The Rising Business Spirit in the USA and Canada

  When economies were bad in the past, fewer new businesses were started. Still, more new businesses opened in the US in the third quarter of 2020, even though there was a pandemic that hurt the world economy. It actually went through the roof. In July 2020 alone, more than 500,000 new businesses were set up, which is almost twice as many as the previous year. Since then, more than 400,000 new businesses have been started every month.

A data graphic that shows a rise in business apps in 2020

The US Census shows that there will be a real rise in small business applications in 2020, especially in the third and fourth quarters.

What's different about this time? Several ideas have been put forward to explain why people are feeling more creative at a time when everything seems to be working against them. Maybe founders who are strong because they've been through hard times are looking for chances that come with a society that's moved forward by almost ten years. And the problems they've had over the last three years have made them even stronger. Harley Finkelstein, president of Shopify, has called 2023 "the year of the entrepreneur."

Why, against all logic, did the plague make people want to start their own businesses? It's easy—the losers can win if we cheer for them.

There is a surge of entrepreneurial energy. Being an entrepreneur has never been more popular. Your social feeds are full of posts that encourage people to follow their dreams. But these beautiful highlight reels hide an unpleasant truth: the number of businesses has been going down for years. One bad effect of this is that huge corporations are continuing to build up their huge power. In fact, these big companies were the ones who gained the most from the current crisis.

On the other hand, the total number of businesses had dropped sharply, and this trend sped up when the pandemic started. A survey of the US people says that 3.3 million businesses shut down between February and April 2020.

A drawing of a person gazing up at a huge hand reaching into the roof of a store

In the early days of the pandemic, the biggest companies did very well, while small businesses were struggling to stay open.

As lockdown rules were eased and government aid was sent out, companies started to reopen, but the damage had already been done. By July of that year, the number of permanent closures was higher than the number of temporary closures. By September, the difference was even bigger. There were not many bright spots in the otherwise cloudy day.

In the areas that were most at risk, things looked especially bad. Black, Indigenous, and people of color (BIPOC) groups were hit the hardest by the pandemic. This made the US's health care system even less fair. For small companies owned by people of color, government aid shows where the financial system is weak—the areas that big banks don't serve well were the last to get the money they needed.

Reports say that from February to April 2020, 41% of businesses owned by Black people, 32% of businesses owned by Latinos, and 26% of businesses owned by Asians had to close. Even though business owners already had to deal with unfair treatment and unfair financial decisions, the pandemic made things even worse for them.

Latino-owned companies had a hard time because they had less access to loans to help them out and more of them were in industries that were hit hard by the pandemic.

Stanford's Marlene Orozco is a lead research analyst.

In her job as a Lead Research Analyst at Stanford, Marlene Orozco has spent a lot of time with Latino entrepreneurs. By the end of March 2020, her study showed that 86% of these business owners had said that the pandemic had hurt their companies.

It was hard for Latino-owned businesses because they had less access to relief loans and more of them were in industries that were hit hard by the pandemic

Surprisingly, Marlene also found that people in the same group were still very optimistic about the future. They were not the only ones. Even though businesses had a hard time, the spirit of entrepreneurship grew.

Entrepreneurs who do well love change.

A strange thing in the data tells a different story, even though rolling lockdowns have caused a lot of damage. Before the end of 2020, business applications in the US went through the roof. In fact, the third quarter broke all records by being 48% higher than the next highest quarter in the last ten years.

This ends a forty-year trend in which fewer applications were made during times of trouble. When the economy was in its worst, in 2009, more than 100,000 fewer businesses with employees were started than in 2007. But we can't forget that past recessions also gave disruptors a chance to make money. Every new company in the last few years grew out of the ashes of the 2008 crisis. Was the event a sign of what was to come?