The Startup Boom Is Here. Why Now?

Despite the uncertain economy and the ongoing global health crisis, the startup world seems to be having a renaissance. According to the U.S. Census Bureau, business applications began to rise about six weeks after the pandemic, and the third quarter of 2020 has the highest number of applications on record.

What's driving the boom?

“A shaky economy has been known to be one of the best catalysts for startup growth and innovation," says Tyler Forte, CEO of a Nashville-based real estate startup Felix Homes and former venture capital investor with ventureLab Growth Partners in New York.

“Take, for example, [the Great Recession in] 2008, which birthed innovative startups such as Uber and Airbnb. Startups tend to flourish during economic uncertainty because with change comes opportunity."

A new way of life creates new opportunities in the market, and quick-thinking startups capitalize on them.

“There is the old saying, 'necessity is the mother of invention,' and never was it more true than in our coronavirus times," says Holly Helstrom, an associate at Logos Consulting Group, a consulting firm that works with startups and venture capital groups.

“COVID-19's sudden and dramatic arrival made it very apparent very quickly what people and organizations need to do to succeed and stay healthy in the new world we are living in," she says. "New circumstances create new needs. Startups are responding quickly to this call to fill in the gaps in our economy."

Companies in industries like e-commerce or mobile-on-demand experienced five years of customer growth compressed into five weeks, says Phil Santoro, founding partner of Wilbur Labs, a San Francisco-based startup studio.

“While many businesses have faced unique challenges this year, others have made significant traction in this environment," he says.

The advantages of agility

Startups have several advantages during the pandemic. First, they're usually nimble, making them better positioned to compete with large corporations in uncertain times.

"During recessions, existing companies often take their focus away from long-term opportunities, instead prioritizing short-term performance to please stakeholders," says Santoro. “This presents an opportunity for startups to rethink how to serve customers better long-term, and take market share away from existing companies."

And new companies are better positioned to adapt to rapid changes in consumer behavior.

“All around us, industries and trends are evolving much faster than ever before," he says. “This creates an opportunity for entrepreneurs to think about what the future will look like in order to build an industry-leading company. While older, well-entrenched companies are concerned with pivoting to survive during a crisis, aspiring entrepreneurs can build from scratch."

Reasons for optimism

Aspiring entrepreneurs and investors should be optimistic about building companies today, says Santoro.

“While this is a difficult business environment, startups that embrace change will win market share and emerge stronger than existing companies," he says. “Now more than ever, we need people to build the next generation of companies that will tackle some of the world's biggest problems. There are a lot of unknowns right now, but we believe this is the best time to start a company—ever."