Work by the Numbers is a deep-dive into the biggest trends, research and surveys in the world of work and real estate.
Many people dream of being their own boss. The flexibility to set your own hours, the autonomy to choose what you work on, and the power to reap the rewards of your work are all powerful motivators. For many, this aspiration remains just a dream. But in the past two years, broad changes in the economy, the rise of flexible work, and the great resignation have pushed millions to start businesses where they can be their own boss. The vast majority of these businesses are small ones—those with 10 or fewer employees.
According to the United States Census Bureau, an estimated 5.4 million new business applications were filed in 2021, a 53 percent increase over 2019. Applications began exceeding pre-pandemic levels in the summer of 2020—resulting in a record 4.4 million applications that year. This sustained increase from 2020 to 2022 contrasts with previous economic downturns like the Great Recession, which saw a drop in applications compared to pre-recession numbers that began in late 2007 and lasted nearly a decade.
The new businesses being set up now also look different than before. There’s a larger share of applications filed by women, people without college degrees, and Black Americans. It’s often said that small business is the backbone of America. With these businesses generating 50 percent of GDP in the United States, it’s easy to see why.
What are these new businesses?
These new businesses range from freelancers setting up an LLC or a sole proprietorship to manage their contract work, to small businesses that intend to hire employees.
The U.S. Census Bureau splits new business applications—identified by applications for an EIN (Employer Identification Number), which identifies a business for tax purposes—into two categories: those that are likely to hire employees and those that are not. Although both types of business applications saw a major increase compared with 2019 levels, there are vastly more new businesses (70% of all new business applications) not likely to hire. These include freelancers and independent contractors (a graphic designer or someone starting a bookkeeping business, for example).
While new businesses are cropping up across most industries, some are seeing more of a surge.
- Nonstore retail (businesses that sell goods without a brick-and-mortar storefront, usually online). It accounts for 33 percent, up from 9 percent in November 2019, of new business applications in 2020 to 2021, according to a study of the data by the National Bureau of Economic Research. This would include people selling goods on sites like Etsy, eBay, and Facebook Marketplace, or brands that sell products through their own website.
- Professional, scientific, and technical services. This highly skilled sector is largely made up of individuals providing highly specialized services. These services span a wide range of specialties including legal advice and representation, accounting services, architecture and engineering, computer services, research, advertising, photography, translation, and more.
- Trucking, warehousing, and delivery services. It’s no surprise that the pandemic saw growth in transporting and storing goods as e-commerce and the demand for delivery skyrocketed. Other industries that saw major growth in new businesses in 2021 include food and accommodations, largely driven by food delivery, and health care services.
Growth in all of these industries reflects the opportunities created by the shift to a remote economy. Even as we return to more in-person interactions, demand for these services seems to be holding steady.
Why are so many people starting new businesses?
The shift to a remote economy created clear opportunities for entrepreneurs. There are also lower barriers of entry to filing new business applications, more people leaving their jobs, and an overall shift in how people think about work.
It’s easier than ever to start and manage an online business. A Go Daddy survey of 4,000 online small businesses found that a majority (63 percent) of new businesses required less than $5,000 to get started. Services like QuickBooks, LegalZoom, and other online platforms make business administration cheaper and easier to manage, and platforms like Upwork and Fiverr have made it easier to find and manage clients.
For many, a new online business serves to supplement their income. According to Go Daddy, 80 percent of businesses were started by people who were already employed in a full-time job. They found that 44 percent of these online businesses make less than $1,000 a month, 32 percent make between $1,000 and $4,000, and 25 percent make more than $4,000 a month from their business.
For others, a new business is their full-time job. Sectors with the highest increase in business applications also saw some of the heaviest employment losses in the initial months of the pandemic. Nonstore retail and food and accommodations particularly stand out. Between February 2020 and April 2021, these industries lost 400,000 and 2.2 million jobs, respectively, according to the Bureau of Labor Statistics. This suggests that many of the people who lost their jobs at the outset of the pandemic turned around and started their own businesses, perhaps aided by federal stimulus programs and unemployment insurance.
There’s no question that the pandemic has contributed to the rise in new small businesses. People who for years had thought about venturing out on their own were shut in their homes for months. It gave them time to wonder what life could be like if they made the leap and built something of their own. The shift to remote work, hastened by the pandemic, fundamentally changed what’s possible for many workers. In his study of this trend, economist John C. Haltiwanger of the National Bureau of Economic Research said, “I don’t think any of us had a clue that we could do so much business activity remotely. That sparks all kinds of new ideas.” These changes inspired people to embrace new ways to take their companies digital and serve their communities in new ways.
These changes also prompted a strong desire for flexibility as employees sought to find new ways to balance life and work. Running your own business is the ultimate flexible work option, allowing people to choose their own hours, where they work, and with whom, as well as the type of work they do.
Challenges facing new businesses
Creating a small business that can survive continues to be a major challenge, and unfortunately, the numbers are not encouraging. Studies have shown that two thirds of small businesses with employees last two years, and about half last more than five. The longevity of businesses without employees is tougher to track. They can exist for years without generating meaningful income.
And despite the resources available, the logistics of starting a new business can still present challenges. According to Go Daddy, 63 percent of business owners said they could use help with marketing, 35 percent said they needed access to capital, 28 percent said they needed help getting online, and 24 percent said they needed assistance with management and planning.
Operating a new business can be isolating, especially when working exclusively from home. Coworking spaces can help add structure to the day and provide networking opportunities. WeWork All Access and WeWork On Demand can help entrepreneurs bring their businesses to the world. And for those with employees, a private office gives new teams a space to collaborate and develop culture, both of which are critical for any business.
Despite the challenges, this explosion in new businesses is positive overall. According to economist John C. Haltiwanger, “When we’ve seen sustained increases like this in the past, it has boded well for job creation, innovation, and productivity growth in the United States.” This wave of innovation, while tough at times, gives millions of Americans the opportunity to turn a dream into a reality.
Bradley Little is a writer and content creator based in New York City.
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