These Entrepreneurs Launched Startups During COVID-19 — Here’s Why You Can Too

Business owner wearing a mask putting an Open sign in her shop window.

Keywords: Feature, Business, Startup

Recently, there has been a huge spike in applications for business tax numbers. The unusual economic environment brought on by the pandemic has led to a renaissance of America’s business dynamism, which had been lagging for some time. The recent crisis appears to have begotten a new class of entrepreneurs that, either through necessity or another compulsion, is set to fill the decimated ranks of the small business sector. A study by the Federal Reserve found that 9 million US small businesses fear they won’t survive the pandemic. What’s causing this revival of the entrepreneurial spirit? It may be a while before we find the answers, but let’s take a look at a few possibilities.

Pandemic Perils

For the US, the year 2020 was the worst of times but also in some ways, the best of times. The pandemic raged across the nation, taking lives, destroying livelihoods, spreading fear, and dispensing uncertainty. The only defense to its onslaught was the valiant efforts of medical personnel and first responders. Fortunately, vaccines were developed remarkably quickly to turn the tide. Nevertheless, the public health toll has been devastating. As of April 10, the US had recorded 31.2 million cases of coronavirus infection, and over 560,000 Americans have succumbed to COVID-19.

Economic activity fell off drastically. In Q2 2020, US GDP contracted at an annual rate of 32.9%. For the entire year, it fell by 2.3% ($500.6 billion) to $20.93 trillion. (For comparison, GDP had increased by $821.3 billion in 2019.) The unemployment rate rose to 14.8% in April – a level never before reached since data collection started in 1948.

Recession and Revival

However, the capital markets were unaffected by the trials and tribulations affecting broad swaths of the population and the economy. The S&P 500 rose around 16% in 2020. Another anomaly was the rise in entrepreneurial activity. New business starts rose at an unprecedented rate, judging by Employer Identification Number (EIN) data. New business entities (e.g., LLCs, corporations, and sole proprietorships that intend to have employees) must apply for an EIN. There were 4.3 million EIN applications in 2020. That number represented a 24% increase over the same period in 2019. High-propensity applications, those filed by entities very likely to have employees (restaurants, for instance), are of particular focus. In 2020, these increased 16%.

This is a welcomed development. A recent study had warned that US business dynamism, as measured by new business starts, job creation and destruction, and worker flows, was on the decline. More jobs are being lost in unproductive industries than are being replaced by the ones in newer, technologically advanced industries.

Furthermore, the share of the labor force working at “young firms has dropped from around 20 to 10 percent over the last several decades while the share of employment at large, mature firms has risen from about 40 to 50 percent of employment,” says the study. Less employment in new businesses suggests fewer new businesses are being created.

Born in the USA

The startup boom appears to be a uniquely US phenomenon. “Nothing comparable seems to be happening elsewhere in the rich world,” says The Economist. Historically, fewer businesses are started in recessionary phases of the economic cycle. During the Great Recession, the startup rate of new employer businesses declined sharply.

The chart shows a record of new business applications, as well as those that resulted in employer-businesses, referred to as “transitions.” It covers the time preceding and during the Great Recession and the pandemic. After the onset of the financial crisis in December 2007, both applications and transitions decreased slowly but consistently. In contrast, during the coronavirus crisis, new applications initially declined but subsequently rebounded sharply in the second half of 2020.

It’s not clear what caused these differences in behavior. Perhaps, the closure of thousands of small businesses signaled an opportunity for the newcomers. Early intervention by Congress might also have been a contributing factor. The impact of the hemorrhage in jobs was mitigated by stimulus checks of up to $1,200 and larger unemployment insurance payments. The Economist suggests “this gave people both the need (losing their job) and the means (greater financial security) to take on the risk” of starting a new business enterprise. Official data is cited to support this hypothesis. Most (90%) of the net rise in sole proprietorships are by individuals from households with gross incomes under $35,000. At that level, the stimulus payments would have represented a substantial boost — 40% or more — to income.

What Businesses Are These New Entrepreneurs Starting?

The categories of business benefiting from the upsurge in entrepreneurship are mainly those that can take advantage of advanced information technologies, either to create entirely new enterprises or improve the efficiency of established ones. Over the past year, sole proprietorships in data-processing, web-search portals and publishing have risen by 50%. Around one-third of the new entrepreneurs will be trying their hand at ecommerce. The advent of ecommerce platforms like Shopify and BigCommerce have made setting up an online store a relatively simple affair. Additionally, as the pandemic has forced behavioral changes, demand for a variety of services has spurred new business formation in those areas. Spikes in home delivery and truck transportation businesses are part of the startup surge.

A recent survey from JustBusiness reveals the preferred industries of the new entrepreneurs. The three categories that appear most attractive to new entrepreneurs are accommodation & food services, retail, and arts, recreation & entertainment. Real estate, healthcare, and transportation are sectors also likely to benefit from the vim and vigor of the pandemic entrepreneurial class.

New Entrepreneurs

The crisis prompted Shanel Fields to launch her business in March 2020. MD Ally is a 911 telehealth company that enables virtual patient care for public safety systems. Its service allows emergency responders and 911 dispatchers to reroute non-emergency calls to virtual doctors, which reduces the burden on the EMS system. A huge number — over 96 million each year — of emergency calls are for non-crisis reasons.

“The best advice that I’ve ever gotten is to… sleep. It sounds obvious but learning how to get enough sleep as a founder is not very easy. The guilt of not working is enough to keep you awake all hours of the night. There was a long stretch of time where I just took naps and never actually went to bed. In hindsight, it sounds bad, but it’s the truth. I’ve since learned how to “hack my brain” and think about sleeping as part of my job, which has been LIFE CHANGING. I still wake up at 5 a.m., but I shut things off sooner so I have time to reset before tackling a new day,” Fields said.

Colt Creative is a marketing, design, and photography company located in Grand Rapids, Michigan. It was founded by Colton Credelle, an experienced marketer and designer skilled in Adobe Creative Suite, Media Production, and Social Media advertising. Credelle started his business in June 2020.

Elsa Bennett’s international marketing consultancy — EB Marketing Consultancy — is based in England. Ms. Bennett has parlayed her 19 years of business to business (B2B) and business to consumer (B2C) marketing experience into a business that’s pitching its services to small and medium-sized enterprises (SMEs) and multinationals in a diverse range of sectors across Portugal, Spain, and the UK.

Najwa Khan is from Hoboken, New Jersey. Her company Dalci makes gut-healthy desserts, like brownies and blondies. Yahya Remtulla, another pandemic entrepreneur, is a second-year master’s student at Duke’s Fuqua School of Business. He’s developed and launched the Doctor’s Choice UV Sterilizer, which uses ultraviolet LED light to remove germs from items zipped inside a fabric-covered box.

Indulgent Chocolates — a company owned by Keith Tiplady — specializes in Belgian confectionery. Keith was a project manager for Triumph Motorcycles. He lost his job when COVID-19 struck and decided to become a chocolatier. His kitchen has now become a chocolate factory.

“It’s very scary being in full time and then taking the leap [to working for yourself], he says.

He bought a secondhand tempering machine for his wife, who operates a home baking business, to make chocolate curls for the top of her cakes. Realizing the expensive machine was idle most of the time, the couple cast around for other uses. They experimented with various kinds of chocolates and found that the “indulgent filled” ones were very well received. These are chocolates with caramel or flavored ganache fillings. Promoting the products on Facebook to friends, family, and local residents gave them the initial sales. Now, the orders are flooding in from consumers and business entities alike.

Fields’ take on entrepreneurship is insightful: “Starting a business at any point in time is inherently risky. There is no right economic climate, per se, just the right value prop for whichever climate you’re starting the company in. During a tough economic climate; “needs” trumps “wants” and your new venture should focus its value proposition around what people need to weather hard times.”

Necessity Is the Mother of Invention

Some very successful businesses and innovations were launched during tough economic times. Nylon and Teflon—now two ubiquitous products—were both developed during the Great Depression. Jamie Jones, executive director for Duke’s Center for Entrepreneurship and Innovation at the Fuqua School of Business, says, “Research shows that during economic downturns, there is an acceleration of innovation. For instance, ten years ago, the Great Recession spawned a number of businesses, such as Uber and Airbnb, that are now ingrained in American society.”

Ms. Jones has christened the recent upsurge in entrepreneurship as the “Great Reset.”

“The pandemic has caused huge behavioral shifts in how we work, how we learn, how we communicate, and how we consume.”

In response, entrepreneurs will continue to identify needs and marshall resources to develop solutions that meet those needs, she says. That’s what entrepreneurs do.

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Anthony de Freitas

Anthony is the owner of Kip Art Gifts, an ecommerce store that specializes in art-inspired jewelry, fashion accessories, and other objects. Previously, he worked as an accountant and financial analyst. He enjoys writing on small business, financial intermediation, and economics. Anthony was educated at Wilson’s School and the London School of Economics and Political Science.

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