One of the most unexpected pandemic winners might just turn out to be new small businesses, writes Axios chief financial correspondent Felix Salmon.
Why it matters: The number of entrepreneurs starting a business easily hit a record high in 2020, according to a new analysis by University of Maryland economist John Haltiwanger. That's a surprising result, given the severity of the crisis.
The big picture: It's now much easier than it was in 2008 to start a small business selling goods or services online.
- By far the largest single sector of new business formation is "nonstore retailers," who account for one of every three new businesses formed over the pandemic. They were helped at every step of the process by e-commerce platforms such as Shopify and Stripe (which wasn't even founded until 2009).
Be smart: Renting space on Instagram is a lot easier, and can scale a lot more quickly, than renting a storefront.
Physical businesses have been booming too — but largely in states where rents are relatively low, like Texas, Florida and Georgia. Those states have seen much more new business formation than high-rent California, New York and New Jersey.
- When the Wall Street Journal told the story of how businesses on one Chicago street are coping with the pandemic, it found that out of nearly 50 businesses on the strip, five had closed permanently — while 10 new businesses had arrived.
- Sectors seeing a lot of new openings include laundromats, trucking, and, possibly surprisingly, restaurants.
How it works: One of the biggest differences between the crises of 2008 and 2020 is that the former was associated with an extreme lack of money, while the latter saw an abundance of it.
- In 2008, Americans lost billions of dollars in home equity, even as the stock market was crashing and banks stopped lending.
- The pandemic, by contrast, unleashed trillions of dollars in new government spending.
- A surging stock market has also helped provide the upfront capital that some entrepreneurs need.
Between the lines: There's no solid data on how many small businesses closed during the recession. A recent Fed paper, however, suggests that about 130,000 firms went out of business in the first year of the pandemic — up between a quarter and a third from normal levels, and much lower than many economists originally feared.
The bottom line: If the Fed's number is accurate, the total number of small businesses may have gone up, not down, over the course of the pandemic. Either way, what's certain is that Americans have been starting small businesses at an unprecedented pace.