Promising data emerged at the end of a year that all but decimated Main Street in every town around the world: new business creation in the US is on the rise. Against all reason, why did the pandemic inspire an entrepreneurial awakening? It’s simple—they can win when we cheer for the underdogs.
“How are you?” I ask. And then I wince. What would have been a perfectly innocuous question now feels loaded after a year of isolation and instability?
“Call us crazy, but we’re starting a second business,” answers my friend, a creative mom of two. A few minutes into our catchup, I can see her whole life unfolding in our Zoom window: evidence of balancing work, a toddler, a newborn, a senior pet, and a family business. A life that did not have space for yet another thing. But here she is, struggling to find childcare in the middle of a pandemic—and contemplating her next startup.
In past recessions, the number of new businesses created decreased. Yet, in the third quarter of 2020, amidst a pandemic that wreaked havoc on the global economy, new business formation in the US actually increased. In fact, it soared. In July 2020 alone, over 500K new businesses were created—nearly double the year prior.
Why is this time different? Several theories have circulated to explain why the entrepreneurial spirit is peaking during a time that all but conspires to crush it. We’ll offer our own: resilient founders, forged by hardship, are pursuing opportunities brought about by a civilization that’s been pulled forward by nearly a decade. The pandemic demands that the future arrive sooner, and business owners, burdened as they are, are answering the call.
Of course, most stories are more complicated beneath the surface. To understand how we arrived here, let’s join our protagonist, the intrepid entrepreneur, at the beginning of this arc.
All that glitters
Entrepreneurship has never been more mainstream. Social feeds are awash with messages that prod onlookers to chase their dream. Hey, we can relate. But these picturesque highlight reels belie an uncomfortable truth: for years, entrepreneurship has declined. One unfortunate result of this has been massive conglomerates continuing to consolidate their immense power. In fact, it was these same giants that benefited the most from the recent crisis.
In stark contrast, the overall number of active businesses had tumbled—a trend that was accelerated at the onset of the pandemic. According to a US population survey, the period between February and April 2020 saw 3.3 million businesses close.
When businesses did begin to reopen, as lockdown restrictions eased and government relief was distributed, the damage was already done. By July, data showed that the number of permanent closures exceeded the number of temporary closures, and by September, the spread was even wider. Blue skies turned grey, and there were few silver linings to be found.
In the most vulnerable communities, the outlook felt especially grim. BIPOC (Black, Indigenous, and people of color) communities were hit hardest by the pandemic, intensifying the US healthcare imbalance. For BIPOC-run small businesses, government relief rollouts exposed the cracks in the financial system—the communities underserved by big banks were the last to receive their much-needed funds.
Tragically, reports have shown that 41% of Black-owned businesses, 32% of Latino-owned businesses, and 26% of Asian-owned businesses were forced to close from February to April 2020. Business owners who already bore the weight of injustice and financial bias now faced hardships as the pandemic beset their communities.
Latino-owned businesses faced great challenges due to less access to relief loans and a higher proportion of businesses in industries particularly affected by the pandemic.
Marlene Orozco, Lead Research Analyst at Stanford
Marlene Orozco has worked closely with the Latino entrepreneur community in her work as Lead Research Analyst at Stanford. Her research showed that by the end of March, 86% of these business owners had reported negative effects caused by the pandemic. “Latino-owned businesses faced great challenges due to less access to relief loans and a higher proportion of businesses in industries particularly affected by the pandemic,” she says.
Surprisingly, Marlene also found that optimism for the future among members of the same group remained high. And they weren’t alone. While entrepreneurs struggled, the spirit of entrepreneurship thrived.
Thriving on change
Despite the devastation caused by rolling lockdowns, an anomaly in the data tells another story. Not only did business applications in the US surge toward the end of 2020, but the third quarter also shattered records, exceeding the next highest quarter of the past decade by 48%.
This breaks a four-decade-long trend, where periods of turmoil had seen applications drop. During the last major economic downturn, more than 100,000 fewer employer businesses were founded in 2009 than in 2007. However, we can’t ignore that the past recession also created opportunities for the disruptors. The next generation of companies all emerged from the ashes of the recession of 2008. Was the phenomenon a hint of what was to come?
The lion’s share of new business applications in 2020 was attributed to the retail sector. But what’s more telling is, within that industry, “non-store retail” (or ecommerce) stores flourished. More consumers shifted to online shopping out of necessity, and tools to help businesses sell to these new customers rushed to market.
An abrupt change in consumer habits had met a rapidly growing industry—and the opportunities that followed explain at least some of the recent enthusiasm for entrepreneurship. Online stores pivoted and sprung up anew to address the gaps caused by lockdowns and isolation. Think subscription basics, home fitness solutions, and balcony gardening kits. “People have reoriented what’s important to them,” says Dr. Elspeth Murray, Associate Dean at Queen’s University in Ontario, Canada. “And there are lots of new business opportunities out there as we speak.”
There’s this explosion of new technology, creator tools, and democratization in entrepreneurship—you see change everywhere.
Satish Kanwar, VP of Product, Shopify
But other theories have emerged. Satish Kanwar, VP of Product at Shopify, submits that trust plays an important role. “People had made a fulsome switch in their mind from trusting that everything they thought would always be there will continue to be there tomorrow,” he says. The status quo has been interrupted not just by the pandemic, but also by a slow generational erosion of trust in systems. From this, entrepreneurial spirit is sparked in those looking to take their futures into their own hands.
“There’s this explosion of new technology, creator tools, and democratization in entrepreneurship—you see change everywhere,” says Satish. The means to pursue entrepreneurship have finally caught up with the desire to do so.
Entrepreneurship's new class
Data provides us with an important bird’s-eye view of what is happening. But there are stories sum totals can’t tell. We spoke to four founders to hear how they face this moment with little more than grit and determination in their pockets.
Gemille’s story: the power of community
“We never did question launching during the pandemic,” says Gemille Walker, co-founder of AfroPick. He and his two brothers launched their business early last fall, selling artist-designed picks that, for them, are more than just tools to manage natural hair. “They’re symbols of the unity and strength in Black culture.”
While the effects of the pandemic cut some of their plans short, it also challenged them to connect with their community through other means. In some ways, last year couldn’t have been a better time to launch. “With the civil rights movements of 2020, it was an appropriate time to push self-identity and unity within our community,” Gemille says.
Michael and Rachel’s story: opportunity borne from uncertainty
Michael Sturba and Rachel Duguay did not launch their business in 2020—but that’s when they went all in. The couple worked in the theme park industry until their jobs were both furloughed due to the pandemic. MicroPuzzles was a side gig they had run from their apartment since 2018. The brand sold mostly to wholesale and custom clients, but even that business was drying up due to store closures.
The pandemic forced people to rethink what is important and where they spend their dollars. There’s been a resurgence in a desire to support small businesses.
Michael Sturba, co-founder, MicroPuzzles
“It was grim,” says Michael. “But we had the luxury of time to work on the website and product line. By the end of March, we had pivoted to an online retail strategy.” The product was a perfect remedy for isolation-induced boredom—and the partners saw their sales boom as a result. “The pandemic forced people to rethink what is important and where they spend their dollars,” Michael says. “There’s been a resurgence in a desire to support small businesses.”
In October, MicroPuzzles upgraded its digs, moving from an apartment to a dedicated warehouse and office space. “We won’t return to our former jobs,” Michael says.
Jasmine’s story: meet changing needs
Before spending two decades in marketing leadership roles for major fitness brands, Jasmine Maietta played and coached pro basketball. In some ways, the launch of her new business, round21, has her returning to her roots. Jasmine launched her table tennis brand in 2020, tapping into a game she saw firsthand as “cultural glue” in locker rooms and bringing it to the masses.
She found her audience in a world that was now craving at-home diversion and play. In the summer of 2020, Jasmine noticed basketball nets were being removed from playgrounds to discourage gatherings. “We wanted to give people ways to still find the joy in playing together, safely from home,” she says. “So, we accelerated our R&D and launched new round21 mini-hoops.”
Jasmine self-funded until January, including a crowdfunding campaign that saw tremendous support from the brand’s growing community. “There seemed to be a greater-than-ever need for all of us to have self-expression and connection through play in our daily lives,” she says.
Edmond’s story: finding purpose
Edmond Dang had big plans to travel Asia after his graduation in 2020. The pandemic squashed that dream—and, with ceremonies canceled, he didn’t even get to celebrate his years of hard work. “When COVID first hit, I think it affected me a lot mentally,” he says.
While he was lucky to have his full-time job still, Edmond found he needed something to fill the rest of his time. He began to work on his business, jewelry brand Kozai, in his spare time and launched on New Year’s Eve. “Being able to work on Kozai allowed me to keep myself busy and not overthink things that would bother me,” he says.
My business gave me this new sense of adventure, the same adventure that I was hoping to get during my trip to Asia.
Edmond Dang, founder, Kozai
Kozai kept Edmond busy, but his first venture produced other unexpected benefits, too. “My business gave me this new sense of adventure, the same adventure that I was hoping to get during my trip to Asia,” he says. “It motivated me to come out of this pandemic better than I was last year.”
A road to recovery
It’s easy to attach ourselves to moments of light these days. We all need something to hold onto. The promising data and anecdotes of those who have persevered tell a story of a thriving small-business economy. But this is not the whole picture. Since the first reported COVID-19 case in the US, the net number of open small businesses has fallen by over 30%.
It is fair to say, however, that these numbers and stories of upward momentum are a good indication of what’s to come. The pandemic had brought devastation, the social movements a reckoning. In response, communities have mobilized, technology and tools have accelerated, remote work has connected us, and consumer habits have forever changed. “When you look at the platforms like Patreon, Twitch, Clubhouse, and OnlyFans, there are just many more ways to bring yourself to the market than there used to be,” says Satish. “These options were not in a typical conversation 18 months ago.”
At Shopify, we saw sales generated by brick-and-mortar store owners decline by 71% as the pandemic escalated between March 13 and April 24, compared to the six weeks prior. But those small businesses managed to recover 94% of lost sales by moving to online channels. And by July, retail rebounded in a big way, with many brick-and-mortar stores adopting curbside pickup and local delivery.
The effects of the pandemic have paved the way for a new generation of disruptors—a generation shaped by ingenuity.
A fresh foundation is now settling. Call it the ground floor of the new economy. The effects of the pandemic have paved the way for a new generation of disruptors—a generation shaped by ingenuity. “All of a sudden you can do a deal and raise money through a Zoom chat,” says Elspeth. “Before, you had to have 52 meetings in Silicon Valley.” Entrepreneurship has never been more available to everyone.
The future is independent
History suggests businesses opened during a recession have a lower success rate than the average business. Are we all being overly optimistic? The numbers already tell us that this time is different. So, what does this path have in store?
Truthfully, no one can know for certain. But we do have a glimpse into what will come. 2020 created a tangible mindset shift among consumers—one that we believe is here to stay. Support for small businesses is on the upswing. “People are realizing, ‘If I don't do this, my neighborhood will be a wasteland,’” says Satish. “If I don't seek out independent businesses, they will cease to exist.”
Smaller and more nimble businesses who have a diversified product or experience mix will continue to thrive and be able to mitigate external forces.
Jasmine Maietta, founder, round21
“This isn’t just the funky hipsters saying ‘shop local,’” says Toby Shannan, COO at Shopify. “The locavore movement that was on the fringe will become much more central to people.” This community-level bolstering of Main Street, and the access to technology and capital that did not exist before, unlock new opportunities for all breeds of entrepreneurs. But evolving with the change is critical for business survival. “Smaller and more nimble businesses with a diversified product or experience mix will continue to thrive and be able to mitigate external forces,” says Jasmine.
“I use ecommerce to access fresh sourdough bread down the street from me,” says Satish. It’s just one example of the digitization of local commerce in North America—a phenomenon already adopted by mobile-first countries like China. “We think it will stay,” he says. “It actually brings you closer to your community and adds a huge layer of convenience.” Businesses that were quick to clone local community spirit online and adopt tools to make it easier are already primed for what’s ahead.
Communities without businesses just aren’t communities. The closing down of Main Street is actually a catastrophe to a country.
Toby Shannan, COO, Shopify
“In the last couple of hundred years there has been an antagonism, politically and economically, between governments and private sector organizations,” Toby says. What COVID has exposed, he suggests, is that there is a third seat at the table: civil society, otherwise known as communities. In the past year, it’s become obvious that these three entities have a symbiotic relationship. Governments are realizing that “communities without businesses just aren’t communities,” says Toby. “The closing down of Main Street is actually a catastrophe to a country.” To prosper, he says, the three need to work together.
It’s clear that there is no single force driving, against all odds, the interest in starting a business. Our hero’s journey began with necessity and passion, found a lifeline in opportunity, and gained strength in community support. Yes, the rising number of new businesses is worthy of our optimism. But it's the real humans behind the data—the Jasmines and Michaels, the Edmonds and Gemilles—who will harness this optimism to build the new frontier of entrepreneurship.