Startups Play a Big Role In Powering the US Economy
Isadora Teich wrote this article
Collectively and individually, we are all reeling from the pandemic.
It is a chaotic and complex time to try and survive for many people, and the effects can be seen on a macro level aswell.
Many people think of economics as a dry subject detached from everyday life and may feel like the economy is a hypothetical thing that doesn’t have much to do with them.
This could not be farther from the truth.
Essentially, understanding how people interact with money and value on a small and wide-scale is critical to understanding how societies work. A healthy economy benefits everyone living within it. I think it’s worthwhile to take a look at the big role small businesses and young startups play in this entire ecosystem.
COVID and The Economy, by the Numbers
Overall, the effects of Covid on the economy have been incredibly profound.
It is important to not gloss over the human toll when discussing wider trends and economic impacts.
At the time I am writing this, in May 2021, there have been over 30 million covid cases in the US and we are closing in on 600,000 deaths. Of course, mass death and illness will have far-reaching effects on systems that depend on healthy people to function. According to Brookings:
The economic crisis is unprecedented in its scale: the pandemic has created a demand shock, a supply shock, and a financial shock all at once.
In 2020 the US GDP dropped by 9.1%, the sharpest drop in since recording began in 1947. Currently, the US unemployment rate is at 6.1%. Last year, unemployment hit over 14%, which was the highest rate in the US since the Great Depression. To put things in perspective, before the pandemic, it was around 4%.
Where Do Startups and Small Businesses Fit into All This?
The Hill writes that one big bright spot in this whole dark situation is that we have an opportunity to invest in small businesses.
New businesses are almost always what pushes the economy, and society in general, forward.
Something we believe very strongly in at Chop Dawg is that small businesses can have big impacts. This belief is backed up by data. In fact, almost all job growth in the US comes from innovative and disruptive small businesses.
The Bad News and the Good News
Before the pandemic, new businesses were struggling.
In fact, new business creation had fallen to its lowest rate in decades. During the pandemic, over 3 million businesses had been forced to shut down at one point or another. This included 41% of Black-owned businesses and 32% of Hispanic-owned ones. As of now, at least 400,000 small businesses have closed permanently.
However, it is not all bad news. Millions of Americans have taken the plunge to start businesses since 2019.
Due to widespread layoffs or new opportunities which have emerged due to the pandemic shakeup. In fact, there has been a 25% surge in 2021.
The Power Of Startups
According to a 2016 report from the Kauffman Foundation, startups make up about 15% of all businesses. However, despite being a small part of the overall picture, they generate 50% of all jobs created.
Transformational and disruptive young companies invest more in research and development than older companies. They, in some ways, work harder, and overall provide more opportunities for workers.
For many young tech startups especially, the goal is to eventually be bought out by Google or some other large player known for acquiring smaller companies.
However, Vivek Wadhwa, a member of Harvard’s Labor and Worklife Program argues that “when technology’s top guns join these companies, they seem to make a smaller impact than those that don’t get hired.”
Why could this be?
Well, if an established company has been doing the exact same things for decades with only incremental shifts successfully, why would they stop? Younger small companies can respond quickly and authentically with minimal bureaucratic roadblocks. They are often hungrier to grow, succeed, innovate and prove themselves with cutting-edge ideas.
Disruptive and Efficient
Startups that truly scale and grow can disrupt and even create entire industries. Many of today’s large and successful companies began as small startups. This includes companies like:
Many of these were initially simple side projects for their founders that bloomed into massive enterprises.
Many startups grab new technologies by the horns and then use them to create value in ways that larger businesses are too entrenched in their ways to pursue. They inspire competition and innovation.
Studies show that startups can simply do a lot more with less capital than larger businesses can. This is likely because small businesses are forced to make the most of their resources and solve problems creatively, on a budget.
Zebras Are The Future
We have all seen hot topic startups and unicorn companies with grand promises make headlines, but little else.
We recently published a post about the rise and fall of WeWork, a startup that became fantastically famous only to fall apart instantly under public scrutiny.
This is why we often talk about why startups should aim to be dependable and down-to-earth companies that solve a real-world problem (zebras), rather than focusing all of their attention on being flashy and headline-grabbing unicorns.
Whether your goal as a startup owner or entrepreneur is to build something that eventually Microsoft or Amazon will buy, or remain independent and grow on your own terms, you need to accomplish something real in order to get there.
Startups are a critical part of not only our economy but society in general. Successful startups solve big problems and can innovate how we approach even the basic tasks of daily life.
They advance society and employ people in ways that larger companies just don’t seem to do.
While it is undoubtedly a difficult time for many people right now, it is also a time of innovation as many Americans branch out on their own with fresh ideas.
It will be exciting to see what develops over the next several years. In fact, many successful tech companies have started in recessions. There is definitely a bright future to look forward to!
About ChopDawg.com: Since 2009, we have helped create 350+ next-generation apps for startups, Fortune 500s, growing businesses, and non-profits from around the globe. Think Partner, Not Agency.
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