Entrepreneurs Started Businesses in Record Numbers During the Pandemic

When times get tough, people get entrepreneurial. It’s true — recessions in the United States are typically marked by increases in entrepreneurial activity. Even still, last year was special. When COVID-19 forced furloughs, layoffs, and business closures, people responded by starting small businesses in droves.

According to the Census Bureau, more than 4.4 million new businesses were created in the U.S. during 2020 — the highest total on record. For reference, that’s a 24.3% increase from 2019 and 51.0% higher than the 2010-19 average. Half a million new businesses were started in January 2021, alone. Data from our most recent B2B survey shares how and why new small business owners took the leap over this past year, and why many may reap the benefits.

We surveyed entrepreneurs in April 2021 to find out what it was like being an entrepreneur during a pandemic. What they said points to optimism, self-reliance, and a digital-first mindset.

Six facts about the startup surge

1. Creativity is critical

We asked respondents to list the three most important qualities an entrepreneur needed during the pandemic. Creativity was number one by a landslide, cited by 57% of those surveyed. It’s easy to see why: with workplaces closed, and in-person business put on hold, people had to get creative. Therapists offered virtual sessions and started podcasts. Housebound parents started selling baked goods out of their kitchens. The entrepreneurial-minded found ways to disrupt their own jobs to fit the times or start that side hustle to fill a sudden need in the locked-down economy.

2. Being your own boss is the ultimate inspiration

While passion for your product or service, and capitalizing on market needs are always motivating for entrepreneurs, there’s perhaps no better perk to owning a business than being your own boss. This held true during the pandemic, as more than half (57%) of those we surveyed cited being in charge as the main inspiration for starting a business.

3. The pandemic accelerated plans

Although just over a quarter (25.1%) of the entrepreneurs we surveyed said they’d been laid-off or furloughed as a result of the pandemic, and needed income, most of them started their business for other reasons. Namely, they’d either been planning an entrepreneurial move pre-COVID or saw an opportunity arise amidst the unprecedented circumstances surrounding the past year. Economists have speculated that the combination of easily accessible new technologies, home confinement, and yes, spare time, may have been the catalyst behind so many new businesses being launched.

4. Direct-to-consumer is the model of choice

Last year’s crop of new small businesses are overwhelmingly business-to-consumer (B2C). According to our data, roughly 80% of these businesses sell directly to consumers. What are they selling? Just about anything you can imagine, thanks to a global digital infrastructure that supports everything from selling ads in a podcast to drop shipping goods sold through an Amazon or Shopify storefront. Among our respondents, physical products (think retail goods, face masks, and other Etsy-style crafts and clothing), software (apps), and services (both in-person and remote), topped the list of what’s on offer from these new entrepreneurs.

5. You don’t need a ton of cash to start a side hustle

There’s still some truth to the old adage, “It takes money to make money.” But it might not take as much as it used to. Over half (52%) of our new small business owners launched their new companies with less than $10,000 in funding — and nearly half of that group had less than $5,000 on hand on opening day. An overwhelming majority (nearly 80%) of founders drew from their own bank accounts to get things going, while roughly one-third received friends and family investments.

6. New businesses are “digital-first”

One reason so many new businesses could be born on small budgets is that they’re small — 59% of the businesses surveyed employ five or fewer people. Another reason? They’re digital-first, mostly requiring nothing in the way of physical space or equipment beyond a computer or even just a phone. Seventy percent of those surveyed said their new business was born out of technology or tech-focused from day one. That includes everybody from fitness pros offering training sessions via video call to gig-economy workers who pick up jobs on app-based platforms. In fact, over a quarter of entrepreneurs we talked to said theirs is a purely “digital business” (e.g., app development).

Whether motivated by necessity in the wake of layoffs, being housebound with family to care for, or finally having the time to dig into that side hustle, Americans started new small businesses in record numbers during the COVID-19 pandemic. As any entrepreneur can tell you, starting your own business is anything but a guaranteed success. But as more people get vaccinated and restrictions on gatherings ease, there’s good reason for this latest crop of entrepreneurs to be optimistic. Nearly three in four of the new business owners surveyed said they already have customers.

At Salesforce, we want to help you grow, no matter what the market. That’s why you can try out our small business CRM for free with Salesforce Starter. We’re here for you at any time.