When the COVID-19 pandemic hit and states implemented shutdowns, many economic indicators plummeted. New business formation was no different.
“In the initial weeks of the shutdown, everything went into a deep freeze,” said Simeon Alder, a staff economist at the Center for Research on the Wisconsin Economy at the University of Wisconsin-Madison.
In late March, new business applications were down as much as 38% year-over-year, according to Census Bureau data and the declines continued until early May.
Things eventually started to recover, which Alder said wasn’t that surprising, but then the numbers continued to improve, settling in at an elevated level.
“That’s not just for Wisconsin; it’s actually pretty broadly true,” Alder said.
Through mid-August, total applications for employer identification numbers in Wisconsin were up 13.5% compared to the previous three-year average. For the U.S. as a whole, applications were up 18.3%, according to Alder.
Applying for an EIN isn’t necessarily a sign of a startup, but it is a good indication. The Census data also measures high-propensity applications based on factors like what industry a new company is in and plans to pay wages. Alder said those types of applications are also trending higher with an increase of 9.7% from the past three years in Wisconsin and 7.6% for the U.S.
The question, of course, is why are more applications being filed?
Alder said the available data doesn’t address the question of why, but his interpretation is that the sharp drop in employment brought on by COVID-19 has pushed people out of the labor market. With limited job prospects, people may be turning to entrepreneurship as a pathway to return to employment.
In Wisconsin, the number of new business applications topped 38,000 in 2006 before declining the next three years to around 34,500 in 2009. The number of new business applications was down year-over-year for six straight quarters starting in September 2008. After a slight recovery in 2010, it took the state until 2017 to eclipse its 2006 application level. The U.S. took until 2014 to top its 2006 level, according to Census data.
Research covering the period from the early 1970s up to the Great Recession found that worldwide, entrepreneurship generally follows the business cycle, according to a 2014 World Bank working paper. However, the same research found that in individual countries, startup activity tended to run counter to the business cycle.
One theory is that limited access to capital during recessions limits the number of startups while others suggest that unemployment pushes people to start their own companies.
The World Bank working paper studied the period around the Great Recession and found entrepreneurship tended to follow the business cycle, particularly in countries with higher levels of financial development and better business environments.
It was actually the availability of resources that helped address some of the reservations Ross Younger had in starting StreetWise360, which provides 360-degree photos and virtual tours of bars and restaurants. The service allows establishments to highlight how they are handling COVID-19 within their Google search results.
Younger, who was running Secret Milwaukee Food Tours prior to the pandemic, said he was able to qualify for a grant and a low-interest loan through the U.S. Small Business Administration that allowed him to get the initial equipment and software needed to launch the company.
He has also tapped into programing with gener8tor, where he met co-founder Ron DuKatz, and at the UW-Milwaukee Lubar Entrepreneurship Center.
For Shalini Nag, the concept for TiffinTime was one of those ideas that just would not go away. Seeing restaurants struggle as the pandemic took hold, she felt there had to be a better way to support them than buying gift cards.
The idea has since developed into a subscription-based delivery service in which users specify their meal preferences, dietary restrictions and the number of meals they need per week. TiffinTime will then allocate the meals equitably across participating restaurants.
Nag, whose main business EvidaSolve focuses on helping small and medium-sized companies think strategically about their talent, said she did not aspire to be an entrepreneur, but increasingly finds herself seeing problems as business opportunities.
“My brain has started thinking that way,” she said.
The idea is still in a pre-launch phase, but Nag said for her it became a real thing worth trying to build when she mentioned it at a Code for Milwaukee event and received positive feedback.
“For the first time it wasn’t just me,” she said.
Nag acknowledges it was difficult to get the first few restaurants to sign on and added that like any new venture there are days when the idea seems more promising and others when she questions if it is worth it.
“The only thing that gave me pause in the early days was whether or not this could be sustainable in the long term,” she said, noting the growth of the gig economy and rising popularity of remote work give her confidence. “Once we ran the numbers, it really makes sense to do it.”
For UW-Milwaukee juniors Andreas Soerensen and Paolo Gratton, the topic their startup, Greenway, is working on provides them motivation to move forward during a pandemic. The duo is developing Greenway into a platform that allows users to track their own sustainable actions and receive rewards for local businesses for performing those activities.
“Our outlook hasn’t soured because of COVID because we still see the same opportunities, they’re just different,” Gratton said. “Yeah, things might be a little harder, but I’m just as intent on helping out the world in this way.”
Soerensen said he was looking for a passion project to work on and was always interested in the topic of sustainability.
“It’s also a very urgent issue,” he said.
For Streetwise 360, the pandemic created the business opportunity. DuKatz noted that location-based businesses have been impacted the most.
“We see this as an opportunity to help these businesses reestablish themselves by giving people the information they need,” he said.
Younger said there are two ways to think about starting their new venture. It could be the worst time to start offering virtual tours and 360-degree photos.
“Even though it’s probably more needed than ever, these businesses have less expendable income than ever,” he said.
Alternately, the need for small businesses to highlight their environment gives Streetwise a chance to establish relationships, get proof-of-concept, and gain traction.
The duo believes that offering early adopters their services at low or no cost will allow them to be better positioned as the economy recovers and the use of virtual technology evolves.
“The hybrid of virtual and in-person is yet to be defined,” said DuKatz. “We want to be a part of defining that and part of that will be how people go back to location-based businesses. We don’t know where things are going to go, but we’re going to be out there helping small businesses, location-based businesses try to figure that out.”