The pandemic has forced hundreds of thousands of small businesses to close. For Madison Schneider, it was a good time to start a new one.
The 22-year-old from Haviland, Kan., Opened Lela’s Bakery and Coffeehouse on September 12, naming it in honor of her grandmother. He has been busy every day since then, he said. “It felt like the right thing to do,” Ms. Schneider said.
Americans are starting new businesses at the fastest pace in more than a decade, according to government data, taking advantage of pent-up demand and new opportunities after the close of the pandemic and reshaping the economy.
Applications for employer identification numbers that entrepreneurs need to start a business have surpassed 3.2 million so far this year, compared to 2.7 million at the same point in 2019, according to the U.S. Census Bureau. That group includes gig-economy workers and other independent contractors who may have fired themselves after being fired.
Even excluding those applicants, new deposits among a subset of entrepreneurs who tend to hire other workers reached 1.1 million through mid-September, a 12% increase over the same period last year and the highest since 2007, the data show.
“This pandemic is actually causing a surge in employer startups that takes us back to the days before the decline of the Great Recession,” said John Haltiwanger, a University of Maryland economist who studies the data.
Many of these will fail. More than half of new employer businesses go bankrupt within five years, he said. Additionally, small business revenue fell 21% in mid-September from January levels, according to data and technology firm Womply. “I think most entrepreneurs realize that the likelihood of success is not high,” said Haltiwanger. “The question is, are they jumping on the market opportunities that quickly emerged given the current environment?”
The pace of the new launches comes amid a wave of business closures, which has created an unusually large void for new entrants to fill. The United States lost more businesses during the first three months of the crisis than it normally does in a full year, said Steven Hamilton, an economist at George Washington University. Additionally, business applications are growing at a rate not close to the pace needed to keep up with the 700,000 businesses that Mr. Hamilton estimates will be lost this year.
Spending is rising as cities and states lift restrictions on everything from restaurants to retailers, leading to a spate of activity that was pending in the early months of Covid-19. At the same time, the continued spread of the virus has led to a more sustained change in consumer behavior than in previous recessions. This wiped out revenue streams for existing companies, but also opened up new markets for newcomers.
Another increase could come from personal savings rates, which are about three times higher than in the last recession, and from house prices that remain high across most of the country. According to a survey conducted by Federal Reserve regional banks, nearly 90% of businesses depend on the owner’s personal credit score to obtain loans. More than half had relied on funds from personal savings, friends or family to support their business at some point in the past five years, according to the report.
Requests for new businesses began to take hold in June, probably fueled in part by a change in the fiscal calendar. After the government postponed the tax return deadlines from April to July, it rejected the flow of new business applications that usually comes in March. When states eased restrictions in May and June, entrepreneurs who had shelved plans during the extreme uncertainty started moving forward.
The leap could be a sign that the pandemic is accelerating “creative destruction,” the concept popularized by the economist
in the 1940s to describe how new and innovative firms often replace older, less efficient ones, fostering long-term prosperity.
While new businesses inevitably start small, they are a key driver of job creation. Startups have historically accounted for about one-fifth of job creation, according to research by Mr. Haltiwanger. More than half of the new jobs come from existing fastest growing companies, most of which are relatively young companies, he said. According to the Census Bureau, businesses with fewer than 500 employees accounted for nearly half of private sector employment in 2017.
. According to the Census Bureau, companies with fewer than 500 employees accounted for nearly half of private sector employment in 2017, the last year for which there was data.
The 2007-09 recession and the anemic expansion that followed is a reminder of how crucial that engine is. The slow pace of business creation in the years following the official end of the recession contributed to a slow recovery and unusually high unemployment.
Despite widespread fears in the spring that venture capital investments would run out, operations activity declined by only 6% in the first half of 2020, compared to the same period in 2019, according to a new analysis by Ian Hathaway, a senior. fellow of the Brookings Institution think tank.
“At the start of the crisis, everyone was holding their breath. So, especially in the knowledge-intensive industries, people have realized that life will go on, “Hathaway said.” We’ve had a shrinkage and mass layoffs, but GDP has dropped 9%, not 50 %. It wasn’t as big as we thought. “
Here’s a deeper look at eight people who risked their futures starting a new business during one of the worst recessions since the Great Depression. For many it has meant trying new identities and forging new lives.
Necessity motivated Mrs Schneider’s gamble. She graduated from college in May and wanted to work as a cult leader in a church before bans on in-person services wrecked her plans. When a popular city bar closed, he decided to contact the previous owner to inquire about buying the business. “It was definitely out of my price range,” he said.
Renting the commercial space, however, was much cheaper – just $ 350 a month. So, he decided to pursue his dream of opening a bakery. Ms. Schneider took about $ 8,000 from her personal savings to fund startup costs and secured the cheap rent in August. Her parents lent her the money to buy an espresso machine. Local residents helped her paint the sheet metal ceiling panels and pull up the old carpet before Lela’s Bakery and Coffeehouse opened this month.
“It all happened very quickly and it was really crazy,” Ms. Schneider said. He plans to hire employees so he can expand his offering beyond cookies, muffins and cinnamon rolls and start hosting special events.
The App Creator
Ileana Valdez saw an opportunity after a sign-up sheet she designed and posted as a joke in a file
College-related meme group received thousands of responses from homebound students. Ms. Valdez and her brother, Jorge, spent a hectic weekend at their childhood home in Dallas, turning the joke into a working dating site for college students. “There was no plan to monetize it or turn it into a startup project, but because there was so much demand, we had to deliver a good product,” he said.
The result, which they dubbed OKZoomer, is a dating platform with no profile pictures that now has 20,000 users. New users sign up with their college email addresses and take a personality quiz, which the OKZoomer algorithm uses to match them with other students at their school.
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The fledgling company has since hired six employees to launch the OKZoomer mobile app and is responding to inquiries from interested venture capitalists, said Ms. Valdez, 21, who is in her final year of a computer science degree at Yale University.
“OKZoomer started overnight as a meme, like ‘Did you miss the last chance to take your picture? We’ll help you with our dating algorithm,” he said. “But it exploded.”
The founder of fitness
Danielle Payton saw her advertising business wither in March as fitness studios, a key customer base, had to shut down to comply with on-site shelter orders. In the following weeks, she noticed fitness instructors giving free classes on Instagram Live. “They were giving away their livelihood,” he said. “Free is not sustainable. Our haircuts are not free, our rent is not free … Nothing is free. “
In response, Ms. Payton, who lives in Miami, Florida, launched Kuudose, an online training class platform, with co-founder Rachel Siegel in mid-June. “Fitness should be accessible and accessible to everyone, but everyone has to earn a living,” he said. Trainers on Kuudose receive monthly fees for members they bring to the platform, Ms. Payton said.
Kuudose offers clients access to around 200 short workout routines recorded by professional instructors in their homes for $ 9.99 per month or $ 99 for a year. The company has had 550 customers so far, Ms. Payton said. “We’re really looking at this as more of a long-term game,” he said. “We are using the pandemic as a stepping stone to really launch.”
The Mask Maker
Janizze Masacayan was a nursing home director in Monterey, California when the pandemic struck, putting her at the center of a national health crisis as she struggled with a home childcare crisis. She and her husband had no one to watch her 3-year-old son, who was now home from school due to government orders to stay home. “[My supervisor] he asked me, “Do you want to stop? Because we need you here,” she said. “So I quit.”
To compensate for the loss of income, Ms. Masacayan decided to try making reusable masks. “As a child, my grandmother taught me to use a sewing machine, so I thought, ‘Why not make masks for my family,'” she said.
Eventually, he decided to open a file
buy and sell his masks to others. He now has a standalone website called Jellybean Boutique and makes custom masks for a local hotel.
Ms. Masacayan said she wants to expand her products to make her business more sustainable, so she won’t have to work outside the home. “It was really nice to be at home and to be able to take care of my son,” she said. “It’s just very fulfilling for me.”
The bike mechanic
Ian Oestreich realized in early March that the coronavirus meant his days as a fitness instructor were numbered. So he started selling his talent for repairing bicycles. It paid off a few weeks later when the gym he worked at in Madison, Wis., Fired him and he began pursuing his idea of setting up a mobile bike repair shop.
After investing around $ 1,000 of his savings in tools and equipment, Mr. Oestreich launched Backyard Bicycles in April, camping out in friends’ backyards around Madison and spreading his itinerary through social media.
“This model would only work on weekends in the previous world,” the 26-year-old said. “Now people are available between Zoom calls. Every day of the week is like a weekend.”
It soon took 10 hours a day, repairing up to 18 bicycles a day. When the gym that fired him offered his job in June, he turned it down – he was earning more backyard bikes than he would have as a coach.
“It’s honestly a little unfathomable,” he said. “I feel like I’ve built a rocket and turned it on, and now I’m just holding onto the tail and waiting for it to go off at the end of the season.”
Nic Bryon was a sous chef in Tampa, Florida who lost his job when his restaurant closed. During his first week of unemployment, he joined forces with his brother, Greg, to start the development of a local meal kit delivery service called Pasta Packs.
The concept itself is simple: the brothers offer a handful of fresh pasta dishes that arrive packaged with detailed instructions on how to reheat them for a restaurant-quality meal. “You just need to be able to boil a pot of water,” Nic said.
While Nic develops the recipes, Greg, who is a photographer and designer, worked on branding concepts and took photos of the completed dishes. Pasta Packs was initially launched on Instagram, with the first customers being friends. From there, the brothers started a website and started expanding their customer base.
Nic wakes up at 6am every morning to shop for agendas. Then he spends the rest of the morning preparing the pasta, sauces and other side dishes, before packing everything. Nic and Greg said they are currently testing options for shipping outside of Tampa.
Leigh Altshuler has always loved bookstores. He also worked on one, spending several years as communications director for the Strand Bookstore, a well-known independent bookstore in Manhattan.
But it wasn’t until after losing his immersive theater job in March that he began thinking about opening his second-hand bookstore in New York. “I was thinking about all the things that would make me feel motivated to go back to work, things I love,” she said.
Ms. Altshuler, 29, is using her savings to open her shop, getting many more help from her boyfriend, neighbors and friends in the form of book donations and spare hands. It wants to open towards the end of October.
“If someone had asked me what I wanted to do when I was little, I probably would have said I wanted to have a bookstore, but in New York it never seemed like a good time to open my own business,” she said.
Some people have wondered if now is the right time for her to open a retail store. “I can even do something crazy and follow my dream,” he said. “And if it doesn’t work now, when will it?”
Joyre Montgomery wanted to start her therapeutic practice once she graduated with a master’s degree in 2015. It took a pandemic to act accordingly.
He had a job as a school therapist in Chattanooga, Tennessee, but seemed uncertain as schools closed and the government imposed lockdowns. The break gave her time to focus on what it would take to become an entrepreneur. With new mental health challenges to address and the move to virtual therapy, it seemed like the right time to start her new practice.
Ms. Montgomery created a plan in April and May and by June had completed the requirements to become a licensed clinical social worker. The catalyst that pushed it to open in July was the willingness of insurers to cover a wider range of telemedicine visits. Ms. Montgomery got approval from the companies to accept the insurance in a fraction of the time it normally takes, she said.
She saw her first client on July 13 and is now nearly 60, an unexpected growth for Ms. Montgomery. “I was very shocked,” she said. “It’s almost time to say I don’t accept new customers.”
–Francesca Fontana and Derek Hall contributed to this article.
Write to Gwynn Guilford at firstname.lastname@example.org and Charity L. Scott at Charity.Scott@wsj.com
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