The COVID-19 crisis might be encouraging more Americans to start a business. According to recent business formation statistics data from the U.S. Census Bureau, during the week ending August 15, 2020, there were 111,680 new applications for an Employer ID Number (EIN), up 68 percent compared to the same week in 2019. This is a higher rate of new business formations than any time since the Great Recession.
According to Census data, total U.S. business applications during Q2 2020 increased 4.8 percent from Q1 2020, with 11.6 percent growth in the South and 9.1 percent growth in the Midwest.
Clearly, more Americans are looking to be their own boss and start a business. But with all of the economic uncertainty related to the pandemic, many people might be wondering if now is a good time to take the leap into entrepreneurship.
Here are a few reasons why it’s no surprise that Employer Identification Number (EIN) applications are surging.
People Decide to Start a Business After Losing a Job
COVID-19 and the massive shutdowns to the U.S. economy caused millions of people to lose their jobs. Some of those jobs won’t be coming back. When presented with the uncertainty of unemployment, some people use it as an opportunity to start their own business and chart their own path in life.
Maybe you’re in this situation. Have you lost a job or had your hours cut due to COVID-19? If so, it might be an ideal time to start a new “side hustle” business while working part time or seeking a full-time job. You might discover that you enjoy having some extra hours in the day to focus on your own business idea.
Losing a job is never fun or easy. But every now and then, for people with a certain kind of entrepreneurial ambition, losing a job can be a blessing in disguise. There are even special programs and benefits to help unemployed people start a business.
Starting a business after losing a job can be a moment of clarity in your career. If there’s a business idea you’ve been thinking about, but never had time to pursue, or if there are other ways that you’d like to use your professional skills, now might be an ideal time to start.
Some Small Businesses Have Closed, But Others Are Opening
Along with millions of lost jobs, the COVID-19 recession has caused thousands of small businesses to close. This is not “good news” by any means; when small businesses fail, it sometimes means the end of someone’s dream or a sad conclusion to countless hours of hard work.
But sometimes, there are silver linings in business closures as well. Sometimes, small businesses close because the owners decide to sell their business to new owners. Sometimes when a business closes in a neighborhood, a new business opens in its place. Sometimes a new generation of entrepreneurs can see opportunity in a location or industry that was struggling. Sometimes even the toughest economic times can be fertile ground for green shoots of new innovation and future growth.
People Want to Create Their Own Job Security
The COVID-19 recession is the second major recession and the second major mass unemployment event since the 2008 financial crisis. Many young professionals and mid-career employees who are currently in their 30s or early 40s have now witnessed two major economic crises during their careers.
Some of these people might have gotten laid off from multiple jobs or experienced other serious setbacks during what they had hoped would be a steady path of progress in their corporate careers.
What should people do when they keep going through layoffs and downturns? What happens when a conventional job doesn’t offer any real job security?
If you’re one of the many American employees who is feeling somewhat disappointed or shortchanged by the conventional system of American employment, it might be time to create some job security of your own — by starting your own business. Kelly Gray, a public relations professional in Atlanta, told Bloomberg that the COVID-19 recession is the third time she has lost a job during her 25-year career. So she decided to start her own business and be her own boss.
If you read the real-life success stories of Incfile customers in our Spotlight of the Month series, you’ll see a common trend: many small business owners get started in entrepreneurship because they want freedom, they want work-life balance and they want the ability to set their own path and do things their own way. Even during the times when entrepreneurship is stressful, even when money is tight and the future is uncertain, that feeling of freedom and control over your own destiny is priceless.
Recessions Can Be a Good Time to Start a Business
Along with people’s immediate employment status and other personal reasons for getting into entrepreneurship, a recession can actually be a good time to start a business if you look at the broader economic conditions. Fox Business News has a list of some prominent companies that were started during the Great Recession. These now-famous businesses include Slack, Pinterest, Uber, Square, Venmo and Instagram.
Why is a recession such a good time to start a business? A few reasons:
- People are looking for new ideas and new solutions to problems. Recessions and crises force people to innovate. COVID-19 is the biggest crisis and the biggest problem the world has seen since World War II. And as described in this Collaborative Fund blog post, World War II was the most important event of the past 100 years, which spurred innovations that are still shaping our world today. There might be new businesses that get started in 2020 that help solve problems related to personal care, medical testing, online education or other fields that we haven’t even discovered yet.
- There’s less competition and “froth” in the market. Sometimes during good economic times, it can paradoxically be too hard for good businesses to get noticed and find their market. During a recession, the playing field is less crowded. There’s less noise. People are still looking for good ideas and investors are still willing to invest during a recession, but sometimes a quieter economy can actually be a good thing for entrepreneurs.
- It’s easier to hire talented employees. Before COVID-19, the labor market in the U.S. was pretty tight. Low unemployment is often good news for workers, and it doesn’t mean that employers should lowball people with their job offers; talent isn’t necessarily “cheap” today compared to a year ago. But during a recession, a lot of top talent might be more open to the idea of going to work for your business. It might be a bit easier to hire people away from their current jobs. There might be a few more great people in the market for a new job who were not looking a year ago. All of this can be good for your business if you are ready to hire employees.
COVID-19 has been a stressful, sad time for everyone. Along with the lost human lives and health problems from the virus, there has been massive harm to the economy and to many people’s livelihoods. But if there is one hopeful sign that we can learn from previous crises, it is this: human beings are resilient and adaptable. People always find a way to bounce back from crises and downturns. People find new ways to cooperate and solve problems.
No matter where you might be in your career or overall financial situation as a result of the COVID-19 crisis, Incfile can help you start a business and figure out how to make a living as your own boss. We are passionate about helping small businesses get started with official business filings and with helpful information and guidance.