Historically, economic slumps involving significant numbers of layoffs have spawned surges in entrepreneurial activity as furloughed workers use their unexpected free time to develop and launch businesses that had only been percolating in their minds or their garages.
In places such as Sedgwick County, where 7.6% of workers were still unemployed as of November, slightly more than the national average, entrepreneurship represents a path for laid-off workers to take the initiative in launching new careers. It also provides a route for pandemic-stricken firms to innovate toward survival by quickly taking advantage of new market opportunities or to pivot away from offerings rendered unviable by changing circumstances.
Past downturns, The New York Times reported, have produced American companies that went on to develop high profiles: Airbnb, Disney, General Motors, Hewlett-Packard, Microsoft, Slack, Uber and Venmo, among others.
“Downturns or challenging times are seen as good times to start a business for two reasons,” Rashmi Menon, entrepreneur in residence at the University of Michigan’s Zell Lurie Institute for Entrepreneurial Studies, told the Times. “One is, there is less competition for resources. The second reason is that whatever changes we face, positive or negative, bring up new customer needs. And customer needs are at the core of any business.”
Workers might also have more free time to try new ideas when out of work, and a major event like a pandemic can free companies from constraints that have kept them from finding ways to create new products or tweak their offerings. It’s an example of how leadership opportunities can surface even during the most difficult times, providing a chance for anyone to lead at any time.
Mixed data on whether more entrepreneurship is happening
So are efforts by government, lenders and communities to help spur new business ideas during the pandemic having an impact? Economic analysts say that while 2020 has seen a surge in entrepreneurial activity in response to the pandemic, it’s not yet showing up in some traditional metrics.
Data provided by the Kansas Secretary of State’s office showed there were 8,467 articles of incorporation filed between March 1 and July 7. That’s down slightly from the 8,594 filings through the same period the year before and slightly more than the 8,456 in 2018. It was more than 500 above the 7,962 filings in 2017.
The numbers aren’t higher, economic analysts say, because a lot of the entrepreneurial activity is happening in the form of pivots by existing companies and not necessarily through new-business startups. In addition, the state doesn’t require sole proprietors to file articles of incorporation.
On a national level, the third quarter of the year saw the number of applications for employer identification numbers explode compared with the second quarter, according to the U.S. Census Bureau. Nationwide, entrepreneurs filed 1.5 million applications, a 77.4% increase over the second quarter.
The figure for the Midwest Region, which includes Kansas, was even higher: 88%. The number of applications for high-propensity applications – or those companies considered most likely to transform into businesses with a payroll – grew by 92%.
As the Poynter Institute pointed out, filing for a new employer ID number does not equal actual new businesses. It just means that somebody is thinking seriously enough about starting a business that they started the paperwork. They may be doing it because interest rates are low or because there is a large pool of great employees potentially available.
But it’s easy to see from such figures that entrepreneurship isn’t a path out of unemployment for most Americans. The ranks of the jobless nationwide, while on the decline from earlier in the year, still hit nearly 11 million nationally in October and more than 80,000 in Kansas.
While a select few will carve their own path out of the pandemic, most workers will need to weather the storm through some combination of savings and unemployment benefits until the labor market recovers further.