Why more Americans than ever are starting their own businesses

It’s risky business but more people are starting their own businesses than ever recorded. | Getty Images/iStockphoto

Workers are quitting their jobs to become their own bosses. 

While millions of Americans are quitting their jobs in search of better employment, many of them are doing so in the hope of never having to work for someone else ever again.

The pandemic has, at least for the time being, halted — and perhaps reversed — a decadeslong decline in the pace of entrepreneurship. Americans applied for a record 5.4 million business ID numbers in 2021, according to census data that goes back to 2004. 2022 is already on track to be a record year as well, according to projections from QuickBooks. While data on true business formations is available only through 2019, growth in ID number applications is closely related to actual business formations. Other datasets, including Bureau of Labor Statistics data that shows a rise in self-employed people as well as data from a number of companies that offer small business tools, bear out the trend toward record entrepreneurism.

The recent growth in new businesses has big implications for the Americans starting them and the people who used to employ them, as well as for the future of government policy and the resilience of the economy in general.

Part of what makes this rise of new businesses important is that it encompasses a broader segment of society than in years past. Women, Black Americans, and those without college degrees are starting a much larger share of online microbusinesses than before the pandemic, according to data from Venture Forward, a research initiative from GoDaddy, a web domain company that’s increasingly offering other small business tools. Women started 57 percent of those businesses since March 2020 compared with 48 percent before; Black Americans founded 26 percent, up from 15 percent pre-pandemic; and Americans without college degrees founded 44 percent compared with 36 percent. In 2020, the rate of women and people of all ethnicities starting businesses of all types increased sharply, according to Kauffman Indicators of Entrepreneurship (2021 data will be out in February).

“Sometimes our ideas aren’t listened to as thoroughly, so some people just take their own initiative, ‘Well I can do this better myself.’ And they do,” Kimberly Blackmon, a Black woman who, after the pandemic began, quit her job doing human resources for a furniture company. Instead, she expanded her skin care side hustle into a full-time business, launching a new location for Glowmour Beauty Medispa in Tampa in September 2021.

“Working for myself is much more fulfilling,” Blackmon said. “I have an opportunity to be that CEO, and I mentor my employees and guide them. And I don’t want to ever have them feel how I felt when I worked in the corporate world.”

Americans’ reasons for heading out on their own to start their own businesses are as varied as Americans themselves, ranging from the financial to the philosophical. Some set off on their own ventures in industries where they’d previously worked for someone else, while others took on new careers entirely.

While business applications have increased in almost every industry since the start of the pandemic, the highest jumps were in retail, especially for stores that only sell things online. The data also shows sizable jumps in people starting transportation and warehousing businesses, which do things like coordinating package deliveries or processing returns. The number of new professional services businesses, including stuff like accounting or graphic design, also saw a rise, as did construction businesses, which might not come as a surprise given the hot housing market.

Ari Rasekh had been working as a group product manager at IBM when the pandemic hit. He began freelancing to give himself more flexibility to contemplate and fulfill his dreams.

“It took my departure from traditional employment for me to finally realize fully that I was inside a multi-year emotional lull when it came to my work. I was constantly trying to answer, ‘What do I want to be when I grow up?’” said Rasekh. He since founded Manor.care, which helps people maintain the homes they’re spending increasing amounts of time in. “The answer, I knew in my heart, was an entrepreneur.”

Staying home during the pandemic gave many Americans a little extra money and a lot more time to think about how they want to spend their time on Earth. Some realized they hate their boss or that they want to be their own boss. Others decided they want to spend more time with their kids and less in a car. Many cited wanting a feeling of control over their own destiny in an increasingly chaotic world.

People often start businesses out of necessity when there’s a recession or high unemployment like there was at the start of the pandemic. But now that the economy is booming and unemployment is low, that’s no longer a big factor. People are quitting their jobs in record numbers in what’s been called the Great Resignation.

“People are really taking stock of what they want out of a job, what they want out of employment, and what they want out of their life”

“We’re kind of thinking about it as a ‘Great Reflection,’ where people are really taking stock of what they want out of a job, what they want out of employment, and what they want out of their life,” explained Danny Speros, VP of people operations at payroll, HR, and benefits software company Zenefits. “And no longer are those stacked-ranked with ‘job’ at the top. I think life is starting to be at the top.”

Increased access to health care marketplaces, more accessible business technology, and a raft of new opportunities created by the pandemic have also helped give many people the push they needed.

The rise of new small businesses also has the potential not only to change work for the owners themselves, but for the many more Americans working for someone else. People starting their own businesses are often leaving jobs working for others, adding to the tight employment situation in which there are millions more open jobs than people willing to fill them. That’s already forcing payroll employers to raise wages, offer more benefits, and generally make work better for those working for others. (The majority of the small business applications are for businesses that likely won’t hire people, at least not right away).

“People have what they consider a better alternative,” Dean Baker, co-founder of the Center for Economic Policy and Research (CEPR), told Recode. Employers, in turn, will “have to offer them jobs that look better to them than their opportunities for self-employment.”

The decision to set out on your own, though, is full of risks, including steeper health care costs and unfavorable tax codes in addition to irregular paychecks and a high potential of business failure. While a number of groups are lobbying for better policy to support the growing ranks of American entrepreneurs, their benefits are not yet on par with employees in the US.

Still, America’s new business owners seem willing to take those risks, at least for now. And in doing so, they are reshaping the makeup of work in America.

Why they’re doing it

The psychological force of the pandemic cannot be overstated.

There’s nothing quite like a global health crisis in which millions have died to nudge people into rethinking how they live. Staying at home working or unemployed while much of the economy closed down gave people the time and space to consider their next moves, rather than continuing apace.

For some, that manifested in a desire for control. If you are your own boss, your success or failure at least seems dependent on you, rather than on the capriciousness of others. For others, it led them to see that life is short and that they had limited time to live out their entrepreneurial dream.

Bayete Stevens/Immaculate Visuals

Kimberly Blackmon performs electrolysis on a client at Glowmour Beauty Medispa, which she opened in September 2021 in Tampa, Florida.

“One of the things with me leaving my job was I could catch Covid and be gone tomorrow, and I won’t get to do what I want to do”

As Blackmon put her decision to launch her medical spa, “One of the things with me leaving my job was I could catch Covid and be gone tomorrow, and I won’t get to do what I want to do.”

Instead, people got a chance to consider what would make them truly happy.

Baking had been a lifelong hobby for Emily Keller, but while working from home as a product designer during the pandemic, she really honed that skill and started getting requests on Instagram to buy her custom macarons.

“I just started to wonder what if I pushed this baking thing further?” Keller said. “What would happen if I gave it as much energy as I do my full-time job?” That led her to launch Tastee Treats Louisville, a home-based bakery in Kentucky, and reduce her regular job to part time in October. She hopes to quit her other job fully this year.

“I have made so many dashboards and apps and watched them all disappear and never get created,” she said. “Now I get to see my creations go out into the world and see people enjoy them.”

The pandemic itself also presented a lot of opportunities for would-be entrepreneurs who are typically more nimble than big businesses and are taking on everything from accommodating online orders to concierge Covid-19 testing to building home offices.

“Businesses are problem solvers,” said Thomas Sullivan, vice president of small business policy at the US Chamber of Commerce. “There haven’t been more problems to solve than right now.”

Extended unemployment benefits, lower spending during the pandemic, and increased savings also gave some people the money they needed to actually launch their businesses. It doesn’t hurt that many of the benefits of traditional employment — job security, pensions, unionization — have been in decline for years, making the perks of employment less rosy. Employee engagement at work dropped for the first time in a decade last year.

Additionally, the introduction of health care exchanges through the Affordable Care Act made it easier for people to get health care without going through their employer, taking some of the risk out of starting one’s own business. Biden’s American Rescue Plan expanded the amount of money people could make and still receive government assistance to purchase insurance through the exchanges, making non-employer health care a possibility for a wider swath of Americans.

That doesn’t mean the process of getting health insurance is easy or inexpensive, especially if you can’t pivot to a spouse’s insurance or if the exchanges don’t offer the type of insurance you need.

Chris Nedler quit his job last year at a clean energy nonprofit to work full time on his subscription podcast about moving from fossil fuels to renewable energy. It was difficult to find insurance that would cover him while traveling outside the US, and it came at a big premium. Nedler called the whole process a “debacle and a huge pain in the ass.”

Self-employment does, however, make some things easier, like letting people choose to work from where they want. The vast majority of Americans say they want to work remotely at least some of the time — a situation that has put many of them at an impasse with their bosses, according to the latest survey data from Slack’s Future Forum consortium. Executives are nearly three times more likely than non-executives to want to return to the office full-time.

“It’s amazing to be able to work for myself and report to no one and have total flexibility in where, when, and how I work,” Nedler said.

Getty Images

The growing ranks of entrepreneurs leaving the workforce to strike out on their own is reshaping the makeup of work in America.

Not needing an office space also minimizes the costs for new business owners, who can forgo expensive real estate, in addition to more minor costs like signage.

Technology companies like Zenefits, GoDaddy, PocketSuite, QuickBooks, among many others, help small businesses compete with larger or brick and mortar businesses. The technology they offer includes everything from fast broadband to an influx of software that handles different small business needs — HR, tax, billing, payments websites — to make the prospect of starting your own business less onerous. Increased digital literacy, as well as mature online marketplaces where people can sell goods, has also helped small business formations.

“If we had this exact same thing back 15 years ago, we couldn’t pull this off,” said John Haltiwanger, a University of Maryland economics professor who has written extensively about the pandemic’s effects on business formation. “The world is better set up on all kinds of dimensions to be able to go out on your own.”

Still, it’s not clear yet whether all this technological support will help budding entrepreneurs escape the many risks still facing them.

Risks and what has to change

To be clear, starting your own business is a risky business; most new businesses fail within a few years.

“I expect most people probably are overly optimistic about their prospects: A lot of people take their life savings and put it into their business, and it doesn’t work out,” CEPR’s Baker said. He added, “It’s my view [that] it’s good they have the opportunity and some will work out.”

Even businesses that are ultimately successful can take a long time to be profitable, which is one of the reasons some of the entrepreneurs we spoke with are holding on to part-time or freelance work.

“I won’t make the same amount of money,” Keller said of her baking business, but she’s willing to deal with that shortfall rather than stay in her previous job. “The work was still the same, and I was still dealing with the same problems, same design tasks, and dreading all of it.”

In addition to erratic or nonexistent paychecks, small business owners have to contend with policy that doesn’t favor them. National Association for the Self-Employed (NASE) President and CEO Keith Hall says the self-employed don’t have the same level of benefits as big businesses when it comes to things like taxation, the ability to borrow money, and access to retirement and health care benefits.

“The failure rates are really high, but a small fraction grow really rapidly”

“If everything else is exactly the same, the self-employed person pays 15 percent more for health insurance than somebody who works for American Airlines,” Hall said. “That’s just not right.”

NASE, which offers members business advice as well as access to consolidated buying power for things like insurance and retirement saving, saw a record number of people join since the pandemic began.

Last year, the Biden-Harris administration announced new rules and reforms meant to give small businesses better access to loans and relief, but there’s still a long way to go until they’re on equal footing with larger businesses.

There’s also a big learning curve for these smaller entrepreneurs. Venture Forward found that a top need for online microbusinesses, in addition to benefits, access to capital, and affordable broadband, was basic business planning skills.

As Keller put it, “I always shied away from freelancing as a designer because I didn’t think I could handle the business side of things, and while it isn’t a strength of mine, it is a muscle that I am developing.”

Even for those who don’t make it, the tight employment situation provides some succor — they can always go back to working for someone else. What’s more exciting, however, for these entrepreneurs is the prospect that they, someday, will make it big.

“The failure rates are really high, but a small fraction grow really rapidly,” Haltiwanger said. “And so the really interesting question will be, who emerges from this?”