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Economic turmoil would normally deter entrepreneurs from starting a business, but it seems that the Covid-19 pandemic has given a shot in the arm to wannabe founders across the world. Anecdotes of start-ups being launched from dining tables in lockdown are backed by bumper business creation numbers at the height of the pandemic, and the strength in start-up activity has persisted. Despite the global slowdown, rising interest rates, and shaky supply chains, going it alone still seems to be in vogue: new business formation continues to outpace pre-pandemic levels in many advanced economies.
In 2022 new business applications filed by Americans totalled 5.1mn — down on the previous year’s record of 5.4mn — but still more than 40 per cent higher than in 2019. Business creation in France hit a record high. In the UK, more than 750,000 companies incorporated in the year to March 2022, second only to the record-breaking year before. New enterprises in Singapore last year also rose slightly on 2019 levels.
The resilient appetite to kick-start new ventures may offer inspiration for the thousands of tech workers being laid off in the current slowdown. But business creation has not just been about swanky Silicon Valley-style offshoots. In the EU, registrations of companies in transport and financial activities, alongside information and communications, remain much higher than before the pandemic. In the US, hospitality, healthcare and retail have also seen considerable growth since 2019.
Sturdy business creation has supported the recovery from the pandemic, unlike after the global financial crisis when it slumped in major economies. Business deaths have also picked up, and will inevitably do so further, given high energy prices and the rising cost of credit. Becoming an entrepreneur is a tough gig too: 90 per cent of start-ups fail. But the rise in start-up activity overall offers a powerful force for innovation, new jobs, and productivity. US business registrations in 2022 from companies likely to hire staff were up 28 per cent on pre-pandemic levels.
Economic shifts have been a key factor. Facilitated by digitalisation, the gig economy — essentially flexible and freelance working — boomed in the 2010s. The shift towards working from home, accelerated by the pandemic, has only cemented this trend. A greater ability to use working hours flexibly made starting a business easier. Indeed, first-time solo entrepreneurs have driven the rise in start-ups in the UK. Changes to where we work and how we shop has also led to new opportunities — reflected in the surge of new online retail firms.
Personal finances have been a driver, too. With people stuck at home and spending less on commuting and socialising, household cash buffers soared in rich countries during the pandemic, and remain strong. These cushions have made business ventures more appealing. For others made redundant or furloughed, or simply hard hit by the high cost of living, starting a business was a necessity to boost income.
Launching a new venture is also simpler now. The time taken to start a business in the OECD dropped sharply over the past decade. Technology, such as cloud computing, has slashed set-up costs. Finance from angel investors and crowd equity platforms is more widely accessible. A shift in attitudes could be a factor too. Economic disruption since 2020 may have ignited a “you only live once” mindset: why wait to start that dream business? And stories of ventures forged in the pandemic have raised interest in becoming an entrepreneur.
Whatever the reason, resilience in start-up activity even as pressures mount on the survival of existing enterprises, is a sign that creative destruction is in train. Long may it continue.
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