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Research overview

The evidence is mounting: Stimulus checks contributed to a new microbusiness upsurge in 2020

Much of the political debate about federal stimulus checks has focused on whether putting cash in people’s pockets makes them less likely to seek jobs. But there’s growing evidence that those checks may have done something else: encourage more people to start their own businesses.

According to two recent studies, far more small businesses were started in 2020 than in 2019. In May, the National Bureau of Economic Research found that small business registrations — entities that file official paperwork with state or local governments — rose 21% year over year. And the number of new online microbusinesses, which typically have 10 employees or fewer and often don’t bother to register officially, rose even faster. In 2020, new microbusiness starts rose 60% over 2019, according to new data from Venture Forward, a research initiative by GoDaddy to quantify the economic impact of 20 million online businesses that use its domain registration service.

“The stimulus checks have apparently been enough to convince some people to act on an idea they’ve had to start something,” says Karen Mossberger, a professor of public affairs at Arizona State University. “That can have a significant and lasting impact on a lot of communities.” 

The overall startup rate in the U.S., inclusive of everything from new food trucks to venture-backed tech companies, has been declining since the 1980s, according to a recent report by the Cato Institute, in part because small businesses have not recovered from downturns as well as in the past, particularly after the financial crisis of 2009. “To replace lost jobs and incomes, the economy needs entrepreneurs to fill the void with business startups,” wrote Chris Edwards, Cato’s director of tax policy studies.

The surge in new starts is especially important, given the economic havoc wrought by the pandemic. According to Opportunity Insights, the number of small businesses that were open fell by 44% between January of 2020 and mid-June of this year. 

Timing new business starts

No doubt, stimulus checks are not the only reason for this activity. Some of the “new” companies tracked by the NBER study may have existed for years, but recently registered so as to qualify for Payroll Protection Program loans. Other businesses were likely “startups of necessity,” created by people who lost their jobs and had to generate income to support themselves. And many existing brick-and-mortar businesses showed up in the Venture Forward data, as restaurants, boutiques and others added a website during the pandemic so they could continue to take orders and market themselves. 

But the studies, which tracked business starts in the same eight states representing 30% of the country’s GDP, reveal a timeline that points to the stimuli as major factors, with big increases in business formation after the first round of stimulus in March 2020, and again after the second round in December.

The first spike followed a sharp decline in starts during the chaotic first few weeks of the pandemic. The number of small business registrations tracked by NBER bottomed out in the week ending March 27, 2020, down 57% from the same week in 2019. 

That trend quickly reversed after stimulus checks were deposited into the bank accounts of 160 million Americans in mid-April. By June 24, registrations were running ahead of 2019. While starts slowed in the fall, both studies show a similar spike after the second round of checks were issued in early January 2021. 

Venture Forward’s analysis suggests the checks had an even bigger, and faster, impact on founders of online microbusinesses. New starts rose 60% in the two months following the disbursement of the first round of checks, and the year-over-year growth peaked in July in most of the states. Registrations tracked by NBER, which can include larger, more established businesses with up to 500 employees, seem to have peaked after the third round of checks, passed by Congress in March 2021, were issued this spring. Venture Forward is currently analyzing the impact of the third round of stimulus on microbusinesses. 

Digging deeper into microbusinesses

Understanding the distinct behavior of small businesses and microbusinesses is important for government leaders who want to fully leverage their economic potential. Since government metrics do not track online microbusinesses separately and because so many of them are not registered, they have been largely invisible to policymakers. 

GoDaddy started Venture Forward in 2018 to make them visible, and to quantify what turns out to be an outsized economic impact. Venture Forward analysis shows that adding one online microbusiness per 100 people can boost a county’s median household income by $485. And communities with more microbusinesses had stronger recoveries from the 2011 recession.  

New data shows spikes in online microbusiness startups following the distribution of stimulus check funds, especially in majority-Black zip codes.

Of the 20 million microbusiness tracked by Venture Forward, 90% have fewer than 10 employees, and around half are solopreneurs. Three-quarters of them are commercial businesses (the rest include nonprofits, civic groups and the like). 

For many microbusinesses, the $3,200 (plus $2,500 per child) received by people who qualified for all three rounds of stimulus could satisfy some or all of the costs of starting a microbusiness. According to past surveys by Venture Forward, 2 out of 5 of these entrepreneurs required less than $5,000 to get started. More than half needed less than $10,000.

A boom in majority-Black zip codes

Both studies suggested that the stimulus checks had the biggest impact on predominantly Black communities. In both, the number of new starts increased more than 100% in zip codes where Black residents are in the majority, compared to 60% in minority-Black zip codes.

New data shows spikes in online microbusiness startups following the distribution of stimulus check funds, especially in majority-Black zip codes.

That growth was even enough to close a chronic disparity in the startup capacity between these groups. According to a recent Brookings Institution study, startup formation in majority-Black counties has lagged the national average for many years.

Before the pandemic, according to Venture Forward, the majority-Black zip codes produced .75 new online microbusiness per 1,000 people versus 1.35 per 1,000 in minority Black zip codes, an 80% difference. Shortly after the first round of checks were issued, that gap shrank to 40%. And earlier this year, after the second round of stimulus last December, the majority-Black zip codes had edged ahead, producing 2.3 new microbusinesses per capita, versus 2.1 for the others. 

Given a spate of historic obstacles — such as having less access to broadband, bank loans and nearby mentors — this reversal is probably temporary, says ASU’s Mossberger. But even a temporary leveling of the playing field can have major long-term benefits, she says.

“We know that having more businesses in a community helps create an entrepreneurial ecosystem, where people can learn from each other and mentor each other and buy from each other,” says Mossberger, who is a research partner of Venture Forward. “All of these new businesses in predominantly Black neighborhoods are proof that the capacity for innovation is there. But not the resources.”

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