To say the coronavirus outbreak has led to massive upheaval would be an understatement. About 16.3 million people in the United States are unemployed, and an ever-growing list of retailers have declared bankruptcy. Not to mention that the U.S. GDP fell 32.9% in the second quarter of 2020—the most dramatic drop in more than 70 years.
Surprisingly, here at Azlo, we noticed an increase in new account openings in March. We wanted to dig a little deeper as to the reasons why, and in July we surveyed more than 1,000 new Azlo customers— those who had opened an account with us since mid-March.
What’s particularly interesting is that from April through June of this year, four out of five (81%) have started a new business in the midst of COVID-19.
The kicker? The entrepreneurial spark wasn’t necessarily a reaction to getting laid off. Among founders, only over one in five respondents (22%) launched their business because of a layoff. A huge majority— 96%—explained that they’ve always wanted to start a business, and COVID-19 provided the push.
Here are some of the key findings on the impact coronavirus had on starting a new company, what a COVID-born small business looks like, and emerging trends in the COVID economy:
COVID actually helped small businesses get started
It turns out that for many founders, the inspiration and vision to kickstart a company already existed. About 40% of respondents said the pandemic gave them the impetus they needed. About half stated that, because of COVID-19, they had more time to focus on their entrepreneurial pursuits.
Pursuing our passions. What were the reasons for launching a small business? About two-thirds (63%) wanted to work for themselves, and more than half of founders said they had the desire to pursue something they were already passionate about.
COVID-19 might have helped provide a push toward desires and goals that probably existed before the pandemic. Founders said they started a business during the outbreak because they:
- Wanted to work for themselves (63%)
- Had the desire to pursue something they were passionate about (58%)
- Felt they had a solid business idea (46%)
- Yearned to make more money than they felt they could on the traditional employment path (32%)
Coronavirus provided a market opportunity. What’s more, over a third (37%) of entrepreneurs stated that the coronavirus outbreak created a market opportunity for them.
What COVID-Born Businesses Look Like
In a nutshell, here’s what our research revealed about the anatomy of a small business emerging during the COVID era:
They’re digital founders. Of the founders, more than two-thirds (69%) conducted business primarily online.
They’re helping drive the economy. Thirty-nine percent of founders either have employees, or plan to hire in the near future as they scale. This is further proof that small businesses continue to be economic drivers.
They’re bootstrapping. While access to capital remains a top concern for businesses, we’ve found that new business founders didn’t lean on outside capital to start their companies.
Here’s the breakdown:
- 67% of entrepreneurs from the Azlo community pulled from personal savings or investments to self-fund
- 40% tapped into money from revenue generated
- 17% used personal credit cards
- A mere 1% obtained a bank loan
They’re serious about their ventures. Among the founders who participated in the research, many formed an LLC, meaning they were at a stage where they wanted to have a more formal business structure. Nearly 3 out of four (72%) had an LLC, while about 1 in 5 (17%) were sole proprietors. About one-third—30%—started a side business as a means to supplement their current day jobs.
These founders are here to stay. Our research finds that an overwhelming majority (89%) plan to keep their current business as a source of income. In other words, starting a business during the pandemic wasn’t a temporary “band-aid” solution or an in-between gig to survive.
They’re aware of challenges that may lay ahead. Founders cited that the hardest parts about starting a business in the COVID economy was marketing and finding new customers (41%), raising capital or having access to capital (26%), and dealing with income insecurity (25%).
Small businesses make up the backbone of our economy, no doubt. According to the Small Business Association (SBA), 31.7 million small businesses in the U.S. employ 47.1% of the workforce.
Founders who are part of Azlo’s community can find useful information about growing their business on Azlo’s blog along with a number of guides, webinars, and entrepreneur stories from fellow small business owners.
Stay tuned as we unroll more content designed to inform and inspire you during your entrepreneurial journey.
Download the full report here: COVID-19: A Surprise Driver of Small Business Growth
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