Generative AI is opening new doors for small businesses, making it easier to start and compete: 30% of entrepreneurs say AI lowers barriers to launching a business, and over 60% believe it helps level the field with bigger players.
Though only 22% of small firms use GenAI regularly, four in five report productivity gains of 20% or more, and over 40% have seen revenues jump by at least 20%. Rather than replacing workers, many businesses are using AI to upskill staff, with just 5% cutting headcount. Most firms focus on writing and research, while staying cautious about complex tasks like financial analysis.
Despite these early wins, many small businesses lack a formal AI strategy and remain wary of costs, technical challenges, and data privacy—suggesting the AI revolution for small business is still just getting started.
Generative AI is having a profound impact on the economy, and small businesses are taking advantage. While much of the discussion around GenAI has focused on large corporations, small businesses are seeing enormous benefits from the technology, including major gains in productivity and revenue. Employees willing to learn new AI-relevant skills are benefitting too, as GenAI is leading many business owners to invest more in their workforce, rather than reduce it.
For as much of an asset as GenAI has been for small businesses, there’s plenty of opportunity for them to get even more from the technology. Most small businesses don’t have a formal GenAI strategy, but those that do are seeing the largest productivity gains. It’s clear that the GenAI revolution is still in its early stages, and the technology’s impact will only grow as entrepreneurs become more familiar with it.
This report is based on a survey of 1,480 small and medium-sized business owners on the Gusto platform who told us how they’re using GenAI and how it’s impacting their business.
GenAI’s growing capabilities are making it easier for entrepreneurs to pursue new ideas.
Among entrepreneurs who considered starting a new business last year due in part to advances in AI, 83% said AI has lowered the barriers to entry for new firms.
Disruptive technologies allow founders to operate more efficiently and build innovative products and services that draw customers away from larger competitors, and many entrepreneurs see GenAI having a similar impact. More than 60% of small businesses report that GenAI has increased innovation, with 48% seeing a modest gain and 13% seeing a significant boost . That may explain why 62% of small business owners believe GenAI will level the playing field with larger competitors.
Like the internet and workplace software before it, GenAI is driving a new wave of productivity gains for small business owners. But unlike in the 1990s, when many entrepreneurs struggled to understand how the internet could add value to their business, AI adoption is happening at a much faster pace.
In 1997, more than four years after the launch of Mosaic, the first widely used web browser, only 4 in 10 small businesses had any internet access at all , and far less were doing any business online. (source)
Compare that to today: Less than three years after the release of ChatGPT, nearly two-thirds of small businesses are at least experimenting with GenAI tools. And more than 40% of entrepreneurs who use GenAI report that it has already increased their revenue by 20% or more.
The productivity gains many small businesses are seeing are striking. Four out of five small businesses that use GenAI have seen productivity increase by 20% or more.
Today, most small businesses use AI regularly for just a handful of tasks (the median company reports two regular use cases). But even limited adoption is delivering strong returns. More than 80% of businesses that use AI in just one-to-four areas report seeing productivity gains, and 16% say those gains exceed 20%. These results suggest that even small, targeted applications of AI can have an outsized impact.
GenAI is also helping small businesses find new ways to better serve their customers, with 61% of entrepreneurs who use GenAI saying the technology has increased innovation in their business. For many firms, the gains have been modest so far, but around 1 in 10 have seen a significant increase in innovation as a result of GenAI.
Those productivity and innovation gains are translating into higher revenue, with 41% of GenAI adopters reporting revenue growth of 20% or more.
GenAI has become particularly valuable for solopreneurs. More than 80% of solopreneur GenAI users reported a productivity boost of 20% or more, and close to half (47%) have seen revenue grow by 20% or more.
As entrepreneurs bring GenAI into the core tasks of their business, they see greater benefits. Small businesses that use GenAI for strategy and decision-making are 2.8x more likely than businesses that don’t to say the technology has increased their productivity by more than 20%.
While GenAI’s popularity is growing rapidly, many entrepreneurs are gradually integrating it into their business. Just 22% of GenAI-adopting small businesses use the technology regularly.
That trend is consistent across generations. In each generational cohort we surveyed, more than 75% of entrepreneurs who are using AI are experimenting with it or using it occasionally.
The variance in GenAI usage is larger across industries. Firms in industries that are more likely to emphasize written communication and offer text-based products and services are most quickly adopting GenAI. More than 20% of Personal Services (23%) and Professional Services (28%) firms that are using GenAI are regular users.
Industries with a greater emphasis on in-person interaction or physical manufacturing are earlier in the GenAI adoption cycle. Just 10% of Goods Producing firms and 16% of Community Services firms that use GenAI are regular users.
For many businesses, the next stage of AI adoption will involve AI agents, software tools that can complete a wider range of tasks with less supervision than many of today’s chatbots. Though just 17% of small businesses are using AI agents today, 42% are considering using them in the future.
Writing and research are the most popular GenAI use cases
Small businesses are primarily using GenAI to find, summarize, and communicate information. More than 80% of GenAI-adopting small businesses are at least experimenting with using the technology for research or writing.
Small businesses remain cautious about using GenAI for higher-stakes or specialized tasks, particularly those involving finances or customer data. Fewer than 40% of GenAI adopters are even experimenting with these more sensitive use cases, underscoring that trust in GenAI is still highly context-dependent.
There’s a widespread expectation that AI will have a profound impact on the workforce, with many focusing on its potential to replace the need for human workers. But while more than half of entrepreneurs who regularly use GenAI have changed their workforce composition as a result of the technology, they’ve been much more likely to upskill (34%) their employees or increase hiring (9%) than reduce headcount (5%).
One of the strongest signs of GenAI’s potential is the fact that many businesses are seeing significant benefits from the technology without having a clear strategy for how to use it. More than 80% of small businesses don’t have an AI strategy.
But for the businesses that are taking the time to put together an AI plan, the effort is paying off. Nearly a third (32%) of small businesses with an AI strategy are seeing productivity gains of more than 20%, compared to 14% of small businesses without an AI strategy.
We found a similar trend among small businesses that create guidelines for how their employees should use AI. While only 15% of GenAI adopters have AI guidelines or policies, those firms are seeing the most productivity growth. A third (33%) of small businesses with AI policies have improved productivity by more than 20%, compared to 15% of those without AI policies.
The biggest opportunity for small businesses to get more from GenAI may lie in upskilling their employees. Small businesses that offer AI training to their workers are seeing the most productivity growth, yet only 43% of GenAI adopters provide any kind of training at all, with around 20% simply encouraging their staff to learn by using AI tools. However, six out of ten businesses that provide AI training have boosted productivity by more than 20%, compared to around three in ten businesses without an AI training program.
Business owners are taking different approaches to helping their employees develop AI skills. Just over half who said they provide AI training (51%) don’t have a formal curriculum, instead encouraging employees to experiment with AI tools on their own. The other half have either developed their own upskilling programs or given employees access to external training materials.
For all the impressive results AI has produced for small businesses so far, they’re just scratching the surface. As businesses move from experimenting with AI to developing clear strategies and guidelines around how to use the technology, they’ll unlock new opportunities for growth.
As AI adoption accelerates, it’s easy to forget how new GenAI still is. While some entrepreneurs have fully embraced it, others don’t feel totally comfortable with it yet. Their concerns range from how to effectively integrate the technology into their business to how they can ensure it doesn’t create problems for them and their customers.
Around half of entrepreneurs could use more support in learning what AI can do for their business and understanding best practices for implementation.
Where small businesses feel they have insufficient knowledge about AI and need more support
For some entrepreneurs, their questions and concerns around AI have held them back from using the technology. Technical complexity and data privacy and security are the top barriers to adoption, followed by vendor selection and challenges integrating AI into existing workflows.
Education and user-friendly tools will play an important role in helping business owners experience AI’s benefits while minimizing risk.
For all the progress GenAI has made in recent years, the technology is still in its infancy. That makes the significant benefits small businesses have already seen from GenAI even more remarkable.
The AI revolution is just beginning, and as GenAI tools improve and business owners become comfortable with them, they’ll continue to find new ways to better serve themselves, their employees, and their customers.
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