More Americans were starting and running new businesses last year despite the economic effects of the pandemic, according to new data reported in the 2020/2021 U.S. Global Entrepreneurship Monitor (GEM) Report and recently released by Babson College.
Challenges and opportunities
In 2020, the Total early-stage Entrepreneurial Activity (TEA) rate, which measures the percentage of adults 18-64 actively engaged in starting or running a new business, was 15.4 percent. This is down slightly from 17.4 percent in 2019, but equal to results reported in 2018. The new report shows Americans turned to entrepreneurship when faced with an uncertain labor market. Last year, one-half of entrepreneurs said they were motivated to start a venture because jobs were difficult to find, representing a 22 percent increase from 2019. Moreover, some 54 percent of entrepreneurs, and 43 percent of business owners, reported that the pandemic introduced new business opportunities.
The Global Entrepreneurship Monitor Report polled more than 2,000 U.S. adults in August 2020. It provides a comprehensive look at the impact COVID-19 had on entrepreneurs and business owners six months after the pandemic first caused restrictions on American life and business. Among established business owners, 58 percent halted some of their core business activities because of COVID-19. Of those who closed a business, more than one-third cited the pandemic as the reason.
“The United States has long relied on entrepreneurs to drive innovation, job creation and economic growth. There is no question that the pandemic created both challenges and opportunities for entrepreneurs and mature business owners,” said GEM U.S. Team co-Leader and Babson College Entrepreneurship Professor Donna Kelley. “Stable jobs and economic vitality depend on the survival and growth of businesses. This research can help guide decisions that support entrepreneurship in America, which will surely be a critical contributor to the post-pandemic recovery.”
A turning point
Eighty-two percent of entrepreneurs thought that starting a business was more difficult than a year earlier. Additionally nearly 70 percent cited delays in getting their businesses operational because of COVID-19. Even so, Americans were still starting and running new businesses in 2020.
“People may have different reasons for starting a business: needing to generate income or seeing new opportunities, for example, but the GEM results show that people still turn to entrepreneurship, even in the throes of a social and economic crisis,” said Smaiyra Million, Executive Director of The Arthur M. Blank Center for Entrepreneurship at Babson College. “These are the adaptive and creative entrepreneurial leaders that solve today’s problems and help create new and lasting change for themselves, their businesses and their communities. This is especially critical as we look to the future. There is no going back to doing what we have always done. Entrepreneurs today will evolve and learn from the lessons of the last 18 months and emerge stronger.”
“Much like the Great Depression or World War II, the pandemic promises to be a transformative event, one in which the society we knew is remade and filled with change and possibility and entrepreneurial leaders will lead the way,” said Stephen Spinelli Jr., PhD, President of Babson College. “There’s no roadmap to our post-pandemic recovery. The same attributes that enable entrepreneurial leaders to make decisions, solve problems and create value are what will successfully lead us forward. Entrepreneurial leadership is more needed and relevant than ever before. GEM will be there to witness and capture this extraordinary moment, and through research, we will continue to understand and learn from entrepreneurs and help guide them as they shape the world of tomorrow.”
Key findings from the Global Entrepreneurship Monitor Report
Beginnings and endings
- About 40 percent of Americans knew at least one person who closed a business due to COVID-19. Twenty-one percent knew someone who began a business.
- Over one-third of those closing a business cited COVID-19 as the reason (41 percent of women who closed a business and 30 percent of men who closed a business).
- Among the U.S. Adult Population, 4.4 percent closed a business, a 50 percent increase from 2.9 percent in 2019.
- Among established business owners, 28 percent had received, or expected to receive, pandemic-related financial support from the government. Women reported so at a higher percentage than men (32 percent vs. 25 percent).
- Established business owners were more likely than entrepreneurs (51 percent vs. 45 percent) to state that the federal government was effective in responding to the economic consequences of the COVID-19 pandemic.
- Among entrepreneurs, 51 percent said the state government was more effective than the federal government in responding. This is in comparison to 32 percent of established business owners who had the same opinion.
- Among the U.S. Adult Population (18-64 years old), 40 percent of respondents stated that their household income declined because of COVID-19.
Creating new opportunities
- Necessity played an instrumental role in driving entrepreneurship in 2020; half of entrepreneurs were motivated to start a business in order to earn a living because jobs were scarce, a 22 percent increase from 2019.
- The established business ownership rate (those that own or manage a business older than 3.5 years) was 9.9 percent. This is a slight decline from 10.6 percent in 2019.
- Most Americans hold positive perceptions about entrepreneurship: it is associated with high status in society (78 percent), it is a good career choice (70 percent) and it receives positive media attention (72 percent).
- Perceptions about one’s capabilities for starting a business were high (64 percent) and relatively unchanged from 2019. However, opportunity perceptions dropped from 62 percent in 2019 to 49 percent in 2020. Fear of failure rose from 35 percent in 2019 to 41 percent in 2020, an all-time high.
- More than one-half (57 percent) of entrepreneurs are building businesses in finance, services and information/communications technologies.
- Growth projections, or the proportion of entrepreneurs anticipating adding more than five new jobs in the next five years, declined in 2020 (27.5 percent vs. 32.5 percent in 2019).
The status of underrepresented entrepreneurs
- Black people are twice as likely as white people to have entrepreneurial intentions (20 percent vs. 10 percent) and nearly twice as likely to start businesses (26 percent vs. 14 percent).
- The TEA rate for women was 16.6 percent and for men 18.3 percent, about eight women entrepreneurs for every 10 men entrepreneurs.
About Babson College
Babson College prepares and empowers entrepreneurial leaders who create, grow and steward sustainable economic and social value everywhere. We shape the entrepreneurial leaders our world needs most: those with strong functional knowledge, skills and vision to navigate change, accommodate ambiguity, surmount complexity and motivate teams in organizations of all types and sizes. A global leader in entrepreneurship education recognized globally by U.S. News & World Report, our undergraduate, graduate, executive programs and partnership opportunities are tailored to the needs of our world.
About Global Entrepreneurship Monitor
Global Entrepreneurship Monitor (GEM) is a consortium of national country teams, primarily associated with top academic institutions, that carries out survey-based research on entrepreneurship around the world. GEM is the only global research source that collects data on entrepreneurship directly from individual entrepreneurs! GEM’s Adult Population Survey (APS) provides analysis on the characteristics, motivations and ambitions of individuals starting businesses, as well as social attitudes towards entrepreneurship. The National Expert Survey (NES) looks at the national context in which individuals start businesses.
In numbers, GEM is:
- 20+ years of data
- 150,000+ interviews a year
- 100+ economies
- 500+ specialists in entrepreneurship research
- 300+ academic and research institutions
- 200+ funding institutions
GEM began in 1999 as a joint project between Babson College (USA) and London Business School (UK). The consortium has become the richest resource of information on entrepreneurship, publishing a range of global, national and ‘special topic’ reports on an annual basis.