- Americans have created a record number of new businesses between 2020 and 2021.
- Experts say many people began businesses after facing pandemic layoffs or quitting lackluster jobs.
- Most of these startups may remain sole proprietorships, with a 35% likelihood to employ people.
When Lexi Cherizol lost her job as a hospital phlebotomist last year, she seized the opportunity to start a new career and be her own boss. She launched her own marketing and branding firm, Pro Luxe Marketing, and used TikTok to gain clients.
Cherizol is among the millions of Americans generating a record number of new businesses. The US saw 4.3 million new business applications in 2020 and 3.8 million so far this year, US Census Bureau data showed.
Some experts say this upward trend isn’t a bubble, but rather a reflection of the times: People laid off during the pandemic or who quit lackluster jobs are taking charge of their careers. In July, the number of self-employed workers hit an eight-year high, data from the Federal Reserve Bank of St. Louis showed.
This is ushering in a new class of solopreneurs, freelancers, and full-time side hustlers.
The entrepreneurial ‘bubble’ is more of a blip
Cynthia Franklin, the director of entrepreneurship for the W.R. Berkley Innovation Labs at New York University, said it’s too early to put a label on the increase in business applications.
“It certainly is a positive sign given the lackluster previous years,” she said. But it’s too early to fully understand the breadth of this activity, she added.
But the growth we’ve seen does not show signs of crashing. “Entrepreneurship goes in waves,” said Jacqueline Kirtley, a Wharton management professor. “There has been some concern that it had been dropping in the first decade of the millennium, but it was more flat than dropping.”
The rise of the self-employed
Technology has revolutionized the way we work, which also makes it possible to start a business from almost anywhere. For freelancers and gig workers, that means access to more online resources and services than before.
“You can become a freelancer so much easier now and have a better line to getting clients than we had before,” Kirtley said.
People quitting their jobs to become self-employed may have contributed to a large portion of the past year’s business applications. “That’s not necessarily going to stop. That’s just a shift in how business is done,” Kirtley said.
In fact, 35% of new businesses recorded by the Census Bureau in 2020 have high propensity — that is, a high likelihood to employ people. In 2019, high-propensity startups made up 38% of all new businesses. “That actually was an increasing number before the pandemic,” Kirtley said.
And if self-employed entrepreneurs return to the workforce, they won’t show up in the data if they don’t officially close their businesses. “I don’t think we’re going to see so much of a bubble, but more of a correction,” she said.
Entrepreneurship is still going strong
The pandemic highlighted needs that weren’t fulfilled before, such as better mental-health technology and more capital for minority founders. “There was a lot that structurally needed adjusting within several industries and different aspects of society, so it created new opportunities,” Franklin said. “I think some of that is a permanent change.”
To be sure, startups have a 50% chance of surviving their first five years, Labor Bureau data showed, so studying just the initial filing data doesn’t give the full picture. Inevitably, some people will return to their corporate jobs, while others will continue following their passion projects.
“It really depends upon what’s driving this,” Franklin said. Ultimately, businesses must have a market fit to find lasting success, she added. “It still requires that you have a good idea, good market, and something you can deliver in a way that’s different and special.”
“It’s a wonderful time to be an entrepreneur,” Franklin said.
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