term risk mitigation measures to secure your freelancing income
As a freelancer, you will be still selling your time and work for a fee. To reduce risk, you will need to optimize by increasing your work output, increasing demand for your services, growing your reputation and minimizing your time and financial investment in acquiring new clients.
To counter risk factors listed in the previous section, you can:
- Over-deliver to clients to ensure repeat business
- Provide the best possible service, leave no chance for complaints
- Collect reviews on Google My Business and TrustPilot, as well as on LinkedIn
- Purposeful, active networking to grow your personal brand and reputation
- Keep up with industry trends and learn new things relevant to your industry
- Optimize and automate workflows to save yourself time so you can work more
- Streamline work habits so you can increase your output
- Scale your revenue by value-added services
Long-term strategies to secure yourself as a self-employed, independent professional or entrepreneur
Freelancer is not included in the title for a reason. It is not sustainable to maintain yourself as a freelancer – the risks are too high. If you want to secure financial stability long term, without returning to full-time employment is creating something that makes money for you.
As mentioned before, freelancers trade their time and skills for money. You got to move beyond that, as sooner or later circumstances might not allow you to keep up with freelancing. Your ultimate goal should be to build a system that generates money for you, even if you get sick, lose your personal network or become unable to work for any reasons.
Possible next steps to turn your freelancing practice into a business:
- Take on more work and employ other freelancers to do it
- Transform your freelancing activities into highly automated procedures
- Transform your freelancing activities into a SaaS / Software as a Service
- Negotiate monthly retainer fees with multiple companies and hire others to do the work
The above solutions will enable you to reduce your personal commitment to deliver tasks significantly, so you can focus on business development, marketing your business and acquiring new skills to remain on top of the competition.
Once you managed to establish a business that works, you will need to think about making investments. Personally, I like to invest my time and money to grow my business incomes, others prefer to invest in real estate, stocks or other financial instruments. The point is to start building your wealth by taking money away from your day to day expenses and business operations. Make savings, make investments.