Are you thinking of starting your own business?
If you are, you’ve got a whole lot of company…
New business applications made to the IRS (for a tax ID) have been booming since the COVID-19 caused a brief recession in early 2020.
Here’s a chart of monthly applications since 2011…
You can see that new business applications really jumped after the pandemic.
According to the U.S. Chamber of Commerce, there were more than 5 million applications in 2021 and 2022 – nearly double the pre-pandemic level. And the trend accelerated in 2023 to a record 5.5 million applications.
Why so many new businesses in the last three years?
Effects of the Pandemic
According to the Chamber, the pandemic created new economic needs and consumer preferences. And lots of people (many of whom were laid off in the early days of COVID-19) turned their ideas and hobbies into businesses that meet those needs and preferences… and can run out of a home. Many also became self-employed consultants.
Retail trade was the most prevalent type of new business formed last year, followed by professional services and construction. Many new businesses were also in the transportation, healthcare and real estate sectors.
Interestingly, new-business applications were particularly strong in northwest and western states, particularly Iowa, North Dakota and Colorado. On the other hand, they were slowest in southern states.
The Millionaire Mindset
Starting a business is a good path to wealth. For his books The Millionaire Mindand The Millionaire Next Door, Thomas Stanley interviewed more than 700 millionaires and found that two-thirds of non-retiree affluent households are headed by self-employed business owners or professionals.
Only about 1 in 5 of all U.S. households is headed by a self-employed person, yet these people are four times more likely to be a millionaire.
And these millionaire business owners tend to have certain traits that are highly conducive to wealth building, according to The Millionaire Mind. They’re very strategic and tend to look for a business opportunity that will make money, not necessarily one that is sexy or fund to do.
They’re also cheap – let’s call it frugal – and have a strong work ethic.
But if starting a successful business sounds easy, it certainly isn’t…
According to the Bureau of Labor Statistics, roughly a third of new businesses started in 2010 closed within two years. Half closed within five years. And those failure rates are remarkably consistent over time.
Here’s a daunting chart showing the survival rate of new businesses started…
An Easier Path?
Of course, there’s another way to own a business: investing.
When you own shares of a company, you own a piece of it. And if you’ve chosen well and the business thrives, your share of it becomes more valuable.
Plus, many companies return profits to shareholders via dividends.
Yet even if a company pays small dividends (relative to its share price) or none at all, you can realize the gains of its success when you sell the shares for more than you paid.
Of course, there are risks involved here…
Many publicly traded companies also fail, and that failure is reflected in a sagging share price.
But that’s the beauty of diversification. Small-business owners tend to invest the bulk of their money into their own business. If it fails, they’ve lost it all.
With investing, you can own a large portfolio of companies and mitigate your risk considerably.
That’s what we do here in Liberty Through Wealth and at The Oxford Communiqué – identify a broad array of companies likely to thrive in coming years.
I invite you to follow along this year with Oxford Club Chief Investment Strategist Alexander Green and me as we identify new companies that are involved in eight innovative and growing technologies.
[Editor’s Note: Go here to learn how to join us today.]
We’re confident that these companies will provide the most upside to people who want to own a piece of a successful business.