Why more Americans than ever are starting small businesses

Hero FL, a specialized repair shop founded in 2008 in Jacksonville, Florida, sounds at first like your typical small-business success story. Father-son duo Leslie and Carlton Smith saw a unique opportunity in the marketplace and, with some gusto and elbow grease, started networking and building a company. 

But their firm has a different setup than, say, an average auto-repair shop, restaurant, or dry cleaners. Hero FL acts as a go-between, repairing broken heavy equipment and vehicles from open pit mines around the world. The Smiths use a global network of contacts in nations like South Africa and Suriname, which send gargantuan excavator engines — machines like the Caterpillar 773D Off-Highway Truck, which is a bit smaller than a standard shipping container and can haul 48 tons — via ocean freight to the US, where another network of for-hire mechanics across the country fix and return the oversized mechanical parts. Hero FL currently books about $12 million a year in revenue.

“We started basically buying and reselling machines,” Carlton Smith said. “Once we got into the meat and potatoes of how a mining operation works, we saw that the maintenance business was the right one to focus on.”

Hero FL does all this with just three full-time people on the payroll. The transmissions from Caterpillar mining trucks they rebuild don’t even touch the ground in Florida. They’ve even paid $100,000 to air-freight parts needed in a hurry. 

The shifts in technology and industry that empower small businesses like Hero FL — like national and even global reach thanks to digital communications networks, fast setup and distribution via an increasingly streamlined logistics and shipping infrastructure, and the greater ease of hiring contract labor — mean that a significant number of the nation’s newer small businesses are very different from the ones that get talked about ad nauseam by politicians. 

The US is experiencing a historic boom in small-business formation, one that Vice President Kamala Harris seeks to continue with her small-business plan, which includes a $50,000 tax break. A recent Small Business Administration report found that three of the best years for small-business formation in American history have happened under the Biden administration, with a fourth likely to follow. Roughly 17 million total small businesses have been founded during the current administration, more than half the total. 

It’s more impressive considering the number of small businesses being formed had been relatively flat for decades, even dropping after the Great Recession and taking a decade to recover. But four months into the pandemic, the rate of new small businesses spiked and hasn’t let up, said Tom Sullivan, the US Chamber of Commerce’s VP of small-business policy. He credits the surge to two factors. First, Congress passed seven bills in one year that included favorable new rules for starting a business and plenty of extra money, such as the American Rescue Plan. Second, during that same period, Americans with dreams of starting their own business or existing side hustles saw an opportunity to take a risk.   

“People just have this incredible motivation to be their own boss in America,” Sullivan said. “It’s always been the case: someone sitting with coworkers in the cafeteria or at their desk sketching out their own business plan.” 

It’s a broad-based growth happening across many sectors of the economy, from healthcare to hotels to high tech, Adam Ozimek, chief economist at the Economic Innovation Group, said.  

Sullivan said that in the immediate aftermath of this infusion of new money and opportunity, many new small-business owners focused on existing problems of retail and delivery. Some new enterprises opened online shops; others worked on solving challenges with transportation, logistics, delivery, and warehousing. The ability to tap into turnkey website designs and e-commerce platforms like Shopify, accounting and management services like Upwork, and contract manufacturing firms to make all manner of goods, made doing anything easier for almost everyone.

“Technology has advanced so fast in the last five years that what once took 10 years now takes four months,” Sullivan said. “That four-month period was what it took to get new business applications spiking upwards.”

More than 80% of small businesses in America historically have no employees, Sullivan said. But what’s changed is that one woman with an idea can compete with multinational firms thanks to the great equalizer of technology.

Sullivan says it’s not just retail firms doing this — manufacturing and professional services are seeing this as well. These solopreneurs are not all doing these businesses as a side hustle, either, though many are. While there aren’t exact figures on side hustles, the Bureau of Labor Statistics does take measurements of the number of multiple job holders with a primary job and a secondary job. The rate as of last month is roughly similar to the rate in 2019: about 4 million very busy Americans, give or take a few hundred thousand. 

It’s clearly not just stimulus money. This small-business surge is still taking place across the country, from Iowa to New York City, the latter of which is seeing “a surge in small-business formation across sectors,” said Melissa Pumphrey, SVP of economic research and policy for the NYC Economic Development Corp. The EDC’s recent report highlights a record rise in new businesses: the city now boasts 183,000 small businesses, one in three of which were started in the past two years. An interesting detail: because a quarter of new businesses in the past two years were sole proprietorships, small-business employment is actually down 28,000 jobs compared to prepandemic.

Pumphrey said one factor that’s a catalyst for a new class of entrepreneurs in Gotham is the rise in hybrid work, which lowers the barriers to entry. Nearly a third of new businesses were registered at residential addresses, many of which are in retail, consulting, and professional services. Outside these new companies, firms in trade, manufacturing, and construction saw a net loss of 20,000 jobs, and storefront retail was down 13,000 jobs. But because of the prevalence of hybrid workers and more people working from home (either for themselves or a company), demand has risen for bars and restaurants in areas outside of traditional business districts, which is fueling new business formation in the outer boroughs and neighborhoods like the hipster ‘hoods of Bedford-Stuyvesant, Williamsburg, Bushwick, and Crown Heights. 

Ozimek argues that effect has also been seen nationwide in so-called Zoom towns, where remote office workers flocked during lockdowns. These areas saw flourishing numbers of new small businesses take shape to meet the influx of new residents and workers. 

“I think one of the huge technological changes in favor of small businesses has been remote work,” Ozimek said. “This is really pro-startup in so many ways. New companies are unburdened by the past decisions that older ones have made and the fixed costs that they've made and the human-capital decisions that they've made.”

New York City would like to see more street life and jobs return to central business districts, Pumphrey said, and these new small businesses don’t outweigh other job losses. But they do have the added effect of cutting down on longer commutes, which benefits the transit system. They’re also part of a broad story of successful economic recovery, one factor contributing to the current record rate of job-force participation in the city today. And nationally they show few signs of slowing.

“What is new today is the amount of folks who want to give up a 50-hour workweek to do a 70- or 80-hour workweek,” Sullivan said. “It is crazy difficult with long hours and stresses that are unbelievable because you're risking everything. Yet it's part of the American dream, and they do it.”

Patrick Sisson is a reporter covering cities, technology, and business.