Freelancing Won’t Help You to Build Wealth

Guest Post by Patrick J. McGinnis, a venture capitalist and private equity investor who founded Dirigo Advisors, after a decade on Wall Street, to provide strategic advice to investors, entrepreneurs, and fast-growing businesses. He is the author of the new book THE 10% ENTREPRENEUR: Live Your Startup Dream Without Quitting Your Day Job.

The gig economy is here, it’s real, and it’s global. As many as 53 percent of Americans can now be classified as freelancers. While that number includes your (hopefully) friendly Uber driver, it also encompasses a growing number of white collar workers as well, who offer legal, financial, accounting, or design services on demand. This is a direct result of recent instability in once-staid industries like law and finance that has pushed many professionals out of firm life and into consulting roles. As a result, software giant Intuit projects that temporary workers will represent 40 percent of the workforce by 2020. It seems that in the future, nearly half of workers – no matter the color of their collars – will be free agents.

While the rise of the “gig” economy, as the growing dominance of freelancing is often called, has been great for consumers and small business owners, it isn’t necessarily good news for the people providing all these services. Freelancing offers flexibility and a home for workers displaced by the changing labor market, but it also suffers from a fundamental flaw: When you’re a freelancer, there is no company stock plan. You get paid based on the hours you work and nothing more. You have no ownership in any of your projects and you don’t have the possibility of owning a share, even if it’s a small one, of something that can grow in value over time.

Given that reality, how can you make the most of your time as a freelancer in the gig economy?

 Think like an owner

When you’re a freelancer, you are also, in a fundamental sense, an entrepreneur. Over time, you will build a list of clients, expand your network, and assemble a track record of achievements that are your own. In that sense, freelancing can offer a path to building your own firm, so it’s never too early to establish credibility before the wider world. That means taking some time to create a brand, build a website, design a logo, and order slick business cards. Thanks to the sharing economy and inexpensive online platforms, you can accomplish most of these tasks by investing a few days and a couple of hundred dollars. You can also legally incorporate your company quickly and easily with a minimal investment of capital. Even if you’re not yet sure whether you plan to work for yourself over the long term, you’ll always have these resources if you want to moonlight on the side.

Be a 10% Entrepreneur and look for opportunities to earn sweat equity

Don’t restrict thinking like an owner to your own firm. You can also endeavor to own stakes in other people’s businesses as well. Specifically, you can become a 10% Entrepreneur, allocating at least 10% of your time and energy to offering your services in exchange for shares of a company – commonly known as earning sweat equity. This practice is relatively common because most startups have more to offer in the way of equity than they do in cash. As a result, there are many services, such as advising on a business plan or legal documents, making critical introductions, or creating a logo or website, that young businesses will consider as an in-kind capital contribution in exchange for stock.

While it it naturally riskier than simply walking away with a pocketful of cash, getting paid at least partly in equity can be surprisingly lucrative. Take the case of David Choe. Choe is the graffiti artist who took stock in Facebook as payment for murals he painted at their headquarters. Today, those shares are worth hundreds of millions of dollars.

With freelancing here to stay, thinking like an owner, with respect to your business, as well as the businesses of others, can represent a powerful strategy to build long-term wealth. Not every company you work with is going to be the next Facebook, but as you gain experience, you will learn to spot the companies that are poised for growth. Not only will these companies become reliable clients, but if you earn sweat equity, they can also become long-term partners.

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