The coronavirus pandemic has likely sparked a surge in entrepreneurship in Massachusetts, reversing a years-long stagnation in the growth of new businesses in the Commonwealth.
Aspiring entrepreneurs filed paperwork to start 74,662 businesses in Massachusetts over the last year, according to recent data from the Census Bureau, a 33 percent increase from the year before, and the highest volume of applications since the Census began tracking it in 2004. (The latest numbers are from Internal Revenue Service data from July 2020 to July 2021.)
“I am not surprised,” Jim Rooney, president of the Greater Boston Chamber of Commerce, said in a statement about new-business growth. “Economic downturns have created similar patterns in the past as people laid-off from companies during COVID decide to start their own business.”
The rise mirrors nationwide growth in entrepreneurship, and outpaces the 24 percent increase in new business applications the United States saw over the last year. Since 1980, the share of employers in the United States that are new businesses has declined, according to Census data.
It is unclear how much impact the rise in applications will have on the state’s economy. Individuals who file new business applications may not actually start their enterprises. If corporations hire more people, those who started companies after being laid off may abandon their ventures.
“It is a numbers game; there’s only so many that can survive,” said Isaiah Kacyvenski, co-founder of venture capital firm Will Ventures. He added, however, that the growth over the past year could lead to a long-term rise in entrepreneurs because “people get used to not having a boss.”
It is likely the increase in applications was driven by the pandemic, research shows. In the months after COVID-19 took hold, over 7 million people lost their jobs nationally, according to an analysis last year by the Commonwealth Foundation.
Roughly 30 percent of new entrepreneurs last year were unemployed at the time they started their own business, researchers at the Kauffman Foundation found, double the rate prior to the pandemic. “During tumultuous times such as the COVID-19 pandemic, the rate of new entrepreneurs can increase substantially,” they wrote in February, “as businesses close and restart, and workers are laid off and turn to part-time business activities.”
In Massachusetts, new business applications remained relatively flat over the last decade, hovering between 46,000 and 58,000 applications. The state saw a nearly 10 percent spike in new business activity in 2010, on the heels of the Great Recession.
But the recession-fueled growth in Massachusetts was not sustained in the following years, census numbers show, likely because banks tightened their business lending, government experts said. However, the current situation could be different, since the government has injected unprecedented amounts of money into small business loans, unemployment assistance, and other safety-net supports.
“The timing is good for startups as the economy reopens, and because both individuals and corporations are sitting on unspent pandemic cash,” Rooney said.
If the positive trend continues, the long-term impacts on the economy could be beneficial, researchers have said, with startups as a key source for new job creation and innovation. Research from the Kauffman Foundation shows that over 57 percent of companies in the Fortune 500 were started in a recession or a bear market.
“If you’re trying to look for a bright spot in a rough time,” Kacyvenski said, “to put people in position to take an idea and run with it is, quite honestly, an amazing thing.”