- The Great Resignation seems to have an impact on new business registrations as the numbers have hit record highs.
- People from more diverse backgrounds are opting to set up on their own business.
- Microbusinesses can offset unemployment and offer greater work-life flexibility.
- But in the developing world, a majority are self-employed out of necessity.
If you’re one of the millions of workers who have asked themselves that question as the pandemic drags on, you may also have asked yourself, what could I do instead?
For a record number of people in the US, the answer has been to register their own business with the intention of becoming their own boss. Almost 5.4 million applications were filed to set up a new business in the country last year, according to the latest data from the US Census Bureau.
The pandemic and the great resignation have been a clear driver of this. In 2019, before the outbreak of COVID-19, there were 3.5 million applications to start new businesses in the US. That jumped to 4.4 million in 2020 when lockdowns, furlough schemes, layoffs and company closures radically affected the way people worked – if they were lucky enough to keep working at all.
A new business demographic
A significant factor in this new business boom is the growing number of entrepreneurs from diverse backgrounds. Website giant GoDaddy has partnered with a number of universities on its Venture Forward research project to learn more about the people behind this change and the types of companies they are starting.
Many of the new firms fall into the category of microbusinesses. Venture Forward estimates that there are 45 million microbusinesses in the US. Around half of these are run by a single person – or solopreneurs – and around 90% have fewer than 10 employees.
Significantly, the data shows more women, Black Americans and people without college degrees are going into business via the microbusiness route since the pandemic began.
Starting a microbusiness can offer a cost-effective route to becoming your own boss. Venture Forward found that 63% of microbusinesses established since March 2020 required less than $5,000 in startup funding. This means microbusinesses can launch quickly, without the risks associated with raising large amounts of capital.
The Venture Forward research also suggests a lot of new businesses may have been started out of necessity rather than pure entrepreneurial drive.
One in five microbusiness launches in the COVID era were by people who would otherwise be categorized as non-employed. The pre-COVID figure was 12%. “The pandemic has caused massive job cuts and business closures. But many Americans have carved out their place in the economy by starting microbusinesses,” the report says.
Microbusinesses – the global picture
The boom in the formation of microbusinesses has not been confined to the United States. As much of the global economy was put on hold in 2020, entrepreneurs around the world set up their own enterprises.
According to Mastercard’s Recovery Insights: Small Business Reset report, the countries with the largest new business formation growth in 2020 were the UK (+101%), US (+86%), Australia (+73%), Germany (+62%) and Canada (+58%). Brazil (+35%) and Thailand (+29%) also made the top 10.
In the developing world, microbusinesses provide the majority of employment and family incomes. In low-income economies, 80.3% of workers are self-employed, according to data from the International Labour Organization. Most are engaged in subsistence farming or working unpaid for their family businesses. In 2019, Niger had the highest rate of self-employment in the world at more than 95%.
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The World Bank has this to say about the condition of many self-employed workers in developing nations. “A large proportion of these workers live in poor or vulnerable households. In Sub-Saharan Africa, for instance, close to 80% of the self-employed are poor.
“While numerous countries have adopted programs that aim to promote self-employment and small-scale entrepreneurship, the design of such programs seems ill suited to respond to the needs of those who engage in entrepreneurial activities not by choice, but by necessity.”