Maybe we’re not at the end of the COVID-19 tunnel just yet, but many business leaders can see at least a faint glimmer of light. Americans are being vaccinated, restrictions on travel and gatherings are falling, and the economy is showing signs of life.
For the past year and a half, many businesses went into survival mode—cutting costs, laying off workers, and doing whatever it took to keep the doors open or stay in a position to reopen later. Congratulations if you made it this far. It certainly wasn’t easy.
There’s some bad news, however. While you were trying to keep your head above water, entrepreneurs and innovators used the pandemic as an opportunity.
According to U.S. census records, there has been an explosion in new ventures. Nationally, entrepreneurs created 24 percent more new businesses than in the previous year, and new startups in Illinois grew by more than 46 percent. Those are big and surprising numbers: New business formation declined during the 2008 recession, and national business growth rates were steady at around 4 percent from 2010 to 2019.
Much of these increases came from sole proprietorships, people opening so-called lifestyle businesses either because they lost their jobs or wanted to take control of their futures. But a significant part of the increase came from innovation-driven companies that have plans to grow. “High propensity” business applications, which the census defines as businesses that have hired workers or are likely to, were up by nearly 16 percent nationally and 30 percent in Illinois. Compare this to double-digit declines from the 2008 recession and a mere 1 percent growth rate from 2010 to 2019.
All this means that you probably have competition coming, and it’s well-funded. After a slight year-over-year decline in seed-stage and early-stage venture-capital deal flow from 2015 to 2020, deal count increased in Q1 2021 compared to Q1 2020, and total venture-capital dollars invested in seed- and early-stage companies nearly doubled in this same time frame. Since venture-capital money follows innovation once companies gain traction, the uptick in 2021 investment activity is a good indicator that entrepreneurial innovation accelerated in 2020.
If you’re a business that has weathered the storm—but only weathered without considering how to innovate in this new landscape—you should consider the threat posed by new companies. As Jack Welch famously said: “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”
These entrepreneurs have an advantage. They get to start their businesses in the new normal, while long-standing companies have to adapt after having suffered the financial consequences of the pandemic-induced downturn.
As a company that has gotten this far, you should be thinking about the number of new business or growth ideas on your company’s agenda for the coming year. You need to consider how your customers’ needs, expectations, and behaviors have changed and how you can deliver new solutions. Then develop tangible plans to invest in and execute these new ideas.
Someone is going to do those things. Will it be you, or a hungry new entrepreneur?
Lindsey Lyman is clinical associate professor of entrepreneurship at Chicago Booth.
This column is part of the Chicago Booth Insights series, a partnership with Crain’s Chicago Business, in which Booth faculty offer advice for small businesses and entrepreneurs on the basis of their research.