A new report from Gusto, a payroll and human resource management company, finds that there has been a continued shift in the face of new business ownership towards women and entrepreneurs of color.
For example, 49 percent of entrepreneurs in 2021 were women, a dramatic increase from the 28 percent recorded just two years earlier. In 2018, 78 percent of entrepreneurs were White Non-Hispanic, compared to 69 percent in 2021. Conversely, in 2018 just 8 percent of entrepreneurs were Hispanic or Latino and 3 percent were Black or African American. By 2021, those shares have risen to 10 and 9 percent, respectively.
Luke Pardue, an Economist at Gusto, writes that “these data indicate that the pandemic-driven spike in entrepreneurship among historically underrepresented groups was not a one-off spike, but the start of a sustained trend.”
Other key findings from the study include:
- During the initial stages of the pandemic, most new businesses were in personal services sectors such as retail or food and beverage – the focus of much pandemic-related disruption. In 2021, however, 42 percent of newly-created businesses were in professional services, as economic growth shifts to these technology-focused sectors.
- In 2020, 35 percent of new business owners started a business because they were laid off from their jobs, the top reason for starting a business. This year, that share fell to 14 percent, and the top reason for starting a business was entrepreneurs seizing a pandemic-related business opportunity (25 percent).
- As workers in all parts of the economy are quitting their jobs at record rates, this survey data indicates that many are leaving their positions to pursue business ownership. Over one-third of entrepreneurs (36 percent) started their business after voluntarily quitting their job. This trend is particularly focused in professional services, with 48 percent of entrepreneurs who quit their job starting firms in that sector.
- Eleven percent of all new business owners received a private business loan to finance their start-up, but that rate drops to 8 percent for Hispanic entrepreneurs and 6 percent for Black entrepreneurs, and the private loan approval rate for Hispanic entrepreneurs was less than half the approval rate for White entrepreneurs. Meanwhile, these owners were the ones most in need of funds: one-third of Black entrepreneurs and one-quarter of Hispanic entrepreneurs needed to take a side job in order to cover business expenses.
- Twenty-nine percent of new business owners indicated that inflation was the top issue facing their business. It was the number one response and most common in personal services (33 percent) and goods-producing (35 percent) sectors.
A summary of the report and links to sections can be found here.