New business owners today ‘look drastically different’ to pre-COVID entrepreneurs: Economist

Gusto Principal Economist Liz Wilke examines the upward trends seen in new business applications seen in 2022, including the demographic shifts in the small business sector for women and entrepreneurs of color.

Video transcript

SEANA SMITH: Well, despite uncertain economic times, over 4 million new businesses were started in the first half of this year. So how are all these new businesses handling everything, from payroll to benefits and even hiring employees? That's where companies like gusto.com comes in. And we want to bring in their principal economist, Liz Wilke. Liz, it's great to have you. So you're helping small businesses when it comes to payroll, when it comes to benefits. I'm curious just what your conversations have been like with these small business owners over the last several months.

LIZ WILKE: Yeah, it's a great question, and I'm happy to be here. Gusto provides HR payroll and benefits for over 200,000 small businesses in the United States across all industries. So we hear a lot all across the spectrum. Some businesses are really excited about new opportunities that are coming up for them. Some businesses are really struggling.

We've seen industries bounce back in leisure and hospitality and healthcare and education, where there's just been huge demand from the pandemic. And businesses are really taking advantage of that. And we've also heard from businesses that are doing more personal services and in-person services that really took a hit during the pandemic and are trying to figure out still what their next move is and what they look like in the future.

DAVE BRIGGS: And just about, Liz, every aspect of life has been transformed, really, by the pandemic. What's been the biggest change or evolution for small business?

LIZ WILKE: Yeah, for new businesses in particular, in 2020, we really saw most new businesses in the retail and trade services, like you-- like what had sort of been happening in years prior. And then in the last survey that we did, we really found that most new businesses or sort of a plurality of new businesses, 42% are in professional services.

The people that are seeing these opportunities are, like you said, sort of taking advantage of the fact that the whole world has changed. They are much more digital. They're going into sort of high value services. They are taking advantage of opportunities, but they're still facing some headwinds. Business owners are the most agile, adaptive, and resilient people. But they still are facing some real struggles. Talent and getting the right talent in is really the biggest thing that we hear from them, as well as the rising costs of things because of inflation.

DAVE BRIGGS: You also say, though, Liz, the face of small business, of entrepreneurship, has changed. How so?

LIZ WILKE: Yeah, so women are really taking advantage of the opportunities that have come from the pandemic. They started 49% of the businesses, nearly half, in the last two years. From prior years, from government data, we know that that number hasn't been much above 28% since before the pandemic. Also, Black founders were about 3% before the pandemic. And now that number has tripled.

So, really, just people are seeing new opportunities, and they are sort of thinking about how to take control of their lives and to build that sort of independent entrepreneurship life for themselves. We are really seeing new business owners look drastically different from business owners prior to the pandemic.

SEANA SMITH: And Liz, the reason why so many small business owners are starting a business, has that changed as well?

LIZ WILKE: Yeah, I mean, most of them have started a small business because they are seeing opportunities from the pandemic. They have quit their jobs because they are seeing opportunities that the pandemic is offering up. They are seeing opportunities to have new types of workers and workforces that will allow them to do their businesses better.

Gusto is part of that. Gusto is part of the digital transformation. And the fact that Gusto exists to do all of these sort of functions that you might have had to do with pen and paper before is really also helping small businesses and entrepreneurs get right off the ground and sort of start a business with very little capital and to just sort of, from day one, just look like a smoother and much bigger business than they would have before the pandemic. And I think that really is sort of a sea change that we're seeing.

DAVE BRIGGS: And Liz, we hope to avoid an economic downturn. But certainly, with all the big bank CEOs and economists talking about one, what are the best tips for those small businesses and the eventuality that we don't get that soft landing?

LIZ WILKE: Yeah I mean, I think that businesses are really sort of trying to plan for all scenarios here. And one of the real interesting things about this economic time is that we are thinking about a recession or a pandemic. But we will never have entered a recession where there are almost two jobs for every unemployed person in this country. And what we hear time and time again from small businesses is that they have such big talent challenges.

So they are thinking about how do I manage my talent costs? How do I keep workers that are good, happy, and here? How do I avoid having to try and get new workers in, if I can keep the ones that I've got? And so they are really trying to manage costs. And they are also really trying to think about how to invest in the talent that they have and attract new talent. And they're doing that by offering new benefits. And they're doing it by seeking new sources of talent, both in contracting and in offering remote work, because it's really influencing the types of talent that they can attract into their small business.

DAVE BRIGGS: Remote work at the top of the list you hear for people looking for jobs right now. Gusto principal economist Liz Wilke, very interesting conversation. Appreciate that.