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Soaring U.S. business starts in pandemic show new normal evolving

The pandemic shuttered large parts of the U.S. economy in 2020 and may have driven hundreds of thousands of businesses into failure, but for entrepreneurs in North Carolina it triggered a wave of activity.

Healthcare chief executive Dana Allison quit one startup to begin another; restaurateur Eric Scheffer leveraged demand for outdoor dining into a new oyster restaurant with ample patio space; hotel owner Himanshu Karvir pushed ahead with a new Westin Element banking on Asheville’s appeal as a smaller town with an outdoor culture; Axie Blundon pivoted his cannabis firm to add hand sanitizer under a separate brand.

“When the pandemic happened the world kind of stopped. That does not mean our minds stopped,” Lincoln Walters, the family life director at a local church, said in explaining why amidst a global shutdown he committed $75,000 to convert a former stove shop in nearby Black Mountain to a consignment space for local gear manufacturers, centered around an open air coffee and beer garden.

“Retail is changing. What can you do different, physically, to create space that people want to be part of? Create community…People may not need a climbing harness every day but they may need a beer to tell the story about their climb,” Walters said.

It may be a leap in a world where physical retail is under stress, but ventures like the new WNC Outdoor Collective helped drive business starts in North Carolina, and the United States, to all-time highs in 2020 with another record likely in 2021. It’s a development that surprised economists and is still not fully understood. According to Census data, new filings for employer identification numbers surged 57% in 2020 over the average for the prior 15 years, and are on track for a similar jump this year.

That entrepreneurial drive has been hailed as a potential return of U.S. dynamism that could feed productivity, innovation, and new jobs. It could also be one reason why some big companies are having trouble finding workers and the rate of people quitting is at a record high.

For organizations like the Federal Reserve, it is among the new dynamics that need to be more fully studied to understand how the economy may have changed because of the pandemic.

As a larger force it could fizzle. New ventures often fail, and it may take several years to determine what the surge of pandemic business creation means. Some of the sectors where business applications surged the most, such as in retail and warehousing, may be most vulnerable if the economy and spending slows, or if a new recession hits.

Still “the numbers are large,” University of Maryland economist John Haltiwanger said in a presentation of initial research on pandemic business starts that he views as part of an inevitable reshuffling of labor in the post-pandemic world.

“COVID-19 has changed the way that businesses interact with their workers and the way businesses interact with consumers. It has provided lots of opportunity for businesses to form,” with many of the new ventures concentrated in sectors like online retailing and personal services that were stressed by the pandemic, he said.