More new companies have been established than ever this year so far. Literally ever.
A year ago I wrote about the wave of startups, 12 months later the trend has continued in a big way. According to data from the US Census Bureau, analyzed by the Economic Innovation Group, about 1.4 million new startup applications had been filed with the government through September 30, 2021. That is compared to 1.14 million in the same period in 2020 and 987 thousand in 2019. Every year before that it was significantly less.
“With three months to go in this unprecedented year, it now seems almost certain that the rapid pace of business formation in 2021 will be enough to surpass the record number of 2020,” the researchers wrote.
The news will no doubt leave many with a case of why. Why would so many new companies be formed in the wake (actually during) one of the greatest economic collapses in recent history? Why would so many people take risks at a time when it seems more logical to move to the safety of a major government and corporate job? Why would people want to start a business in an age of economic and political uncertainty?
As with most big questions, there is never just one answer. But as an SME student, I can say that there are certainly some very specific reasons for explaining what’s going on.
The first has to do with need.
The rise of entrepreneurship isn’t necessarily about the romantic idea of owning your own business or “changing the world,” as so many like to report. However, it is beyond that. That’s because 22 million people suddenly became unemployed as a result of the pandemic. That’s because 35 million people struggled to pay their rent and countless others could barely afford childcare. People like to talk about corporate ownership like a dream, but for many during last year’s economic downturn (which unfortunately continues today), it was an economic imperative to do something to put food on the table. That’s why so many people sold products online, Uber’s reason, and became freelancers. People did not do this to supplement their existing income, but to provide income.
The second reason is capital.
Never before has capital been so widely available and so cheap. Thanks to the surge in stock markets and the stimulus payments, household wealth has risen to historic highs. That means people have more savings to invest in their startups. Interest rates, while likely to rise soon, have remained at historically low levels for the past 10 years, providing investors and venture capitalists with an almost cost-free environment to put their money on the line.
Other sources of funding — from trade advances to crowdfunding to credit cards and online lending services — have offered the cashier-seeking entrepreneur a myriad of choices. Technology—once a significant investment—has become so cheap that a single Etsy seller can look and act like an international conglomerate. Websites offering free or low-cost tax advice, email, business formation services, and legal services are growing rapidly. The cost of starting a business has never been cheaper and the capital needed to start has never been more available.
Finally, there are many new opportunities.
For someone looking to start a business, there are many places to throw in a hat. The data shows that lodging and food services are leading the way in new business applications (up 75% from 2019) and when you think about the explosion of home sharing and rental platforms and delivery services, does this come as a surprise?
Looking at the explosion of homeworkers, do you doubt whether startups in professional and administrative services have also risen? Or that we see more people jumping into construction in the middle of a housing boom? Or that with supply chain challenges and the pleas for more drivers and space for all those online goods, we see a 74% jump in transport and warehousing services? And you know all those company employees who complained before the pandemic that they were so “beaten” and overworked? Turns out, many of them had the time to start up online stores (retail up 62%) on Etsy, eBay, and Amazon, while still holding the same full-time jobs that presumably kept them so busy!
This is all great, but let’s not get ahead of ourselves
Very, very few of these new startups will really become the next big thing. The vast majority will probably never have staff. But it’s still good to see so many people wanting to be independent. They don’t want to be dependent on a company for all their income. They look for challenges and in some cases dream of building something that will not only provide a job for themselves, but also an income for their family.
Despite what we read about globalism, large government and corporate monopolies, entrepreneurship is still strong in this country because our country’s fundamental economic and political structure still makes the American dream possible.