Entrepreneurship: A surprise boom in startups
One of the least expected features of the pandemic recession is that Americans are starting businesses “at the fastest rate in more than a decade,” said Gwynn Guilford and Charity Scott in The Wall Street Journal: The Census Bureau has recorded 3.2 million applications to start a business so far this year, “compared with 2.7 million at the same point a year ago.” That number includes gig workers and sole proprietors, perhaps along with some laid-off workers trying to claim stimulus funds. But new filings from the kinds of businesses that “tend to employ other workers” are up 12 percent, despite the ravages Covid-19 has inflicted on small businesses. Why start a business in the middle of a pandemic? Economists are surprised, too. But downturns can occasionally fuel “creative destruction,” when innovative startups “displace older, less efficient ones.” Think Airbnb, Warby Parker, or Uber, each of which was started during the Great Recession. Unusually high personal savings rates, boosted by the government’s $1,200 stimulus checks, also added stability for entrepreneurs like Nic Bryon, a furloughed sous chef in Tampa. Bryon and his brother Greg started a local meal-kit delivery company, Pasta Packs, that is already looking to expand.
“Nothing comparable seems to be happening elsewhere in the rich world,” said The Economist. It’s a testament to America’s “entrepreneurial mojo.” The startup boom has a long way to go before it can “make up for all the damage wreaked by lockdowns and social distancing.” But it “bodes well for the future,” because “a recovery with lots of startups tends to be more jobs-rich than one without.”
That doesn’t mean starting a business now is easy, said Joyce Rosenberg in the Associated Press. A robust 80 percent of startup companies “survived their first year in 2019,” according to research by the Kauffman Foundation. But “those businesses had the benefit of launching in a strong economy.” In a downturn, consumers spend less, creating a longer path to prosperity—or even back to normalcy. Cody and Amy Morgan started a poolservicing company in Texas in April after both lost their executive jobs. They now have 90 customers, but “it will take about 200 accounts to replace one of the salaries they made pre-pandemic.”
The pandemic does offer potential for growth in several industries, said Sophie Downes in Inc. Interest in “cashier-free” retail is soaring, creating new opportunities in contactless tech. Education tech is another industry that changed rapidly after “the pandemic forced schools to digitize fast.” Ed-tech companies’ revenue “increased by more than 300 percent on average between March and July,” creating new opportunities for both technologists and teachers. Outschool.com, an online-learning site that connects kids with instructors in a huge variety of subject areas, now has close to 120,000 students.