Despite the slowing economy, applications to incorporate new businesses in the US rose 1.2% in October from the previous month.
Part of what drives new startups in sectors is when there are lots of new ideas and new growth options, said Aaron Terrazas, chief economist at Glassdoor, a job board website. However, “not all companies are born equal,” he said. “Some new businesses are born of opportunity, others of desperation.”
He pointed out that during the depths of the Great Recession, there was a small boom in business start-ups as many people who had lost their jobs opened a personal fitness training or personal career coaching business. Business applications surged during the pandemic, with a September 2021 study finding most focused on the e-commerce boom, as well as gig workers forming LLCs to protect themselves from personal liability.
The total number of applications is about the same as last month, but Terrazas said he expects there will be a dip in applications in the coming months. The data comes from “Employer Identification Numbers”, which are filed with the IRS and are used to identify companies.
Another factor that could also suggest economic resilience is that people have been pushing up their applications because they want to get their business loans now before interest rates continue to rise, said Erica Groshen, an economist at Cornell University.
Starting a business in an economic crisis
Despite the slowdown, some good ideas will come out of it — as evidenced by the emergence of well-known companies like Uber and Airbnb, which were formed to disrupt the sluggish industries they served, and which sprung up during the Great Recession. “You can see the seeds of the next boom beginning to sprout in these times of economic crisis,” Terrazas said.
At the same time, start-up costs will be lower and entrepreneurs will find it easier to recruit employees. “But the challenge, of course, is that your customers may not be able to buy what you’re selling,” Groshen said. “So it depends on what you’re selling.” She added that she expects companies that handle bankruptcies to get some of the new business growth.
More of quartz
Sign up for the Quartz newsletter. For the latest news, Facebook, Twitter and Instagram.
Click here to read the full article.