The pandemic and widespread imposition of lockdowns that forced thousands of businesses to shut their doors in 2020 had a serious impact on unemployment rates in America. To those who found themselves out of a job, looking for alternative ways to make money became a priority. While many turned to social media, especially TikTok, to share their talents in the hopes of gaining some financial backing, others chose to become entrepreneurs. Now, they are reaping the benefits.
But what drove so many Americans to entrepreneurship during hard times? Was it perhaps the encouragement triggered by the increased unemployment benefits, or are Americans more prone to embracing the risk of launching new business ventures in uncertain times?
A Time of Opportunity
Early in the pandemic, states noticed a surge in business licenses, as a National Bureau of Economic Research study found. As a matter of fact, about 4.3 million new business applications were filled in 2020 alone — nearly 1 million more than in 2019.
“The idea that the pandemic has kind of restarted America’s start-up engine is a real thing,” said M.I.T. economist Scott Stern, one of the authors of the NBER paper. “Sometimes you need to turn off the car in order to turn it back on.”
Some may argue that stimulus checks were giving many of the unemployed some sense of security that helped them to feel confident enough to start their own ventures. But it’s just as likely (if not more so) that Americans who found themselves out of a job were simply not content with sitting at home waiting for their government check to arrive.
That was the case of Andre Smith, a 26-year-old Long Island resident who started his own loungewear clothing brand, Loungefit.
Since its launch in August 2020, Smith has made $35,000 in sales. With his online presence growing and his how-to videos on launching a clothing brand becoming widely popular, he believes his work has just begun.
“Honestly, it’s been an absolute roller coaster ride,” Smith told NBC News. “But, I wouldn’t change it for anything, honestly, because to come from where I came from and to build something like this is a dream for a lot of people.”
Currently, there are many similar stories being covered in the news, showing that the American dream is far from dead.
Successful Businesses, Hard Economic Times
Indeed, entrepreneurship during hard times is nothing new.
Companies like CNN, Burger King, General Motors, and even gig economy big players such as Airbnb, Lyft, and Uber all started during challenging economic times.
Following the Panic of 1907, William C. Durant saw an opportunity to improve the automobile market by launching General Motors. As a holding company, it broke paradigms by embracing a series of independent automobile lines bound under the same mater brand.
In 1953, Burger King opened its doors as Insta-Burger King when, once again, America found itself in a recession. Inspired by the McDonald brothers, Keith J. Cramer and his wife’s uncle Matthew Burns purchased the rights to two pieces of equipment called “Insta” machines, launching their new venture by marketing it as a completely new way to cook burgers. Needless to say, it worked.
Fast forward to 1980, when US price inflation was through the roof. Ted Turner and 300 other original employees invested millions into the Cable News Network (CNN), creating the first channel ever to provide 24-hour television news coverage.
And finally, during the 2007-2009 financial crisis, Uber, Airbnb, and Lyft all started providing millions of under- and unemployed people with opportunities to use their own property to make ends meet. The business model became a trend and soon enough, hundreds of similar companies started to provide millions of informal workers platforms in a variety of niches, from food delivery to education.
In 2020, America saw entrepreneurs opening businesses more than twice as much as they did prior to the pandemic. While government support programs may have certainly provided some with financial stability as they planned their next steps, the remote technology available in 2020 gave the American entrepreneurial spirit the necessary tools to take off. It also gave women, and especially women of color, the chance to let their creativity run wild.
According to Luke Pardue, an economist at payroll and benefits provider Gusto, 11% of new business owners in 2020 were Black or African American. In pre-pandemic times, the same demographic accounted for just 3% of all new business creation. Furthermore, 49%, or nearly half of them, were women — a 22% increase from previous years.
To Pardue, the research shows that many entrepreneurs start their own business out of economic necessity, which could explain the demographic change among entrepreneurs in the age of COVID.
“Women and people of color were those who bore the brunt of the recession last year,” he explained. “They were resilient and turned obstacles into opportunities.”
The governments’ failures regarding their approach to COVID containment may have caused great suffering but it didn’t kill the spirit of innovation that still makes America so special.
Thanks to this entrepreneurial passion, we will continue to see great new ventures coming out of America — come rain or shine.
The post Lockdowns Were a Disaster, but They May Have Rekindled Americans' Entrepreneurial Spirit was first published by the Foundation for Economic Education, and is republished here with permission. Please support their efforts.