We’re seeing the early signs of an explosion of entrepreneurship that seems likely to accelerate throughout the rest of 2021, and hopefully beyond. This surge of entrepreneurship is resulting from a confluence of trends that is restoring a healthier level of entrepreneurial activity nationwide — indeed, worldwide.
This is extremely welcome news to those of us who help support entrepreneurs and work to build stronger innovation ecosystems. For years, we’ve been concerned about historically low levels of new business starts. We knew that conventional recessions sometimes promote entrepreneurship: when large numbers of people lose their jobs, some become entrepreneurs at least for the short term, out of sheer necessity. But none of us knew what would happen in a recession induced by a global pandemic — and some worried that government policies to keep existing employers afloat (such as the Paycheck Protection Program) might even deter new business entrants.
So far, fortunately, the data is stunningly positive. According to a brand-new NBER Working Paper by economist John C. Haltiwanger, “Entrepreneurship During the COVID-19 Pandemic: Evidence from the Business Formation Statistics,” while new business applications plummeted in the first few months of the pandemic, they surged in the second half of 2020. And they were still surging in the latest May 2021 data. In fact, the pace of new business applications since mid-2020 was the highest since the Census Bureau started tracking them in 2004 — and that applied both to new businesses, which appear likely to hire other employees, and to sole practitioners.
Non-store retail represented the No. 1 area of growth, with professional, scientific and technical services coming in second. Haltiwanger interprets these and other findings as “consistent with the shifts towards remote activity interactions between businesses and workers (i.e., telework) and businesses and consumers (i.e., online retail and restaurant purchases with accompanying delivery … (reflecting) ongoing restructuring in the economy.”
In other words, technological and industry/business model disruption are on the rise as more people and businesses are open to new ways of doing business — and as a changing world demands new forms of innovation and adaptation.
For those of us who love productive innovation, all this is exciting. But some other factors appear to be reinforcing the surge in entrepreneurship right now. First, what’s been called the “Great Resignation”: the millions of highly skilled and experienced workers who’ve decided now is the time to exit the corporate treadmill they believe is burning them out.
COVID drove many of these individuals to recalculate the risks and tradeoffs in their own lives, and to decide that now is the moment to go into business for themselves, and attempt to take greater control over their own futures. Many of them bring deep skills and experience to the table, potentially making them more likely to succeed. What’s more, as Kevin Roose recently wrote, those with a cushion of savings and in-demand skills are also bringing a new kind of “professional fearlessness” to the table — precisely what it takes to win as an entrepreneur.
Entrepreneurship requires capital. And there’s also plenty of wealth around right now to support new business formation: not just a rising stock and real estate market, but an ocean of investor cash looking for opportunities. It’s a perfect storm of liquidity for great (or even merely “good”) ideas to tap into.
For generations, some of the most innovative startups have been born in moments of economic disruption. This is such a moment. For those of us who live close to the beating heart of startup ecosystems, the ferment is palpable. We feel it everywhere — and we can’t wait to see what it brings forth.
James Barrood is CEO of Innovation+.