According to data from the US Census Bureau, analysed by the Economic Innovation Group, there were about 1.4mil new startup applications filed with the US Government through to 30 Sep 2021. This compared with 1.14mil during the same period in 2020 and 987,000 in 2019. Every year before was significantly less.
“With three months left in this unparalleled year, it now seems almost certain that the elevated pace of business formation in 2021 will be sufficient to surpass the record-breaking total of 2020,” the researchers wrote.
The news will no doubt leave many with a case of the whys. Why would so many new businesses be formed in the wake (actually during) one of the biggest economic collapses in recent memory? Why would so many people be taking risks at a time when it seems to make more sense to gravitate towards the security of a big government and corporate job? Why would people want to start up a business in an era of economic and political uncertainty?
As with most big questions there is never just one answer. But as a creator of small businesses I can say that there’s certainly a few very specific reasons to explain what’s going on.
The first has to do with need.
The rise in entrepreneurship is not necessarily about the romantic notion of owning one's business or "changing the world", as many would like to report. It is more real than that. It is because the Gini coefficient is now at 0.484, the highest it's even been in 50 years and many people want to succeed financially. It is because 22mil people have suddenly became unemployed as a result of the pandemic. It is also because 35mil people struggled to pay rent and countless can barely afford to have childcare. It is because people from developing countries are seeking safe havens in countries like the US and Singapore, as they are faced with issues such as shortage of foreign exchange and a poor economic situation.
People like to talk about business ownership as a dream but for many during last year’s economic downturn (which still unfortunately lingers), it is an economic necessity to do something to put food on the table. Which is why so many people sold products online, drove Ubers and became freelancers. People did this not to supplement their existing income but to provide income.
The second reason is capital.
Never has capital been so widely available and so cheap. Thanks to the stock market surge and stimulus payments, household wealth has soared to historic highs. That means that people have more savings to invest in their startups. Interest rates – though likely to increase soon – have remained at historic lows throughout the past 10 years, providing an almost cost-free environment for investors and venture capitalists to risk their money.
Other sources of financing – from merchant advances to crowdfunding to credit cards and online lending services – have offered a myriad of choices to the entrepreneur looking for cash. Technology – once a significant investment – has become so cheap that a single Amazon seller can look like and act like an international conglomerate. Websites offering free or low-cost tax advice, email, business formation services and legal services proliferate. The cost of starting up a business has never been cheaper and the capital needed to launch has never been as available.
Finally there are many new opportunities.
For someone wanting to start a business businesss, there are many places to throw a hat in the ring. Data shows that home-based businesses and food services lead the pack in new business applications (a 75% increase from 2019) and when you think about the explosion of work from home as well as delivery services does this come as any surprise?
And you know all those corporate workers that complained before the pandemic of being so “slammed” and overworked? Turns out many of them had the time to start up online stores (retail trade is up 62%) on Etsy, eBay and Amazon while still holding down those same full-time jobs that were presumably keeping them so busy!
All this is great, but let's not get too ahead of ourselves.
Very, very few of these new startups will actually become the next big thing. The vast majority will actually not survive past their 3rd year, and will probably never have employees. But it’s still good to see that so many people want to be independent. They want to not rely on a corporation for all of their income. They look for challenges and, in some cases, have a dream of building something that provides not just a job for themselves, but a livelihood for their families.
Despite what we read about globalism, big governments and corporate monopolies, entrepreneurism is still going strong in developed countries like Singapore, because the fundamental economic and political structure of our country makes the Singapore dream very possible.
