Will the startup revival last?

Written by Technically Media CEO Chris Wink, Technical.ly’s Culture Builder newsletter features tips on growing powerful teams and dynamic workplaces. Below is the latest edition we published. Sign up to get the next one.

In Washington DC, it is illegal to use more than 25% of your home’s square footage for work.

That might make sense to combat commercial uses encroaching in residential areas. But it seems an anachronistic, and regressive, law in an era of remote work. It’s a lot easier to remain compliant in a townhome than it is in a studio apartment.

That’s the sort of local policy that Victor Hwang says has to go. Hwang is the founder and CEO of Right to Start, an entrepreneurship advocacy group. I first knew of Hwang as an exec at the Kauffman Foundation, which pumps out research and policy recommendations to advance entrepreneurship.

“I’m sure it was well-intentioned,” Hwang said. “But it’s an unnecessary barrier.”

I spoke to Hwang ahead of Technical.ly’s Introduced, a conference on building better companies to be held May 12. Much of the day’s discussions will be on ways to advance organizations that already exist, but it’s at least as important to consider how we create new ones.

Almost all net new American jobs come from new businesses.

The majority of Americans work for big organizations with at least 250 employees, and most of us say we prefer supporting small businesses. But real economic power comes from new business formations that take off.

That’s why the decades-long decline in entrepreneurship has so worried economic development analysts and policymakers. The 2010s were one of the least active decades for entrepreneurship in American history. Worse still, contrary to popular narrative, we don’t start many new companies during recessions.

So, in spring 2020, as the COVID-19 pandemic recession took hold, I braced myself to see a further collapse in new businesses — and the jobs that come with them.

Then something remarkable happened. Startups surged. By fall 2020, economists scrambled to make sense of why the rate of business formations were growing faster than they had in decades. The trend continued in 2021. Nearly 5.4 million applications were filed to form new businesses — the most of any year on record, according to the Census Bureau. A third of them were “likely to hire” business types. Further breaking decades of trends, Black entrepreneurs outpaced their white and Asian counterparts in starting new firms, according to data from the Kauffman Foundation.

With such a change, the natural question is: Will it last? Two ways to see that. First, there’s the optimistic view.

In 1987, economist Robert Solow famously said that the computer age was everywhere “except for the productivity statistics.” Dubbed the Solow Paradox, the phenomenon was resolved in the 1990s when productivity growth accelerated once information technology was sufficiently distributed. Seeing years of seeming ineffectiveness of entrepreneurial support, pre-pandemic analysts began to debate whether we were in a new Solow age. To paraphrase the economist, in 2019 entrepreneurs were everywhere except in the economic growth statistics.

The pandemic, then, might have forced a seismic shift in which more of us took advantage of all the resources that exist — low-cost software, oodles of online learning and a culture that champions startups. Moreover, we may have reached a new, if modest, step in social reckoning with racial and gender barriers to business formation. By this telling, we might expect a sustained period of high-rates of entrepreneurship, of all groups.

“There’s a lot more you can do at home now and in places that were harder to do it before,” Hwang said. Though video conferencing existed before the pandemic, we may just be far more willing to use the tool for serious business dealing.

Then there’s a more pessimistic view. In this telling, we’ve seen a remarkable, one-time, if extended, societal response to an historical disruption.

“But the system itself hasn’t shifted,” Hwang said, referring to what he calls “the UX of the economy.” Few jurisdictions have focused on easing business formation practices, though Right to Start and others list examples, including his 5% to Start policy objectives. One chilling explanation for why Black American entrepreneurs have outpaced other race groups is that they disproportionately lost their jobs.

That lingering zoning ordinance in DC is a telling example for Hwang. We have an opportunity for this entrepreneurship boom to last if we do something about it, he said.

“Entrepreneurship can’t be a ‘special interest group’ but a lens to view all our goals, from education to our economy,” Hwang said. “This affects all of us.”