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Who Started Businesses During the Pandemic? A Survey of Women Starting Businesses During COVID

Luke Pardue Economist, Gusto 

Economists have long been sounding the alarm that Black, Latinx, and female workers and small business owners are being hit the hardest with the economic fallout from the pandemic. But what’s less talked about is the record number of businesses that started in 2020—and what’s been unknown is, why.

Gusto recently partnered with the National Association of Women Business Owners (NAWBO) to conduct a joint survey of 1,199 women business owners across industries to better understand their experiences navigating the pandemic and the resulting economic downturn. These female business owners were asked a range of questions, from how long they’ve been in business to if they’ve been impacted by disruptions to childcare to how the past year has influenced their views of entrepreneurship. We also evaluated what support is necessary to help keep their businesses afloat in the year ahead. 

5% of the women business owners surveyed started a new business during COVID. This specific report analyzes who these entrepreneurs are and their motivation for starting a business during a pandemic. To create a nationally representative sample, responses are weighted to reflect the industry composition of female-owned small businesses across the country, using data from the 2019 Census Annual Business Survey. 

Here’s what the data shows.

The new face of female entrepreneurship – a snapshot:

  • Minority women are driving new business starts – because they’ve had to: Nearly half (47%) of businesses started by women in the past year are minority-owned. Many did so out of need – minority women were more than twice as likely (35% vs. 17% for others) to start a new business because of financial imperative. 
  • They are women that carry the bulk of financial responsibility for their families: Just over half of women (51%) who started their businesses last year are either the sole provider for their household or the primary source of household income.
  • More often, they’re doing it all on their own: 66% of women that started their businesses last year are sole proprietors. 
  • They’re deeply committed to making their businesses work: Despite the instability of the last year, 77% of women that started new business said they’d do it all over again if given the opportunity. An additional 31% said that they would delay or forgo compensation for one month or more to keep their business afloat; and 23% said they would sell personal property. 
  • They want to hire in the year ahead: 36% said they intend to hire new employees.

What’s Driving New Business Creation

Entrepreneurship is driven by a number of reasons. This new crop of women business owners were particularly motivated by a combination of needing more flexible work hours, control over personal finances, and job security:

  • 58% of women want more control over their work schedule
  • 24% wanted to start a business that they could pass on to their families
  • 37% were looking to improve their financial opportunities
  • 19% lost their jobs
  • 9% didn’t have any other job opportunities

However, the pandemic cast this decision to start a business in a new light. While millions of women supported themselves and their families — in many cases, with low wage jobs — prior to COVID, the economic downturn added a greater importance to the control and flexibility entrepreneurship offers. The unemployment rate hit new highs during the pandemic, jobs that were previously thought to be recession-proof disappeared overnight, and the demands of caring for children and family members caused record numbers of women to leave the labor force altogether. 

For some women, starting a business became the most viable option for employment this last year. Nearly 40% of women that started new businesses during COVID shared that they did so as a direct result of the pandemic. 

Women-owned Minority Businesses

We know that women, and in particular, women of color have shouldered the heaviest burdens throughout the pandemic. Yet, against great odds, they’ve taken the initiative to start over during one of the worst economic recessions in our country’s history. Our survey confirms that minority women are driving business creation during COVID: nearly half (47%) of businesses started in the past year are minority-owned. 

Their reasons for starting a new business were overwhelmingly driven by financial imperatives. Comparing responses in the tables below, minority women in particular were more than twice as likely (35% vs. 17% for others) to start a new business because they were laid off or worried about their financial situation.  And, almost a third (29%) of these women are the sole providers of income for their family. 

Childcare responsibilities also led 12% of minority business owners to start their businesses during the pandemic. This number stands in stark contrast to white business owners – for whom issues with childcare didn’t register as a reason to start their own business.

Pandemic-borne circumstances driving pandemic-borne businesses

Business owners were asked if they started their business as a direct result of pandemic-borne circumstances. Many did. The below tables provide insight into the exact circumstances that led them to start a business during COVID.

All businesses started during the pandemic

6%14%3%12%6%18%61%
Shut down previous business to start new businessI was laid off from my jobMy partner was laid off from his/her jobI was worried about my financial situationDue to childcare responsibilities related to pandemicIt was the right time to start my businessDid not start as a direct result of the pandemic
Source: Gusto-NAWBO Survey.

Minority-owned new businesses started during the pandemic

6%20%0%15%12%36%38%
Shut down previous business to start new businessI was laid off from my jobMy partner was laid off from his/her jobI was worried about my financial situationDue to childcare responsibilities related to pandemicIt was the right time to start my businessDid not start as a direct result of the pandemic
Source: Gusto-NAWBO Survey.

White-owned new businesses started during the pandemic

5%8%6%9%0%3%81%
Shut down previous business to start new businessI was laid off from my jobMy partner was laid off from his/her jobI was worried about my financial situationDue to childcare responsibilities related to pandemicIt was the right time to start my businessDid not start as a direct result of the pandemic
Source: Gusto-NAWBO Survey.

What These New Businesses Need—Not Just to Survive, But to Thrive

The stress of not having emergency savings or figuring out how to pay monthly bills on time has only been exacerbated by a year of layoffs, furloughs, and reduced wages. And yet, among those surveyed, entrepreneurship continues to stand out as the most viable path forward for getting back on the path to financial stability.

The fate of these businesses hinges on having a strong safety net of financial aid or benefits. More than half of women surveyed said that access to government aid is paramount to continue operating their businesses in the year ahead. Yet to date, they’ve been left out. The Paycheck Protection Program, the government’s signature small business pandemic aid package that’s been allotted $796 billion in funding, is clear –  businesses must have been in operation as of February 15, 2020 in order to qualify for PPP funding. 

Congress should expand PPP eligibility requirements to ensure that entrepreneurs that have taken the initiative to drive economic recovery and provide for their families and communities can access PPP lifelines to not only survive, but to grow and expand their businesses. Businesses that have been created before the date of the next legislation should be eligible for PPP.

Furthermore, it has been well-documented that minority-owned small businesses eligible for aid have disproportionately received less federal support. Given these newly formed businesses are disproportionately minority-owned, extending aid to these businesses is not only sensible on economic grounds but is crucial to delivering an equitable and inclusive recovery.

Supporting the recovery – and an equitable recovery – means supporting newly created businesses. Beyond expanding PPP eligibility, there is more than can and should be done including:

  • Prioritizing newly created businesses for receipt of the American Rescue Plan’s already allocated funds. For example, APR has earmarked $350 billion for state, local, tribal, and territorial governments to distribute as they see fit to keep first responders, frontline health workers, and other essential service providers on the job safe; continue to roll out vaccines; and start to rebuild and support small businesses hurt by this pandemic. Local governments should prioritize newly created businesses in their distribution of aid to small businesses. These are businesses that have been shut out of previous gov’t aid unlike the majority of small businesses that operated prior to Feb. 15, 2020. Similarly, move newly created to the front of the line for the new batch of Economic Injury Disaster Loans included in the APR as well.  
  • Incentivize states to participate in the Self-Employment Assistance program, which is designed to encourage and enable unemployed workers to create their own jobs by starting their own small businesses. Under this program, States can pay a SEA allowance, instead of regular unemployment insurance benefits, to help unemployed workers while they are establishing businesses and becoming self-employed. Participants receive weekly allowances while they are getting their businesses off the ground. Currently only Delaware, Mississippi, New Hampshire, New York, and Oregon have active Self-Employment Assistance programs. By incentivizing states, they’re more likely to participate which will in turn create support for first-time business owners that can afford it least and accelerate entrepreneurship in the process.  

Women are taking the initiative to drive the recovery and provide for their families and communities. They are committed to their businesses and to growth. Yet virtually all of them have not been eligible for government aid, most notably PPP. By providing them with support, by prioritizing they get it, we have an opportunity to turbocharge the recovery and build a more  inclusive economy along the way.

Methodology

This study surveyed 1,199 members of NAWBO about their businesses and their experiences over the past year. 5% of business owners indicated they started their businesses in the past year during COVID. This rate is in line with new business formation rates across the broader economy, as measured by Census Bureau Business Formation Statistics. We asked owners of these new businesses additional questions about whether they started as a result of the pandemic, and if so, to choose specific reasons. This report is an attempt to gain insight into who these entrepreneurs are and why they started a new business – important questions that are currently not available in other public or private data sources. While this segment of business owners is a small portion of the overall pool of survey respondents, data reported here are meant to identify broad differences either between new and existing business owners or between groups of new business owners. Data reported in the text comparing two groups represent statistically significant differences in means between subsamples at the 95% significance level. Responses are weighted to reflect the industry composition of female-owned businesses across the country, using data from the 2019 Census Annual Business Survey.

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Updated: March 22, 2021

Luke Pardue
Luke Pardue Luke Pardue is an Economist at Gusto, researching how public policies help small businesses and their workers thrive. He is a PhD Candidate in Economics at the University of Maryland, where he studies the effects of government programs on disadvantaged populations’ housing and labor market outcomes. Luke currently lives in Washington, D.C.

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