Bredin Report: Q&A: Understanding Startups: Trends in Small Business Formation

Bruce Kimmel SVP GrowthIn a recent Bredin Fastcast, our CEO Stu Richards spoke with MarketForce’s senior vice president of growth/new business, Bruce Kimmel, about the recent wave of new small businesses. MarketForce provides data on newly registered businesses in the U.S. and Canada to help marketers connect with companies early in their formation process.

Kimmel provided valuable insight into the profile of these startups.

STU RICHARDS: What can your data tell us about the number of new business startups and how this compares with historical data?

BRUCE KIMMEL: MarketForce tracks new business registrations from the moment an entrepreneur files with their state or local authority, so we are able to look back and see what’s different today. From January 2005 through approximately 2013, registrations were basically flat at about 200,000 to 220,000 a month, with a dip around 2008-2009 during the last recession. Then from 2013 to early 2020, things started to take off with about 300,000 new business registrations a month. As we all know, that changed in March 2020. But, when state offices opened that summer, we saw an all-time high 553,000 new registrations posted in July 2020. Even under current economic conditions, the new normal seems to be about 400,000 per month, well above the pre-pandemic levels.

Monthly New Business Formations

Source: U.S. Census Bureau

RICHARDS: What are the forces for this uptick in business formation?

KIMMEL: The COVID-19 pandemic created vast societal change and challenges that fueled startups and opportunities that encouraged new business formation, including:

  • Emerging needs. The pandemic necessitated a sudden demand for delivery services, home additions and remodeling, and home office support. This led to a surge in businesses such as drop shipping, warehousing, construction and IT support.
  • Layoffs. Some people turned hobbies or side hustles into full-fledged businesses using government support or severance as a cushion when they were laid off.
  • A world-wide labor pool. The widespread acceptance of remote work enabled entrepreneurs to hire and partner with people and companies around the world.

RICHARDS: How are these businesses different from their more established peers?

KIMMEL: Naturally, we’re tracking an increase in home-based businesses – in 2021 the number of businesses registered to home addresses grew by 27% over 2020. This is due in part to the pandemic lockdown and also the nature of the businesses being formed and the growth in technology.  For example, service-oriented businesses or e-commerce businesses with drop shipping and warehousing don’t really need a commercial location. We’re also seeing a lot of startups owned by women. During lockdown when students were learning remotely, it often fell to women to help children with their education. Many women from the corporate world were able to start home-based businesses, which enabled them to be there for their families while continuing to earn.

RICHARDS: What are the top locations for business startups?

KIMMEL: Eighty-two percent of new businesses in 2021 come from just 20 states. We saw a lot of migration to southern states like Florida, or people migrating from California to less populated states like Wyoming, Utah, Montana and South Dakota. As certain states saw an influx of population, there was a need in those regions for new businesses to serve the growing population. Also, as people realized they could work from anywhere, many chose to move to less expensive or less populous areas. It was cause and effect. As the population moved, business trends followed.

Where are these new businesses located

Source: MarketForce

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Bredin was founded in 1991 by America's foremost small business expert, author and syndicated columnist Alice Bredin. From its beginning, Bredin was designed to be a breed apart: 50% research consultancy, 50% creative agency, 100% focused on SMB. Based in Somerville, Mass., Bredin helps Fortune 500 companies understand, reach and retain SMB customers through timely, targeted research and award-winning marketing programs.