New technologies, economic uncertainty, and a desire for greater flexibility have pushed more Americans into self-employment, especially those historically facing more significant barriers to starting a business.
A recent study by software company Gusto reveals a 42% increase in new businesses created in 2022 compared to pre-pandemic levels, with more diverse demographics driving this surge.
“There’s been this trend of people who previously had been left out of new business ownership driving this surge in entrepreneurship that we’re seeing today,” said Luke Pardue, an economist at Gusto who authored the study.
Economic uncertainty has become a significant driver of new business creation, with 41% citing financial stability or supplemental income as their primary motivation.
Career burnout and a desire for greater flexibility are also key drivers in new business creation. The study found that 63% of the newly self-employed respondents made the change in pursuit of greater flexibility, and nearly half of the entrepreneurs aged 35 to 54 started a business due to career burnout.
However, financing opportunities remain unequal across demographics. According to the Gusto study, 14% of new businesses founded by men received capital investment, compared to just 6% of those started by women. Further, 10% of white business owners received outside investment, compared with 4% of Black and Hispanic entrepreneurs.
Despite widespread economic concerns among the general population, most self-employed Americans are optimistic about their business prospects. According to the Gusto survey, 8 in 10 entrepreneurs say their company has performed better than expected.
The lower barrier of entry for entrepreneurship, thanks to innovations such as accounting software and online marketplaces, has contributed to the rapid growth in entrepreneurship. However, Mahdi Majbouri, a professor of economics at Babson College, told Fast Company that the ability of these businesses to thrive long-term is more important than the entry rate.
“The most important thing is that people feel they have the same opportunity as everybody else . . . that their success rate doesn’t depend on which group they belong to,” he says. “It would be a virtuous cycle if more opportunities for any group come to fruition, especially among underrepresented groups.”
Key Findings:
- Women continue to drive entrepreneurship, creating half of the new businesses. At the same time, the share of Black or African-American entrepreneurs dips: In 2022, 47% of entrepreneurs were women, a significant increase from the 29% pre-pandemic. The percentage of Black or African American entrepreneurs declined from 9% to 5% but remained above the 3% share in 2019.
- Inflation is driving new business starts and side hustles: 41% of owners started a business out of financial concerns, up from 24% last year. Financial problems are driving 56% of companies started as a side hustle.
- Burnout leads mid-career workers to start their businesses: The share of entrepreneurs who quit working to create their own companies rose from 36% in 2021 to nearly half (49%) in 2022. Mid-career workers 35-54 were most likely to cite burnout as the reason for starting their firm (46%).
- Women and entrepreneurs of color are left out of financing opportunities: Men received private capital investments at 2.3 times that of women (14% vs. 6%). White business owners saw capital investment rates 2.5 times that of Black entrepreneurs.
- Remote and hybrid hiring accelerates among new businesses: 48% of companies who have hired full-time employees did so in a hybrid or remote role, compared to 35% in 2021. In 2022, 75% of owners who hired contractors did so hybrid or fully remotely, compared to 50% in 2021.
- Black and AAPI Entrepreneurs report declining confidence in business performance: The decline in business performance was the largest among Black/African-American entrepreneurs (from 37% to 28%) and Asian American or Pacific Islander (AAPI) entrepreneurs (36% to 20%).
- Owners are building up cash buffers and keeping an eye on the economy: 36% of owners pointed to uncertainty about the path of the economy as the top issue facing their business, and 30% of all owners have been building cash reserves.
