A promising measure of economic optimism remains historically elevated in Monroe County and much of the surrounding region.
The number of new business applications in the Rochester region in 2023 was sharply higher than normal over the last two decades. Application rates initially shot up nationwide during the height of the COVID-19 pandemic and have persisted in much of the country, including here.
The six-county Rochester metro region recorded 10,865 new business applications, up from 10,768 in 2022. Monroe County accounted for more than three-quarters of the region’s total—8,354, down slightly from the year before. That is 11.2 applications per 1,000 residents, ranking Monroe County near the midpoint of 3,100 counties nationwide.
While the entrepreneurial uptick during the pandemic might seem readily explained by the upheavals that came with it—remote work, an e-commerce explosion, unemployment and furloughs, and the like—the persistence of the trend is cause for a bit more head-scratching. Is this a new normal?
New business applications are a newer data product offered by the Census Bureau, so the scholarship is young and uncertain. One experienced entrepreneurship researcher involved in this study, University of Maryland’s John Haltiwanger, says more work needs to be done to explain the post-pandemic highs, but that much of the restructuring that took place during the pandemic has stuck around and may be enticing people into business formation.
Those involved in supporting entrepreneurs in and around Rochester echo that perspective. Once adaptations of necessity, the medley of video calls, delivery-driven businesses, side hustles, and relocation to cheaper and higher quality-of-life locations, along with new tech fueling upstarts, is hanging around. It just might be underpinning these application rates never seen before.
Pandemic disruptions
Economic changes during the 2010s brought subtle hints of the economy today. Side jobs and gig work, particularly rideshare and food delivery, rose in prominence and took up a big share of the decade’s new business applications as these independent contractors sought the benefits of incorporation, Haltiwanger says. E-commerce also exploded and opened new opportunities for non-store retail sellers, and general tech innovations also brought new horizons for startups.
These changes were trickling in before 2020, some faster than others, but the changes and burdens of the pandemic turned them into a torrential downpour. Accommodating lockdowns bred new realizations.
“The economy plunged, right? It just did terribly for a couple of months,” Haltiwanger says. “We thought we were headed for not only a deep recession but a long-lasting recession. And I think we were struck relatively early on that we can actually accomplish much of what we do online in terms of our interactions with consumers, our interactions with our colleagues, getting our work done.”
Unexpectedly, new business applications surged nationwide to historic levels in July 2020 after a big plummet at the pandemic’s outset, according to a paper Haltiwanger wrote last fall with Ryan Decker, chief of the Federal Reserve Board of Governors’ industrial output section. After another drop-off, they surged again in early 2021, and this new wave has stayed resilient since then.
Much of this appears to have been catalyzed by businesses adopting work-from-home policies.
For instance, Decker and Haltiwanger found that these early business indicators exhibited a donut-like pattern around the nation’s largest cities, suggesting some reshuffling of activity to where former commuters were living.
They also found that new lifestyle and work patterns brought on by the pandemic could plausibly be connected to the industries that contributed most to overall application growth for likely employer businesses—in particular, nonstore retailers; professional, scientific, and technical services; and administrative and support services.
And, in the case of nonemployer businesses, Haltiwanger says work-from-home, layoffs, furloughing, and quits likely gave people the time to pursue small business ventures, in many cases out of economic necessity.
All of these trends have persisted to some extent, with some new twists here and there. Among other things:
■ Artificial intelligence, for instance, has driven many more recent ventures in the professional, scientific, and technical services sector, Haltiwanger says.
■ Many companies have shifted away from liberal work-from-home policies, but the proportion of workers who reported teleworking has been over one-fifth for every month this year, and every month has posted a higher proportion than the year prior, according to the Bureau of Labor Statistics. The donut effect persists, and teleworking seems unlikely to go away.
■ The nonstore retail boom has waned slightly, but the business applications are still quite elevated, Haltiwanger says.
In these ways and more, the pandemic was a fundamental restructuring, and these new facets of the economy are likely tending to the entrepreneurial bonfire that’s persisted in its wake.
“I think it was a kind of wake-up call to all of us that we could accomplish as much as we can on many different dimensions through online interactions,” Haltiwanger says.
The local perspective
While Haltiwanger and his colleagues’ scholarship takes a national lens, many of his observations hold true locally, according to those active in Rochester’s entrepreneurial support ecosystem.
Jim Senall, president of NextCorps and managing director of the Rochester Angel Network, says the pandemic was a “jolting factor” for people considering diving into the startup world, both because it drove people to reassess the corporate ladder they were on and because it forced others to invent solutions when facing layoffs.
Lindsay Ward, regional director of the Small Business Development Center at SUNY Brockport, agrees. Ward says she saw the pandemic overhaul startup founders’ motivations for building companies and that these new inspirations still reign supreme.
Rather than chasing brick-and-mortar stores and service companies, “more people are pursuing side businesses or passion projects, leveraging digital platforms to reach broader audiences,” she says.
“We’ve also seen a rise in ‘solepreneurships’ and micro businesses, where there’s more of a focus on flexibility and low overhead,” Ward adds.
Senall’s sectoral observations also support Haltiwanger’s research about the ongoing tech upswing. NextCorps has 72 startups in its incubator program, and 75 percent of them are software companies, Senall says. The interest in software ventures has been so high that last year NextCorps had to create a program to teach people how to use “no-code” software development tools. Eighty people graduated.
Ebony Miller, the director of RIT’s Center for Urban Entrepreneurship, says she has personally mostly seen people seeking supports for culinary and service-sector businesses, and she says this likely has to do with skills people developed, economic desperation they faced, and increased time and flexibility people picked up during the pandemic.
“I feel like a lot of people got creative during the pandemic, and, once we came out of it, they put that creativity to use and formed a business,” Miller says.
Like Ward, she also has seen people who took up online retail during the pandemic chase additional online retail ventures—side gigs for their side gigs.
Keeping the flame lit
Whether or not these heightened applications are a new normal or a medium-term trend remains to be seen, Haltiwanger says. It will likely take supports to maintain the economic activity.
Startups are vulnerable. New business applications are a measure of nascent entrepreneurship—not success. Most applications don’t turn into actual new employer businesses. From 2016 to 2019, 9.5 percent of applications lead to business formations, and the Census Bureau is projecting only 7.2 percent of new business applicants in New York will form employer businesses.
Miller, Senall, and Ward are all involved in institutions designed to guide startup founders through this rocky nascent phase. They say that Rochester has done a good job of developing a support ecosystem to undergird entrepreneurial experimentation.
“I feel like we have a model here in Rochester that could definitely be transferred to other cities,” Miller says. “I feel we operate collectively, and we’re offering continuity with regards to the services that are provided from organization to organization.”
While the new startup experimenters that pass through these support institutions’ doors need plenty of help with planning and education, Miller and Ward both say adamantly that the No. 1 help request they hear is securing funding and access to credit.
Haltiwanger echoes the importance of easier credit on a macroeconomic scale. The Federal Reserve had maintained tighter interest rates until its most recent meeting in September when the central bank dropped rates by half a percentage point for the first time in four years.
“What we know historically is the businesses that are the most vulnerable to changing financial conditions are the startups and young businesses because they’re sort of beg, borrowing and stealing, doing everything they can to keep afloat. And so I have been very concerned that the rising interest rates and the restrictions on credit may actually have adversely affected this startup boom,” Haltiwanger says.
Senall is hopeful there will be an uptick in startup investors locally. Later this year, for instance, the Angel Network will conduct regionwide investor trainings to introduce people to the basics of angel investing.
While angel investment is vital, he adds, one of the key gaps in Rochester’s business support infrastructure is access to deeper pockets for later-stage investment, a problem he and others are looking to address.
“It’s great if we can get these companies their first investment, second investment, million bucks here, two million bucks there. But when they’re looking to go raise five, 10 million to really scale up, and they can’t find that in Upstate New York, that's a problem,” Senall says.
He believes the local ecosystem also has two other startup-related gaps that need to be addressed. Senall would like to see more experienced entrepreneurs stay in the area to pursue their second or third venture and more local institutions willing to serve as pilot customers for locally-baked solutions.
“We’ve got lots of businesses in town, and we’ve got very easy-to-get-to people—two degrees of separation and you could probably get to anyone in town,” Senall says. “I think we have an opportunity to get more first customers or trials or partnerships for our startups with companies right here in town.”
Senall says further bulking the support ecosystem’s strengths and patching up the weaknesses to keep this train moving are worthy ventures. While he is self-admittedly biased, given that bullishness on the local economy is at the core of much of his life’s work, Senall says putting chips on Rochester’s entrepreneurial future isn’t a bad idea.
“Once the flywheel is going more, I think that attracts more,” he says. “Perhaps this uptick in new business starts is what’s helping us get the flywheel kind of energized a little bit right now. And as we have more successes, and promote successes, we get more people recycled into the ecosystem and continue to build.”
For Miller, this entrepreneurial new normal is right in line with Rochester’s DNA. From George Eastman to towering equal rights fighters like Frederick Douglass, betting on business ownership was a part of many local heroes’ lives.
“We need to continue to do the work together and not operate competitively,” Miller says of the local startup support ecosystem. “I always tell my entrepreneurs and anybody I work with that when one of us wins, we all win, because we’re all doing this for the betterment of our economic development in our area.”
Justin O’Connor is a Rochester Beacon contributing writer. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].