COVID & Entrepreneurship: How the Pandemic Is Propelling New Businesses Forward

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:

32M

Approximate number of small businesses in the U.S.

60M

People that were employed by small businesses: 47% of the working population.

1.6M

Number of new jobs added by small businesses.

99.9

Of U.S. entrepreneurs start their business from home - an ideal for online business.

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.

Area

Findings

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.

71%of SMB owners say support from their local community has been critical to their recovery efforts.

57%of Americans say that the top reason to shop local is to support the local economy.

31%of small businesses face more competition from smaller or local companies compared to six months ago.

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.

60%of U.S. small business owners have pivoted to new approaches since the start of COVID.

67%of small business owners globally have experimented with a new approach to sales, from launching ecommerce websites to changing their point of sale systems.

65%of businesses are making more sales online.

25%of small businesses have increased their use of digital payment options.

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.

50K

Businesses we helped over the summer of 2020, with 20,000 formed just in June 2020.

2020 saw the number of business formations increase by almost 50 percent.

Entrepreneurs formed 55 percent more LLCs in 2020 than in 2019.

Of all business types, we saw the greatest increase in e-commerce businesses, up 50 percent over four months.

The states that saw the biggest increases in formation between March and May were:

Michigan, up by 100 percent

Florida, up by 92 percent

Georgia, up by 90 percent

Top 5 States for Business Formation in 2020

Number of Businesses Formed

Texas

14,961

California

13,992

Florida

9,221

Georgia

8,241

New York

7,674

Top Industries for Business Formation in 2020

Number of Businesses Formed

Ecommerce

20,455

Consultant

11,348

Real Estate

11,074

Internet/Web-Based Service

8,023

Sources:

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 a Business During COVID

How Entrepreneurs Have Taken This Moment to Go After Their Dream

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