How the Pandemic Sparked a New Boom in Entrepreneurship

BY WILL SWARTS

The nationwide boom in small business formation is effectively unseating Silicon Valley as the startup capital of the United States. 

That's according to The Wall Street Journal, which took a year-end look at how post-pandemic changes to work have encouraged entrepreneurs to start their own companies.

An analysis of Census Bureau data on employer identification numbers issued last year showed about 1.6 million new businesses were formed through the end of November 2023, up 38 percent from 2020, when the pandemic's first wave shuttered offices across the country. Haltiwanger said startups have historically accounted for about one-fifth of new jobs created each year and are a vital source of productivity growth.

The paper spoke to John Haltiwanger, an economist at the University of Maryland and expert on entrepreneurship, who described a two-phase trajectory to the latest boom in new business creation.

The first was a pickup in startup activity in mid-2020, when people working from home began tinkering with forays into entrepreneurship. There was a brief dip, and then new business formation revved up again in 2021, continuing a pace where activity is "approaching levels back in the go-go-go 1990s, when startups were a key part of the U.S. economic picture."

The startup boom has a lot of supporting factors behind it, including new hybrid work routines, industry disruptions and a growing emphasis on work-life balance. Kenan Fikri, director of research at the Economic Innovation Group, sees the result as a great sign.

"That it's persisted for so long suggests that the pandemic catalyzed something real and economically significant--and something that, hopefully, will last," said Kenan Fikri, director of research at the Economic Innovation Group. 

And interestingly, the surge is showing outside the Bay Area, long a hub for tech startups. In Georgia, Census Bureau data applications filed by likely future employers in the year through November 1 were up 53.4 percent from the first 10 months of 2019, compared with a 38 percent increase nationwide. In metro Atlanta, applications from entrepreneurs, including sole proprietors, filed 75 percent more new business applications from 2020 to 2022 than from 2017 to 2020. 

Other southern cities also had outsized startup growth over the same period: Metro Mobile, Ala., saw application numbers jump 127 percent in the same period. In New Orleans and surrounding parishes, the numbers were up 59 percent. Startup hubs like Seattle and New York recorded 20 percent increases, and Boston saw only a 13 percent increase.

High housing prices and the general costs of living in coastal metropolitan areas make less expensive cities more attractive to startup founders. Michael Davis, a veteran of New York and Seattle startups, moved back to Atlanta in 2021, and found that other friends who'd made the same journey were interested in launching the startups they couldn't afford to found on either coast. Davis started Homegrown in June 2023. The startup offers financing and support for other new companies.

"The most common conversation I'm having now with entrepreneurs is, 'How do I manage growth?' Because," he says, "there's a huge number of people filling out the city and the suburbs around Atlanta and they want us to open locations in all of them."

Photo Credit: Getty Images.