Starting a new business is a challenging yet exciting journey. The past few years have seen huge growth in entrepreneurship and startup activity in America. If you‘re thinking about launching your own venture, it‘s helpful to understand the latest trends shaping new business formation today.
This in-depth guide dives into the key statistics and factors impacting new entrepreneurs in 2021 and 2022. How many businesses were started recently? Which industries are booming? What are costs and risks for new startups? Read on for insights into the startup landscape.
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New Business Applications Surge During Pandemic
The COVID-19 pandemic triggered a massive surge in new business formations. According to Census Bureau data, over 5.4 million new business applications were filed in 2021. This represents a 23% increase from 2020, when 4.4 million new businesses launched.
What drove this explosion in entrepreneurship? Widespread layoffs due to COVID-19 led many to start their own ventures. New business formations hit record highs in mid-2020 and remained strongly elevated through 2021 before moderating slightly in 2022.
In the first half of 2022, approximately 2.5 million new business applications were filed nationwide. This is down 10% from the first half of 2021, but still far above pre-pandemic levels.
The data shows that economic uncertainty and unemployment tend to spur new business activity. Household name startups like Airbnb, Uber, Venmo, and WhatsApp were formed during the Great Recession for context. While risks are higher launching in downturns, they can present opportunities for resilient entrepreneurs.
New Company Formation by U.S. Region
Geographically, where did all these new businesses form in recent years?
The U.S. South region saw the most startup activity by far, accounting for 47% of all new business applications nationwide in 2021. This reflects over 2.5 million new company formations in southern states.
Texas led in total new business formations among all states with over 580,000 startups in 2021. Other top southern states included Florida, Georgia, North Carolina, and Tennessee.
The Midwest region followed with 17% of all new business activity. Top midwestern states were Ohio, Illinois, Michigan, Minnesota and Indiana.
The Northeast and Western U.S. saw the fewest new company formations overall in 2021. However, some western states like Arizona, Utah, Colorado and Idaho ranked among the highest for startup activity per capita.
New Company Growth by Industry
Across which industries did new business formation grow most strongly in 2021/2022? Here are some top sectors:
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E-Commerce: Online retail boomed during COVID lockdowns. E-commerce sales jumped 44% in 2020 alone. New online retail startups grew 77% between 2019-2021 and are projected to expand another 16% in 2022.
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Professional Services: Areas like consulting, research, accounting, and technical services saw 10.5% average annual growth in new business formations from 2016-2021, a trend expected to continue.
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Supply Chain & Logistics: New startups in supply chain tech, delivery, transportation and warehousing surged in 2021, with 58% more VC funding versus 2020 as the industry expanded.
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Healthcare: Telehealth startups and new home health businesses grew strongly during COVID, as did medical supply/device companies meeting pandemic demand.
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Construction: The real estate boom driven by urban shifts and housing shortages led to 12% growth in new construction business applications in 2021, concentrated in southern states.
Several other industries saw strong new business formation including local consumer services, administrative/staffing services, financial technology, education technology, and green energy.
Overall, areas where consumer demand surged during COVID or that enabled remote work/commerce saw the biggest opportunities for new startups.
Survival Rates for New Businesses
While business formations have surged, it‘s important to note that most new companies fail within their first few years. What do the statistics show?
- 80% of new companies make it through their 1st year
- 70% survive past their 2nd year
- 50% make it to year 5
- 33% continue past 10 years
- 25% survive 15+ years
Younger businesses were hit harder during COVID – the number of businesses under 2 years old declined 25% in 2020. However, strong formation activity in 2021 helped rebound these numbers.
The first years are critical for establishing product-market fit, revenue streams, and defensible positioning. With careful planning, ample funding, and resilience, entrepreneurs can beat the odds and build sustainable ventures.
Costs for Starting a New Business
How much does it cost to start a new business? Expenses vary dramatically based on the type and scale of the venture.
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Online business – $500-$5,000 for legal registration, website, and basic costs.
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Local service business – Around $25,000 for modest space, equipment, licensing, inventory.
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Full-scale business – Around $150,000-$200,000 for substantial space, extensive inventory, multiple employees.
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Highly regulated business – $250,000+ due to greater licensing, compliance, insurance costs.
The most common sources of startup funding include business loans, crowdfunding, grants, investments from founders themselves, friends/family, and angel investors. Thorough planning and networking are key to raise adequate capital.
Tips for Aspiring Entrepreneurs
For those considering starting a business today, here are some tips:
- Gauge your motivations – don‘t start a business just because others are. Have clear goals.
- Research your market extensively before jumping in.
- Choose the right legal structure – most start as LLCs or sole proprietorships.
- Handle licensing, permitting, regulations upfront.
- Combine funding sources strategically – don‘t rely solely on loans.
- Start lean – keep costs low initially and validate demand before scaling up.
- Build digital assets – create a professional online presence.
- Network consistently – connect with partners, investors, mentors, customers.
- Stay resilient – new ventures face challenges but can pivot and bounce back.
While COVID fueled new business formations, economic headwinds persist looking ahead. However, opportunities await savvy founders offering needed products or services. With grit and adaptability, new entrepreneurs can still thrive in today‘s landscape.
Sources
U.S. Census Bureau, U.S. Bureau of Labor Statistics, SBA Office of Advocacy, JPMorgan Chase & Co., Fundera, U.S. Chamber of Commerce
