How the Coronavirus Is Leading to More Small Business Creation
2020 was a tough year, but there’s optimism on the horizon. As the world deals with the pandemic, we’re seeing more entrepreneurs than ever choosing to start a new business. This seems counterintuitive, as the impact from COVID has created enormous disruption and difficult economic conditions. There are significant challenges ahead. But, even among the doom and gloom, business founders are looking to the future. They’re deciding that even with the current state of the world, the time to start that new business is now.
We’ve explored the research, interviewed entrepreneurs and tapped our years of experience and insight to understand the resilience of small business owners, how they’re adapting and what they expect as we navigate the crisis.
Pre-COVID: Small Business Success Before the Pandemic
To start, it’s helpful to understand just how important small businesses are to the U.S. economy. Pre-pandemic:
Approximate number of small businesses in the U.S.
People that were employed by small businesses: 47% of the working population.
Number of new jobs added by small businesses.
Sources:SBA Office of Advocacy, 2020 United States Small Business Profile
The small business sector was strong and resilient heading into the pandemic, making it able to weather many of the challenges presented.
The Impact of COVID on Entrepreneurship
There’s no denying that COVID-19 has had a significant impact on businesses. Unemployment rates are up significantly, there’s been a huge shift to working from home and businesses have had to adapt fast — more than eight in ten businesses have felt an impact from the pandemic.
Fortunately, entrepreneurs are resilient. More than two-thirds of businesses have pivoted to new revenue streams, and we’re noticing more founders starting up new businesses than before.
Small Business Owners Are Becoming More Optimistic About the Future
Business-savvy founders are looking ahead, and they're forecasting brighter days. In contrast with the earliest months of the pandemic, entrepreneurs believe the economy is turning a corner, driving new business creation. There are opportunities for business owners willing to take a risk, and that’s especially true in the U.S.
- 82 percent of small and medium business owners in the U.S. are optimistic about the future, compared to 75 percent globally.
- 28 percent of entrepreneurs in the U.S. are “very optimistic,” compared to 14 percent globally.
- Many small businesses are looking to put more into operations and expansion, with over a third planning to increase investments.
- Across all businesses, the percentage of respondents expecting economic conditions to get better rose from 25 percent in March 2020 to 51 percent in October.
|SMBs optimistic about the future||82% in the U.S., 75% globally|
|SMBs very optimistic about the future||28% in the U.S., 14% globally|
|SMBs expecting revenues to increase||53%, up from 47% in April 2020|
|SMBs increasing investments||35%, up from 27% in May 2020|
|All businesses expecting economic conditions to improve||51% in October 2020, up from 25% in March|
Sources:Visa Back to Business Study U.S. Chamber of Commerce, July 2020 Small Business Coronavirus Impact Poll McKinsey, COVID-19: Implications for business
This optimism is due to support from local communities, more businesses entering the market and the ability to pivot to other revenue streams.
The Local Economy Is Critical to Small Business in the Pandemic
The coronavirus means that consumers are re-evaluating who they want to buy from and where they want to spend their money. That’s translating into more money in the pockets of local businesses and increased competition.
Small businesses with a local focus are starting to see increased success. That’s due to several factors:
- Agility and speed of reacting to changing COVID-19-related circumstances
- Quickly adopting new pandemic safety standards
- Trying out new business approaches like offering services over video conference or delivery and curbside pickup for shopping
- Enhancing their online presence so customers can easily order through a website
Communities and individuals are playing a big role too:
- Understanding what businesses are locally owned and shopping with them
- Seeking out alternatives to national chains and online marketplaces
- Buying gift cards, tipping better and ordering in bulk
- Sharing information about small businesses in online and local communities
Small Businesses Are Also Pivoting to Online and Digital as a Result of the Pandemic
Together with success in their local business environment, the pandemic has driven many entrepreneurs to pivot online. Digital approaches, ecommerce websites and diversified sales channels allow businesses to prosper while maintaining social distancing and safety.
These moves to digital aren’t just a survival instinct; they’re driven by how consumers want to shop. Small businesses that can combine local trust with an online presence are best positioned to resist the pressures of the pandemic and thrive afterward.
A few stats:
- More than half of consumers have tried a new retailer during the pandemic.
- One in five consumers have used curbside pickup for the first time.
- Ecommerce sales are likely to increase by more than 30 percent in 2020.
Incfile has seen an increase in businesses you can run from home, “whether it be an ecommerce company, whether it be ‘sell on Amazon,’ which we are seeing [become] hugely popular, [or] consulting businesses where you are able to leverage your expertise and have Zoom calls…and be able to consult over the phone...”
Mike Nunez, Incfile
What This All Means to New Business Formations
Here at Incfile, we’ve helped bring more than 250,000 businesses to life, and our own data tells us something very interesting. Although we saw a slump in business formations in March 2020, we’ve seen more businesses than ever created since then.
Businesses we helped over the summer of 2020, with 20,000 formed just in June 2020.
|Top 5 States for Business Formation in 2020||Number of Businesses Formed|
|Top Industries for Business Formation in 2020||Number of Businesses Formed|
Incfile internal data
So, what does the data mean? It indicates a bright future for small businesses in the U.S., especially for those who have been able to pivot and adapt to the “new normal.” Those entrepreneurs brave enough to start a business and scrappy enough to handle the challenges won’t just survive — they’ll position themselves for success, no matter what the current situation might suggest.
Starting a Business During COVID
How Entrepreneurs Have Taken This Moment to Go After Their Dream
“Starting in late March and early April, a lot of my close hospitality friends and colleagues have had to press pause on our day to day livelihood and passion to serve others. I thought to myself, ‘Although we are putting so many special moments on hold during this time, who said we can’t create new, different, yet wonderful moments together in the comfort of our own home?’
In a world that feels like it is constantly changing, we are finding ourselves at home more often and appreciating spending time with the people we care the most about. This was and still is my biggest motivation to keep Boojzey Hour alive and active.”
“My one piece of advice would be to keep on trying! It can be very frustrating at the beginning trying to navigate your new business and figure out what works for you. I started my business a little over three months ago and what started out as three to four orders per week quickly turned into creating 45+ boards per week. So just know, IT’S POSSIBLE! Reach out to local social media influencers; do a lot of giveaways in the beginning to get your name out. Trust me, it pays off! Lastly, enjoy and take pride in what you’re doing; people will notice in the end!”
“We started Urban City Cleaners in July 2020. We already owned a nail salon but saw a 70 percent dip in business due to COVID stipulations for small businesses. We had to pivot and go a different direction in order to continue earning income. Urban City Cleaners offers sanitization and commercial and residential cleaning services.
It was an idea we had in April 2020 and became a reality in July 2020. We launched in two months with four employees and now we have 10!”