Americans are starting and running their own businesses at record rates, part of a post-pandemic shift toward entrepreneurship led by women and people of color, according to a new report.
Nearly 1 in 5 adults — 19 percent — are in the process of founding a business or have done so in the past three-and-a half years, according to the Global Entrepreneurship Monitor, an annual report by Babson College released Thursday. That is the highest level since the survey began in 1999.
“We’re seeing an upward trend in entrepreneurship that’s continued through the pandemic, and that’s a really great sign,” said Donna Kelley, a professor at Babson College and the report’s lead author. “It means businesses are introducing innovation, creating jobs and contributing to the competitiveness of the United States.”
Globally, the United States had the third-highest entrepreneurship rate among 21 high-income economies, lagging behind the United Arab Emirates and Saudi Arabia, but ahead of Canada and the United Kingdom, researchers found.
The recent surge builds on momentum that began early in the pandemic, when sudden job losses spurred many to branch out on their own. Applications for new businesses spiked to an all-time high in July 2020, when more than 550,000 Americans filed paperwork to start their own companies, census data shows. A boost in government funding — in the form of stimulus checks, extra unemployment benefits and small-business loans — gave many people the financial cushion to get started.
“We had covid, we had the ‘Great Resignation’ — and whenever there are tremendous job losses, it’s natural for folks to go out on their own and start a business,” said Kathy Korman Frey, director of the Center for Entrepreneurial Excellence at George Washington University.
Since then, business registrations have remained well above pre-pandemic levels. A robust recovery, combined with extra savings and steady consumer spending, have helped encourage new waves of entrepreneurship.
But experts say many small businesses founded in recent years may be reaching a critical turning point. Economic uncertainty, higher costs and a slowdown in consumer spending have created new challenges for nascent companies. Business closures ticked up last year, to 5.2 percent from 2.9 percent in 2019, researchers found.
“It’s easy to get started, but maybe not so easy to keep businesses growing,” said Kelley of Babson College. “That’s a challenge we need to look at more. Do we need more training? Access to finance? How do we ensure businesses can outlast their initial start-up phase?”
Cheryl Shao, a Boston-area dentist, has spent the past two years designing a device that’s a mix between braces and clear aligners. But it’s been tough: Many of Shao’s partnerships fell through during the pandemic and although she’s won multiple pitch competitions and been part of two start-up accelerators, it’s been a struggle to secure the money she needs. She spends 40 hours a week fundraising, she said, and hopes to begin selling the product next year.
“I’m a double minority — Asian and a woman — which has made it much harder to find funding,” Shao, 36, said. “I kind of fell into entrepreneurship. I had this idea and was excited by the opportunity to really change orthodontics on a bigger scale. But now I’m dedicating all my time to raising enough money to make this a reality.”
For minority groups, in particular, starting a business has become a promising alternative to traditional employment. Entrepreneurship rates are highest among Black and Hispanic adults — 35 percent and 27 percent, respectively — compared with 15 percent of White adults, the report found.
Other marginalized groups, such as formerly incarcerated Americans and those with criminal records, are also more likely to be entrepreneurs, according to Kylie Jiwon Hwang, an assistant professor at the Kellogg School of Management at Northwestern University.
“Oftentimes, when we think of entrepreneurship, we’re thinking of high-growth tech start-ups,” she said. “But a lot of the entrepreneurship we’re seeing comes from the fact that marginalized people continue to face difficulties in employment — not just in finding work, but in moving up.”
Latavia Thomas quit her job at AT&T during the pandemic and moved back in with her parents in Long Beach, Calif. She suffered from depression and said it was difficult to get out of bed most days, much less feel motivated to return to a 9-to-5 office job.
Thomas, 36, spent the next several months juggling therapy and cosmetology classes. In early 2021, she started her own business doing makeup and microblading, a form of semi-permanent eyebrow-tattooing. She rents space at a nearby salon, but says she hopes to one day open her own studio that specializes in services for Black and Brown people in the entertainment industry.
“It’s been hard, but a good type of hard,” she said. “At the end of the day, I’m working for myself.”
The latest report from Babson, part of an international partnership with London Business School, offers a snapshot of American entrepreneurship. Adults between the ages of 18 and 34 were nearly twice as likely to start businesses than those between 35 and 64, the report found. And although men are still slightly more likely than women to start their own companies, that gap continues to narrow. There was also a clear shift away service industries such as finance and real estate, toward manufacturing and logistics.
In south Mississippi, Joseph Smith lost his job at a cell-tower maintenance company early in the pandemic. Stuck at home with little to do, he began selling his homemade soap bars for $5 apiece online — and was surprised when sales took off.
“No one was hiring, so I decided to take this small-scale idea and run with it,” said Smith, 40. “The first month was great. We sold a ton of products through Twitter.”
But, he says, online sales took a large hit once pandemic-lockdown orders ended and people began venturing out again. Now he sells most of his products at local farmers’ markets, trade shows and festivals. He’s recently added artisanal bread to his lineup of soaps and lotions and hopes to open a mobile bakery.
After three years of working for himself, Smith says he can’t imagine going back to a corporate job. He makes all of his products from a spare bedroom and has begun home-schooling his children, ages 9 and 14, while his wife works as a public school teacher.
“I get to hang out with my kids much more than I did when I was in the corporate world,” he said. “Entrepreneurship has opened up family time in a way I never thought I could have.”
