Kelly Evans: The start-up surge

Here’s an odd quirk of this pandemic-recession; while there’s been a surge of business closures, there’s also been a surge of new business formations. 

The Wall Street Journal highlighted this recently. Applications for employer ID numbers are up 19% so far this year, at 3.2 million as of mid-September, versus just 2.7 million at the same time last year.  

Now, some of those new “businesses” may in fact just be independent contractors and gig workers who aren’t going to employ other people. But applications by “likely employers” are also running up 12% versus the same period last year, to 1.1 million. What’s more, they’re running at the strongest pace since 2007 (chart below).  

Let’s be sure to note this won’t fully offset the loss of approximately 700,000 businesses this year, according to economist Steven Hamilton of George Washington University. Less than half of new businesses typically make it longer than five years. 

But it’s a cautiously promising sign. The Journal profiled eight of this year’s crop of new business owners, and their stories are fascinating. It’s a stark reminder once again of the differences between this economic cataclysm and the financial crisis of 2007-08, in whose wake new business formations plunged and remained low for years.  

Perhaps that’s because this pandemic has opened new horizons of possibility that entrepreneurs can seize upon. From “learning pods” to “WFH” to “Zoom towns,” it’s not just that new services and new technology are in high demand; there’s also been a population boom where people leaving the big cities are going. That means new opportunities for local start-ups, plus the human capital that was once tethered to big-city corporate jobs. 

So, is it insane to start a business during a pandemic, as the Journal asked? No more insane than starting Uber (March 2009, the market bottom), or Square (also 2009) or launching the iPad (April 2010, barely a year after the recession ended, amid a historically anemic recovery). This great Business Insider compilation has more, including the “bad timing” of Microsoft and CNN’s launch.  

We’ll be speaking more about this with University of Maryland economist John Haltiwanger on the show today. See you at 1 p.m! 

Kelly 

Twitter: @KellyCNBC

Instagram: @realkellyevans

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