The 2026 SMB outlook: How business leaders are preparing for uncertainty

Running a small- or mid-sized business (SMB) in 2026 means making high-stakes decisions in a turbulent environment. Uncertainties around tariffs, shifting workforce dynamics, rapid AI advancement, and tight labor conditions have all collided into a macro climate that makes strategic clarity more important than ever. Business leaders navigating this environment best are building the capabilities, talent strategies, and operating models that let them move with confidence regardless of what is thrown their way.

In Q1 2026, The Upwork Research Institute surveyed 750 U.S.-based business leaders across five major industries: business and professional services, healthcare, manufacturing, retail and consumer goods, and software and technology. From that broad sample, Upwork looked at how the 195 SMB leaders (leaders of businesses with 10-99 employees) surveyed are processing the challenges of today's global market.

What the data reveals is a group of leaders who are realistic about the challenges they face, confident in their ability to navigate them, and increasingly clear about where the real leverage points in their businesses lie. And talent is at the center of everything.

Key takeaways

• Talent, not the economy, is the defining challenge. The top three factors impacting SMB performance are all talent-related: skill gaps (45%), labor market tightness (34%), and workforce productivity decline (33%). Inflation and tariffs did not make the list.
• SMB leaders are confident, and flexible talent is part of why. 61% are very or extremely confident in their ability to navigate the current environment, with more than one in three citing freelancers and alternative talent models as an active driver of that confidence.
• Freelancer hiring is outpacing full-time hiring. 71% of SMBs plan to increase freelancer hiring in the next three months, compared to 64% planning to increase their FTE workforce, a gap that has been widening since late 2025.
• AI investment is accelerating fast. 78% of SMB leaders plan to increase AI technology spending in the next year, with 38% doing so significantly, and SMBs lead all company sizes in fully integrating AI-first process design.

How SMB leaders are reading the macro-environment

Overall, Upwork data suggests that business leaders across industries and company sizes are closely divided in their view of the macroeconomic environment. In particular, the cohort of SMB leaders in this study held a more cautious view than other business leaders. Yet the predominant view was one of optimism.

• 50% of SMB leaders describe the macro-environment as favorable; 43% say it is challenging.
• The top three pressures are all talent-related, not economic.
• Skill gaps in available talent rank as the primary concern, cited by 45% of SMB leaders.

When Upwork asked SMB leaders how they would describe the current macro-environment, the answers split almost evenly down the middle. 43% describe conditions as challenging, while 50% describe them as favorable. For comparison, across all 750 survey respondents, 40% described the environment as challenging and 54% as favorable. On the whole, SMB leaders are slightly more cautious in their view of the environment than are their peers, but the dominant sentiment is still one of opportunity rather than crisis.

That cautious-but-grounded orientation makes sense when you look at what SMBs face on a day-to-day basis. Upwork asked leaders to name the top factors impacting their organization this quarter and found that the biggest concern is neither inflation, nor tariffs, nor geopolitical tensions. The biggest concern is finding and hiring the right talent at the right time.

The top three pressures facing SMBs right now

SMB leaders cited three factors that most impacted their day-to-day operations:

• Skill gaps in available talent. Cited by 45% as a top-three concern.
• Labor market tightness. Cited by 34%.
• Workforce productivity decline. Cited by 33%.

The pattern is consistent across the broader respondent base, where skill gaps top the list at 43%, followed by workforce productivity decline at 31% and labor market tightness at 29%. Across all company sizes, the biggest impediment to performing well this quarter is finding, keeping, and making the most of the right people.

This is an important distinction for SMB leaders to sit with. While macroeconomic forces are real and present, the data suggests that the organizations with the most room to grow are not those that predict tariff policy or interest rate movements. The organizations with the most room to grow are solving for talent: who gets it, who develops it, and who knows how to access it flexibly when the moment demands.

Where confidence comes from in a challenging environment

While overall the survey suggests that business leaders in the U.S. are confident in their ability to meet today's challenges, SMB leaders in particular were somewhat more reserved.

• 61% of SMB leaders are very or extremely confident in their organization's ability to navigate the macro-environment.
• Technology access is the #1 confidence driver, cited by 50%.
• Freelancers and alternative talent models rank as a top-three confidence driver for SMBs.

Even with their split outlook on macro conditions, SMB leaders are confident in their organizations' ability to navigate those challenges. Among companies with 10 to 99 employees, 61% of leaders say they are very or extremely confident in their ability to handle the current environment. Across all 750 respondents, that figure rises to 69%, showing again that, while SMBs are on the whole slightly more cautious than the broader market, the cohort overall is still optimistic.

What is driving that confidence? The survey data offers a clear answer, and it has real implications for how SMBs should think about their strategies going forward.

The three biggest confidence drivers for SMBs

Among companies with 10 to 99 employees, there were three main drivers of leadership confidence:

1. Access to the right technology and tools. Cited by 50%.
2. Clear leadership vision and strategy. Cited by 45%.
3. Leveraging alternative talent models like freelancers. Cited by 37%.

The fact that access to technology tops the list is perhaps predictable, given the pace of AI adoption across the business landscape. But the third driver, alternative talent models, stands out. More than one in three SMB leaders say their ability to leverage freelancers and flexible talent is actively contributing to their confidence in a turbulent macro-environment.

The ability to flex your workforce up or down, and to bring in exactly the expertise you need for exactly as long as you need it, is a source of strategic confidence. Upwork data suggests that building this capacity into their business model helps leaders of SMBs feel more in control.

Top strategic priorities for Q2 2026

SMB leaders say talent acquisition and retention is their single top strategic priority for Q2, leading by a wide margin at 32%. Talent skilling and development comes in second at 16%, and innovation and technology adoption rounds out the top three at 15%.

Put those numbers together and you see nearly half of all SMB leaders say their top strategic priority for the next quarter is some dimension of talent strategy.

This is consistent with commonly reported pain points. If skill gaps and labor market tightness are the biggest factors impacting performance, then the organizations that solve the talent equation will separate from those that cannot. The strategic priorities data suggests SMB leaders know this and are planning their quarters around this.

Where SMBs are investing

How business leaders plan to invest is a key indicator of where they feel the market is moving. And Upwork data showcases the market's move toward AI and increasing concerns over cybersecurity.

• 78% of SMB leaders plan to increase spending on AI technologies.
• 78% also plan to increase AI adoption initiative spending.
• 70% plan to increase spending on cybersecurity.

Perhaps the most striking findings from this survey are that the majority of business leaders in every category examined anticipate funding increases in AI and cybersecurity. Across the cohort of 750 business leaders, 79% plan to increase AI technology spending and 78% plan to increase AI adoption investment. The message is consistent that AI is where the money is going, with more than 1 in 3 SMB leaders planning a significant ramp in AI technology spend.

Where SMBs have an advantage: AI-first design and a culture of experimentation

SMBs are gaining a competitive advantage by building processes from the ground up with AI and alternative staffing in mind.

• SMBs lead all company sizes in fully integrating AI-first process design (19%) and embedding experimentation as a core capability (19%).
• Integrating freelancers ranks second among transformation initiatives SMBs have fully completed.
• The most forward-looking SMBs treat freelance talent and AI capability as one integrated operating model, not two separate factors.

One of the more notable findings in this survey is that SMBs are outpacing their counterparts in two areas of organizational innovation that could be decisive as AI reshapes the competitive landscape.

When asked about their current progress on a range of transformation initiatives, companies with 10 to 99 employees lead the field in specific areas.

• Flexible work arrangements. 24% fully integrated.
• Integrating freelancers into operations. 19% fully integrated.
• AI-first process design. 19% fully integrated.
• Making experimentation and innovation a core capability. 19% fully integrated.
• Transforming the operating model for AI. 17% fully integrated.
• AI in back-office roles. 17% fully integrated.

First, 19% report having fully integrated AI-first process design, compared to 17% across all respondents. Second, 19% report having fully made experimentation and innovation a core organizational capability, a figure that does not appear among the top rankings of the overall survey data.

The fact that integrating freelancers is tied at the second-tier spot in this list, alongside AI-first process design, tells you something important. For the most forward-looking SMBs, freelance talent and AI capability are not separate factors but rather integrated pieces of a modern operating model.

This matters because the gap between AI adoption and AI value is increasingly about organizational design, not just tool selection. Companies that build AI-first processes from the ground up, rather than layering AI onto legacy workflows, tend to see more productivity and efficiency gains. And companies that treat experimentation as a core capability are better positioned to iterate quickly as the technology develops.

Hiring plans: Freelance hiring is on the rise

Despite a challenging macro-environment, the hiring intentions data tells a story of growth across SMBs. The vast majority of business leaders plan to increase headcount in the next three months, with a visible shift in how that growth is being structured.

• 66% of SMBs plan to increase full-time hiring in the next three months, while just 3% plan to reduce.
• 71% plan to increase freelancer hiring, outpacing full-time employee (FTE) intentions by five points.

Full-time hiring outlook is positive

Among companies with 10 to 99 employees, 66% plan to increase their full-time employee hiring in the three months following the survey, with 11% planning to do so significantly. That is a notably optimistic posture from a group that is roughly split between rating the macro-environment as challenging and favorable.

The picture is consistent across the broader sample, where 66% of all respondents plan to increase FTE hiring. For a labor market that has shown signs of broader softness, these figures reflect a commitment to building teams.

Freelancer hiring outlook is even stronger

The intention of business leaders to hire freelancers is outpacing FTE hiring intentions across all company sizes by a substantial margin. Among companies with 10 to 99 employees, 71% plan to increase their freelancer hiring over the next three months, compared to 66% planning to increase FTE hiring. Across all respondents, 70% plan to increase freelancer hiring.

This continues a trend that The Upwork Research Institute began tracking in late 2025, as the intention to hire freelancers is now consistently higher than the intention to hire FTEs. Given the macro pressures around talent acquisition costs, benefits, and fixed compensation, the value of hiring flexible talent that can be engaged on a project or part-time basis is clear.

For SMB leaders, the question is no longer whether to use freelancers, but how to build the systems, processes, and relationships that make flexible talent a strategic and competitive asset rather than a reactive gap-filler.

What this means for SMB leaders right now

Reading the Q1 2026 data as a whole shows a coherent picture of the modern SMB competitive market. The external environment is uncertain, but it is not paralyzing. SMB leaders are confident, strategic, and increasingly clear about where the real work needs to happen.

A few things to keep front of mind as you plan for the quarters ahead:

• Talent is the throughline. Talent is the top strategic priority, the most commonly cited operational challenge, a primary driver of funding decisions, and a meaningful source of leadership confidence when managed well. The SMBs building real advantage right now are treating talent strategy as a core business capability.
• The workforce model is evolving. The most forward-looking SMBs are building integrated models: stable core teams anchored by full-time employees, surrounded by networks of specialist freelancers engaged for work that requires depth, speed, or technical expertise that is hard to hire for permanently. It scales with demand and keeps fixed costs contained.
• AI investment is nearly mandatory. With 78% of peer SMB leaders planning to increase AI technology spending (and more than 1 in 3 doing so significantly), this is not a moment for caution-driven delay. The organizations using the first half of 2026 to build genuine AI capability are the ones most likely to carry a structural advantage as the year progresses.

What this survey makes clear is that the variables separating the leaders from the followers are not resources or market position. They are the quality and clarity of the decisions being made right now.‍

Methodology: Data cited in this article is sourced from the Upwork Research Institute Q1 2026 Business Leader Landscape survey. The survey included 750 U.S.-based business leaders at the director level and above, spanning business and professional services, healthcare and medical, manufacturing, retail and consumer goods, and software and technology. The survey was conducted in Q1 2026 and updated on March 27, 2026. Unless otherwise noted, SMB figures reference organizations with 10 to 99 employees (n=195). Broader comparisons reference the full sample (n=750) or the 10-to-249 employee cohort (n=400), where noted.

This story was produced by Upwork and reviewed and distributed by Stacker.

Copyright 2026 Stacker Media, LLC

This story was originally published May 18, 2026 at 8:00 AM.