New Businesses—Not Just Main Street Firms—Need Rescuing

Questrom’s Catherine Fazio presents new research that shows new business formation is beginning to decline in a dramatic and worrisome fashion.

Featured in Forbes, new research from The Startup Cartography Project, an initiative co-led by Questrom Lecturer Catherine Fazio, shows that new business formation has received little focus in economic relief efforts.

Fazio and her co-researchers studied the rate, trajectory, and growth potential of new business formation. Their measures are leading indicators for the health of the US economy, and early trends in newly available data are troubling.

While new business registrations per day in 2019 and 2020 initially track fairly closely, they sharply diverge starting on March 15-16 of this year, when each state began shutting down public events and schools due to COVID-19. Following the first significant social isolation, new business registrations fell by over 75% compared to 2019. Then, the gap persists—or worse, grows.

For context, Fazio and her co-researchers looked at new business registration patterns for New York during the period around 9/11 and around the onset of the Great Recession (following the Lehman Brothers Collapse) and additionally in Louisiana before and after Hurricane Katrina.

After both 9/11 and the onset of the Great Recession, new business registrations per day in New York rebounded within about two weeks. Nowadays, however, the declines in new business registrations per day in New York are over seven times steeper than those after 9/11 and the onset of the Great Recession. Furthermore, they show no signs of rebounding. After Katrina, new business registrations per day in Louisiana fell to basically zero—but with federal aid, the rates rebounded and even improved.

“While rough and preliminary, our analysis indicates that the impact of COVID-19 on startup formation is likely to be severe,” writes Fazio and her co-authors in Forbes. “It likewise suggests that Federal aid can make a meaningful difference in providing opportunities for new businesses to launch and grow. As the United States navigates its path out of this economic crisis, we can’t afford to keep new business in our blind spot.”

Read the full article on Forbes here.