- Americans have created a record number of new businesses since 2020.
- Experts say many people have started businesses after facing pandemic layoffs or quitting lackluster jobs.
- Most of these startups can remain sole proprietorships, with a 35% chance of employing people.
When Lexi Cherizol lost her job as a phlebotomist at the hospital in 2020, she seized the opportunity to start a new career and be her own boss. She started her own marketing and branding company, Pro Luxe Marketing, and used TikTok to win customers.
Cherizol is among millions of Americans generating a record number of new businesses. The United States saw nearly 4.3 million new business apps in 2020 and 5.3 million in 2021, according to data from the US Census Bureau.
Some experts say this upward trend is not a bubble, but rather a reflection of the times: people laid off during the pandemic or who left lackluster jobs are taking their careers into their own hands. In July, the number of self-employed people hit an eight-year high, according to data from the Federal Reserve Bank of St. Louis. This year, more people Googled “how to start a business” than “how to find a job.”
This ushers in a new class of full-time solopreneurs, freelancers and hustlers.
The entrepreneurial “bubble” is more of a jolt
Cynthia Franklin, director of New York University’s Berkley Center for Entrepreneurship, said it’s too early to put a label on the rise in business apps.
“It’s definitely a positive sign given the previous lackluster years,” she said. But it is too early to fully understand the extent of this activity, she added.
But the growth we’ve seen shows no signs of collapsing. “Entrepreneurship comes in waves,” said Jacqueline Kirtley, professor of management at Wharton. “There was concern that it had been falling in the first decade of the millennium, but it was more flat than falling.”
The rise of independents
Technology has revolutionized the way we work, which also makes it possible to start a business from almost anywhere. For freelancers and gig workers, this means access to more online resources and services than ever before.
“You can become a freelancer so much easier now and have a better line of getting clients than we had before,” Kirtley said.
Individuals who quit their jobs to become self-employed may have contributed to much of the business demands of the past year. “It’s not necessarily going to stop. It’s just a change in the way business is done,” Kirtley said.
In fact, 35% of new businesses registered by the Census Bureau in 2020 have a high propensity, or high likelihood of employing people. In 2019, high propensity startups accounted for 38% of all new businesses. “It was actually a growing number before the pandemic,” Kirtley said.
And if independent contractors return to the workforce, they won’t show up in the data if they don’t officially close their business. “I don’t think we’re going to see that much of a bubble, more of a correction,” she said.
Entrepreneurship is still going strong
The pandemic has highlighted needs that weren’t met before, like better mental health technology and more capital for minority founders. “There were a lot of things that needed structural adjustment across multiple industries and different aspects of society, so that created new opportunities,” Franklin said. “I think part of that is permanent change.”
Granted, startups have a 50% chance of surviving their first five years, according to Bureau of Labor data, so just looking at initial filing data doesn’t paint the full picture. Inevitably, some people will return to their corporate positions, while others will pursue their passion projects.
“It really depends on what’s driving it,” Franklin said. Ultimately, companies need to have a suitable market to achieve lasting success, she added. “It always requires you to have a good idea, a good market, and something that you can deliver in a different and special way.”
“It’s a wonderful time to be an entrepreneur,” Franklin said.