Last March, the coronavirus pandemic struck and serial entrepreneur Mike Landau found himself spending nearly every minute of every day in his Long Island home with his wife and five daughters. He had new responsibilities, he told me: caring about everyone’s health, supervising the Zoom school, cleaning the Barbies, trying to keep their house from looking like an “old Amazon warehouse”. . But he also had business ideas, and the time to incubate them.
The pandemic has led to a massive increase in e-commerce, with millions of Americans choosing to work, eat, exercise and play at home, and want equipment to do so. Companies like UPS and XPO have seen parcel volumes normally seen during the holiday rush, and these still haven’t fallen to their limits. pre-pandemic levels. With all these boxes to manage, last mile and long distance delivery services needed secure places to park their vehicles. Landau sketched out an idea to locate empty or distressed land in metropolitan areas, set up safe perimeters and rent parking spaces. The ParkMyFleet company gathered at their kitchen table and embarked on a question of months. Landau hired a fully remote team and added city-to-city vehicle transportation, as well as on-site car repair and washing services.
As terrible as the pandemic is, the uncertainty has improved the business climate in some ways, he told me. “It sped up everything.” Across the country, about 500,000 entrepreneurs were finding roughly the same thing. The coronavirus has wiped out an unprecedented number of small businesses – 200,000 more closed than expected in a normal year—But also enabled the launch of an unprecedented number of new ones. And this unexpected business boom contains lessons on how to make the economy more conducive to new ideas, new businesses, and new entrepreneurs in the future.
Generally, business creation is cyclical: People are more inclined to start businesses when equity increases, confidence soars, and lenders are eager to lend. People are less inclined to start businesses when family finances are stressed, business prospects collapse, and credit conditions tighten. So it was no surprise that the pandemic recession resulted in a huge drop in new businesses launched last spring.
What came as a surprise was that business creation rose sharply in the second half of 2020, when much of the country was still closed and the push continued. Entrepreneurs have launched 500,000 new businesses considered likely to hire employees from mid-2020 to mid-2021 than from mid-2018 to mid-2019, and today Americans are start-ups at the fastest pace ever.
“Last year we were doing this mutual head scratching, like, What is happening? Will it last?John Lettieri, co-founder of the Economic Innovation Group, a research and advocacy group for start-ups, told me. “Then it was, It looks different! And things continued to take off.
Indeed, at first, many experts wondered if the business boom was not illusory. Perhaps it was a statistical fluctuation: entrepreneurs massively delaying their launches, creating a drop and rebound without changing the underlying long-term trend. Or maybe it was pushed by unscrupulous entrepreneurs and unofficial sole proprietors (caterers, housekeepers, beauticians, etc.) setting up businesses to get relief money for small government businesses. .
But the persistence of the trend belied these explanations. The government’s loan programs for the Small Business Administration had restrictions to prevent businesses without payroll records and current operating expenses from cash out. When the windows of demand closed, there was no decline in new business creation either. Economists have also not seen a return to the pre-pandemic average. “At this point, it reflects very real activity,” Lettieri told me.
What motivates this very real activity? SBA loan programs seem to have little to do with this. But all other government money flies away. Unlike after the Great Recession, Washington flooded families with stimulus when the coronavirus hit, roughly $ 5,000 billion. Even after the unemployment rate climbed to 14.8%, “stimmies»And the superdole maintained household spending remarkably stable. Additionally, high-income families working in white collar estates experienced little to no financial fallout from the coronavirus recession, and many saw their net worth soar as house prices rose and the stock market was recovering: the recovery was “K-shaped”, as forecasters like to say. The unemployment rate for Americans with a university education increased by only two percentage points between spring and fall of last year.
Much of America’s vast consumer class remained ready and able to spend during the recession. Many entrepreneurs saw no reason not to go out and take care of them. One of them was Marc Bridge from Seattle, who launched At Present, an online jewelry retailer, last August. The decision to go ahead was a heavy one. “In most times of recession, the first thing to do is discretionary purchases like jewelry,” he told me. “I thought, Hmm, okay, well this is a really interesting time to start a new jewelry business. “But anecdotes from friends working from home and reliable data on consumer finances persuaded him and his co-founder to move forward.
“People had nothing else to do. They sit at home, on the couch all day, watching External banks, who are bored, some of them are not badly affected by the recession, he told me. “We were selling things people wanted, small doses of joy in a time so painfully devoid of it, and the jewelry was surprisingly consistent with people’s lifestyles. You might be wearing sweatpants, but if you use Zoom every day, it’s good to put on a pair of earrings.
In other ways, the unique characteristics of the pandemic recession have made starting a business an attractive proposition. The move to working from home has speeded up the installation and reduced some costs. ” I swore [office] leases, which also means giving up climbing, ”Landau from ParkMyFleet told me. “I was literally able to recruit C-level executives from all over the world, super talented people, and we started without having to move a single person. They are hiring. They perform. They launch out.
The pandemic has also made it easier to connect with suppliers, investors and business contacts, other new business owners have told me. “It was a lot easier to get people to agree to talk to you,” said Priyanka Jain, who just launched Evvy, which sells home vaginal microbiome testing kits. “It was so hard for people to say no to a 15 minute Zoom call, and I felt like I could send more cold emails. Geography just ceased to matter. I spoke to 200 people framing my idea, and I never could have done it if we were walking around or having in-person meetings in San Francisco or New York.
On top of that, the pandemic recession has instigated creative destruction, accelerating the shift to work-from-home, remote, distributed and direct-to-consumer business models that economists have been anticipating since the dawn of the computer age. The coronavirus has destroyed traditional restaurants but increased delivery expenses; it killed gyms and yoga studios, but increased interest in personal fitness equipment; it decimated formal office clothing sales but boosted skin care and loungewear revenues; it stopped business travel but led to the adoption of virtual conferencing and collaborative working technologies.
For Texas entrepreneurs Christie Zwahlen and David Taffet, the pandemic has both given and taken. The two had co-founded a direct-to-consumer business that was set to ship a trash freezer called Petal. (Cold garbage doesn’t stink of a small apartment.) But the pandemic has increased demand and distorted the supply chain for freezer rooms. This prevented the company from making its trash can at a reasonable cost. The company is, forgive me, on the ice for the moment. “I was devastated,” Zwahlen told me. “But we couldn’t make it work.” Still, the pair launched a virtual whole business consultancy during the pandemic; their first customer was the refrigeration company they had contracted to produce the bin with.
Finally, a number of entrepreneurs mentioned that the pandemic had altered their risk-reward calculus in ineffable and unquantifiable ways, instilling in them a sort of right-to-do, if not when, attitude. “There comes that sudden moment of, I might as well give it a go!Taffet told me. “It’s a pandemic. The world changes. There is something hopeful about it, in a strange way.
I cannot justify the importance of this impetus, and future decision-makers may not be able to take it up. But they may very well be able to recreate the material conditions that allowed the COVID-19 business boom to occur. Flooding the economy with money, so that millions of Americans do not suffer the financial losses typically associated with recessions, could help keep existing businesses afloat while allowing new ones to get started. Entrepreneurship doesn’t need to fall victim to future downturns.