@KohlsPowrShopper - thank you!
@studentsavings - looks like applications for EINs are the statistic. Without thinking too hard, that statistic is probably OK, but not 100% reliable. People can apply for an EIN but never actually start a business. I have heard that sole proprietors applying for bankruptcy need to establish an EIN, and that would be a very disheartening reason for a jump in EIN applications (IRS Info - https://www.irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-ein). Nevertheless, let’s suppose that the statistic is good enough for this discussion.
What is interesting to me is that people with EINs may not need them. My wife is a sub-S corporation and uses her SSN as her EIN, for example.
So, if people are applying for tax id numbers in relation to opening businesses, then what’s driving them to compete with Amazon and WalMart? Amazingly, even thought I love shopping at Amazon and will hit Walmart for some items, neither has an Italian Bakery I like. My local supermarket and the gourmet grocery don’t have a good Italian bakery section either, but guess who DOES have a great Italian bakery? My local pizzeria - the owner is actually a pastry chef who makes out-of-this-world great pastries, but also makes pizzas and other Italian food. I think he drives business to his pastry offerings when people pick up take-out food. My point is that Amazon and Walmart, so far, can’t be everything to everyone. There are a lot of service-based businesses that Amazon and Walmart haven’t touched, so that leaves the field open for others.
Here’s my unscientific thought - people believe they have the next great idea or they can do something better than others. See the stories above about the baker and the bookseller. Someone else closed so they decided to try and capture the abandoned customer base. I think this is risky as if the existing provider failed, what makes someone think they can do a better job unless they have a unique offering that people actually are willing to pay for, or they lead with low price for the market? I’m not sure how to get the statistics, but I would like to know from all of the new EINs issued, how many actually started businesses, and how many were still in business one year later? What’s the bike mechanic going to do when the streets are covered with snow and it’s way too cold to go bike riding?
Where I’m going with all of this is that people are optimistically starting businesses because they have been thrust into an unemployment situation with little hope of re-employment, at least in the near term. Some are brave or creative, or both, and dive into starting a business because they have little to lose by doing so. The question to ask is if these same people would have started businesses if they had not lost their jobs, and my feeling is that they would not have done so. If they were very confident in their uniqueness or ability to capture a piece of a market, why didn’t they start their businesses as a side hustle when they were still employed? Perhaps there was too much competition or a saturated market? If that was true, then the business closings tell me that there were too many providers in the markets and they were hanging on by a thread, or going further and further into debt to keep their businesses afloat. The business closings were a natural reaction to the weakly financed enterprises facing reduced customer demand, and if that’s true, then new entrants, if not strongly financed, face the same fate.
In short, optimism coupled with low risk is driving the EIN applications. I want to think so, anyway, and pray it’s not bankruptcies driving the EIN applications…
– Z –