RESEARCH TRIANGLE PARK – Necessity apparently is the mother of entrepreneurship, at least in the times of the COVID-19 pandemic. And North Carolina entrepreneurs are those responding at high rates, especially with so-called “high propensity” potential – the potential to create payrolls and thus jobs.

These new firms could produce more than 200,000 jobs over time, according to data from NC IDEA, an economic development foundation in Durham.

Nationally, the rate of new entrepreneurship is the highest it’s been in 25 years—and possibly longer.  That’s according to a report released this week by the Kauffman Foundation, which found that 380 people out of every 100,000 adults—0.38 percent—became new entrepreneurs in any given month of 2020, and increased throughout 2020.

And many of those are likely to be in North Carolina.

Last week, WRAL TechWire reported that in North Carolina, new businesses were launched at a record pace in 2020—nearly 127,000, according to the North Carolina Secretary of State’s Office.

Yet the report also found that while the rate of new startups was the highest in 2020 compared to any year in the history of the dataset, the opportunity share was at its lowest. Nationally, according to the data tracked by Kauffman, the opportunity share, which the report defines as “the percentage of new entrepreneurs who created their business out of opportunity instead of necessity” was 69.8 percent in 2020—well below the rate the organization’s data on 2019, 86.9 percent.

“The economy went through the shutdowns, job losses, and reopenings that characterized the COVID-19 pandemic,” the report’s executive summary reads. “The decline from 2019 to 2020 during the pandemic was 17.1 percentage points, much larger than the one-year decline of 6.9 percentage points from 2008 to 2009 during the Great Recession.”

How’d North Carolina fare?  The number of people who created new businesses due to opportunity rather than necessity only decreased by 7 percent, Thom Ruhe, president and CEO of NC IDEA, told WRAL TechWire, well ahead of the national average.

According to Ruhe, North Carolina’s opportunity share was 87.46 percent in 2019 and 80.4 percent in 2020.

“North Carolina is also one of only nine states that surpassed 40,000 high-propensity firms created,” said Ruhe.  The U.S. Census Bureau defines a high-propensity business as a business that submits an application for an Employer Identification Number (EIN) through filings of IRS form SS-4 that, according to the agency, “have a high propensity of turning into businesses with payroll.”

In other words, said Ruhe, the formation of high-propensity businesses in the state is one important measure of future potential job growth due to entrepreneurship and new business formation.

Kauffman chart on rise of new ventures

More than 43,000 high-propensity business applications were filed in North Carolina in 2020, said Ruhe, nearly 7,000 more than the 36,272 high-propensity business applications filed in the state in 2019.

According to the data that NC IDEA tracks, each high-propensity firm created an average of 4.89 jobs in their first year operating, said Ruhe.

Kauffman chart on “opportunity shares”

“Think about the blockbuster deals when established firms consider opening new facilities or move their headquarters location to the state,” said Ruhe.  “What would we incentivize for 35,000 new jobs—we’re talking Amazon HQ2 numbers.

“We presumably had an incentives package in the billions of dollars,” he noted of of the Amazon HQ2 proposal.  “What I’m hoping for is that this newfound interest in entrepreneurship, whether it be from choice or necessity, is that we as a state are going to support those who become entrepreneurs.”

More opportunities

There’s about to be an opportunity to rethink how we invest in entrepreneurial ecosystems—and in economic development that creates jobs within communities, including underrepresented ones, said Ruhe.

That’s because the American Rescue Plan Act of 2021—which President Biden signed into law this week—amended the State Small Business Credit Initiative Act of 2010 and provides reauthorization of $10 billion of the State Small Business Credit Initiative (SSBCI).

The initiative, which was created by Congress in response to the Great Recession of 2007–2009, supports state programs to better support and provide credit and investments in small businesses nationally.

“The current bill has upwards of $9 billion, and North Carolina can anticipate approximately $300 million, give or take $50 million,” said Ruhe, noting that the funds are distributed on a pro-rata basis and are routed through each state’s Office of the Governor.

“The window for coming up with a statewide plan is going to be very short, like 30-60 days,” said Ruhe, noting that in 2010, North Carolina’s efforts were led by the North Carolina Rural Center, and ranked second in terms of return on invested dollars nationally.  “What’s the plan for that funding, and how is the state going to support the startups that are creating the jobs that we so desperately need,” asked Ruhe.  “What are we doing, what are we funding, what services, what resources will be available to these people starting new companies, and how will that impact underserved populations, for example.”