America’s new small business owners without employees are off to a strong start in the AI ​​era

It takes hundreds of billions of dollars for tech giants to develop artificial intelligence, but it only takes a few AI tools to get the smallest companies in the U.S. economy up and running with a competitive business model.

Alex Willen expects the 12 e-commerce brands he operates without employees to generate between $2.5 million and $3 million this year. Kristin Ginn left Microsoft in March and launched trnsfrmAItn, an AI adoption consultancy. Seven months later, she received or closed contracts worth about $250,000 through the end of the year, with no regular employees or contractors.

“The biggest misconception is that it’s just about individual productivity; it’s really about leveraging AI to do tasks that previously required an entire team,” said Erik Brynjolfsson, an economist at Stanford.

Early research on the impact of AI in the business world of solopreneurs is worth watching.

According to Liya Palagashvili, a labor economist and director of the Labor Policy Project at George Mason University’s Mercatus Center, new business formation increases in direct correlation with applicants unlikely to become employers.

In industries with high exposure to AI, business applications without early signs of hiring increased by 26.8% between the first quarter of 2024 and the first quarter of 2026, from approximately 222,000 to 281,000 per quarter.

During the same period, applications in sectors with stronger indications of eventually becoming employer-based fell by 6.4%. In construction and wholesale trade, which Palagashvili used as a comparison group, non-employer applications decreased by 0.4%.

“What AI does is put these capabilities directly into the hands of the individual,” she said.

Palagashvili cautioned that the results are preliminary and descriptive and do not establish that AI is driving the increase. The census-based measure identifies applications without indicators associated with near-term payroll or hiring plans; it does not show that these companies ultimately remained one-person businesses or never hired employees.

But Willen shows what economics can look like.

Anthropic’s Claude helps with accounting, customer service, advertising and inventory across his businesses, while OpenAI image tools do work that was once left to photographers and designers.

Without AI, Willen said, “I would probably need another full-time person, and I would also need to bring in contractors for photography, design, accounting and ad management. »

A traditional product photoshoot could cost $2,000 to $5,000, and a designer could cost $300 to $1,000 for images for a new ad, he said.

When AI directly eliminates one of those expenses, Willen said, “that money just goes into my pocket.”

AI has also allowed him to tap into revenue channels he wouldn’t have previously considered. After acquiring Lone Trail, a hunting gear brand selling binocular harnesses, bags and other outdoor accessories, Willen said its Shopify site accounted for about 1% of sales. Rather than shutting down the channel, he used ChatGPT and Claude to rebuild the site and AI to help him deliver meta advertising. During a recent 30-day period, he said, Shopify accounted for about 30% of Lone Trail’s revenue.

“That will end up being at least six figures in annual revenue that wouldn’t exist without AI,” Willen said.

Ginn’s business shows how quickly a new entrant can generate significant revenue without first building an organization around it. It uses AI to facilitate proposals, pricing, strategy and other work and is exploring an AI agent to carry out part of a labor-intensive customer process.

An investigation by accounting and invoicing software company FreshBooks identified similar behavior more generally. Seventy-nine percent of solopreneurs said they tried AI before hiring someone for a task they couldn’t do themselves (the same figure was 86% when including microbusiness owners). AI allows them to “appear much bigger than they are,” said Shaheen Javadizadeh, CEO of FreshBooks.

But among existing small businesses, the available data tells a different story. Gusto, a payroll and human resources software company serving small businesses, tracked companies after they adopted AI and found that their headcounts were about 7% higher after one year than those of comparable companies that knew about AI but hadn’t adopted it. Among companies with fewer than 10 employees, AI adopters saw their headcount grow about 10% more than comparable non-adopting companies.

Willen’s experience also highlights a tradeoff in the new business model: Operating with fewer people doesn’t eliminate reliance on larger technology platforms. About 80% of its overall revenue still comes from Amazon, and it uses Meta and Shopify to expand direct sales. Ginn doesn’t have a staff, but LinkedIn has been one of her consulting firm’s biggest client drivers, she said.

Brynjolfsson said the proliferation of small producers can actually increase the value of the platforms that connect them to buyers.

“There’s this long tail of products, but at the same time, big platforms like Amazon are more powerful than ever because they’re aggregating all these products and bringing them together,” Brynjolfsson said.

But the relationship is not as simple as labor savings directly benefiting big tech. Willen said some of the money he saves becomes profit, while Ginn spends less than $60 a month on paid AI tools.

AI can make it economical for more small producers to exist. And as their core business becomes cheaper to produce, small businesses are focusing more on customer acquisition and distribution, Brynjolfsson said.

Brynjolfsson believes that while individual entrepreneurs will thrive, the use of AI will at the same time lead to the creation of even larger businesses, on average, than those that exist today.

In a September research report titled “AI’s Use of Knowledge in Society,” Brynjolfsson and Zoë Hitzig, a researcher at the Anthropic Institute who studies the social and economic impacts of AI, say that as AI codifies previously dispersed knowledge among workers and allows more information to be aggregated and action centralized, companies will grow on average, while industrial concentration increases and local management autonomy decreases. Researchers say early evidence is largely consistent with these trends.

This is bad news for mid-sized businesses. Brynjolfsson predicts that AI could contribute to a “collapse” of mid-sized companies – very small teams capable of doing more on one side and giant organizations exploiting AI and scalability on the other.

“The fat in the middle – the management levels focused on internal coordination – will likely be significantly reduced,” he said.

Adam Branch experienced a version of this change at two very different technology companies.

Before founding rhino.ai, an enterprise software company that uses AI to modernize existing systems, Branch started Incentive Technology Group, a traditional technology services company with about 500 employees. Under this model, winning more work meant hiring more people, he said.

“With rhino.ai, we’re building AI software to do more of the work these teams were doing before,” Branch said.

Rhino.ai has around 50 employees. Management estimates that comparable modernization work can now be carried out with three to four times higher productivity per employee.

His team estimates that labor accounted for about 85% of ITG’s operating expenses and technology for about 5%. At rhino.ai, Branch estimates labor at around 40%, while technology, including cloud, software and AI models, accounts for around 25%.

AWS is seeing a similar loosening of the relationship between revenue and headcount among AI-native startups. Its Engines of Growth study, an independent global study of 3,413 startup founders and executives across 20 countries, found that these companies grew revenue an average of 156% per year, compared to 65% for all startups, while more than half generated more than $400,000 in revenue per employee. The report focuses on companies less than five years old that are using AI in its most advanced forms.

“It used to be that growth was directly related to the number of people you could hire,” said Ruba Borno, vice president of AWS Specialists and Partners. “Now founders can scale with technology, not just headcount. »

Brynjolfsson doesn’t see the outcome as simply a victory for Big Tech at the expense of everyone else. Entrepreneurs get to keep some of the productivity gains, consumers have more choice and platforms benefit from providing technology and connecting more producers with their customers, he said.

“The platforms and people who create the tools win because they are able to sell them, the solopreneurs win because they are able to use them, and the consumers win because they get new products they didn’t have before,” he said. “It’s mostly a bigger pie, so it’s win-win-win – a triple win.”

What AI could change is the shape of that bigger pie, he said.

“Any time there is a technological change, a platform change, it obviously benefits the companies that create those platforms and those technologies,” Brynjolfsson said. “But it also benefits new entrants who can start from scratch.”