There have been more new businesses created so far this year than ever. Literally never.
A year ago I wrote about the rise of startups, 12 months later the trend has continued in a big way. According to US Census Bureau data analyzed by the Economic Innovation Group, there were approximately 1.4 million new startup applications filed with the government up to September 30, 2021. That’s up from 1.14 million in the past. the same period in 2020 and 987 thousand in 2019. Every previous year had been significantly less.
“With three months remaining in this unprecedented year, it now seems almost certain that the high pace of business creation in 2021 will be enough to surpass the record total 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 of (indeed during) one of the biggest economic collapses in recent memory? Why would so many people take risks at a time when it makes more sense to turn to the security of a great job in government and business? Why would people want to start a business in times of economic and political uncertainty?
As with most great questions, there is never a single answer. But as a student of a small business, I can say that there are certainly a few very specific reasons as to why this is going on.
The first concerns need.
The rise of entrepreneurship is not necessarily tied to the romantic notion of owning a business or “changing the world,” as many like to point out. It’s more real than that. This is because 22 million people suddenly found themselves unemployed due to the pandemic. That’s because 35 million people are struggling to pay their rent and countless more can barely afford child care. People like to talk about business ownership as a dream, but for many during last year’s economic downturn (which sadly still persists) it was an economic necessity to do something to save food. on the table. That’s why so many people have sold products online, driven Ubers, and become freelancers. People did this not to supplement their existing income but to provide income.
The second reason is crucial.
Never has capital been so widely available and so cheap. Thanks to soaring stock markets and stimulus payments, household wealth has reached all-time highs. This means people have more savings to invest in their startups. Interest rates – although likely to rise soon – have remained at historically low levels over the past 10 years, providing an almost free environment for investors and venture capitalists to risk their money.
Other sources of funding – from merchant advances and crowdfunding to credit cards and online lending services – have offered a myriad of choices for the money-seeking entrepreneur. Technology – once a big 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 start-up and legal services are on the rise. The cost of starting a business has never been lower and the capital needed to start a business has never been so available.
Finally, there are many new opportunities.
For someone who wants to start a business, there are plenty of places to throw a hat in the ring. The data shows that accommodation and food services are leading the pack in new business applications (a 75% increase from 2019) and when you think about the explosion of colocation and rental platforms as well as delivery services, is that a surprise?
When you consider the explosion of working from home, do you doubt that professional and administrative services startups have also jumped? Or that in the midst of a real estate boom, we see more people jumping into the construction industry? Or that with supply chain challenges and calls for more drivers and space for all of these products online, we are seeing a 74% increase in transportation and warehousing services? And do you know all those corporate workers who complained before the pandemic that they were so “slammed” and overworked? As it turns out, many of them had time to start online stores (retail is up 62%) on Etsy, eBay, and Amazon while still keeping those same full-time jobs that held them. presumably!
That’s all good, but we must not go too far
Very, VERY few of these new startups will actually become the next big thing. The vast majority will probably never have employees. But it’s still good to see that so many people want to be independent. They don’t want to depend on a corporation for all of their income. They are looking for challenges and in some cases dream of building something that not only gives them a job, but a livelihood for their family as well.
Despite what we read about globalism, big governments, and corporate monopolies, entrepreneurship is still going strong in this country because the fundamental economic and political structure of our country makes the American Dream still possible.