The writer is founder of Sifted, an FT-backed media site for European start-ups
Boston’s once traffic-clogged and now-demolished I-93 highway is a good metaphor for the latest transformation of our working lives, according to the entrepreneur Phil Libin. As a resident of the US city for 18 years, Libin remembers the benefits that came from tearing down the monstrous overpass that cut it in two. Once traffic was redirected through the “Big Dig” tunnels built in the 1990s, Boston blossomed, reconnecting divided communities and opening more than 45 leafy parks.
To Libin’s mind, the structure of office work over the past 80 years resembles the old ruinous overpass, dominating the centre of many people’s lives. But pandemic-induced disruption has now ripped down this “unnecessary and inhuman” infrastructure, allowing employees to flourish in an out-of-office world, reconnect with family and friends and pursue new opportunities.
Almost every aspect of society has been disrupted by the pandemic, he tells me, amounting to the most profound transformation of civilisation in his lifetime. “The world is the changiest it has ever been,” says Libin, who runs a video communications company out of Bentonville, Arkansas.
Now, entrepreneurs are no strangers to hyperbole. Investors, who have been dumping once-faddish, stay-at-home pandemic stocks such as Peloton, Netflix, and Zoom, seem to be taking the contrary view that the post-pandemic world may look surprisingly like the pre-pandemic world. Reluctantly or not, many employees are being coaxed back into the office.
But the suspension of the “office overpass”, at least temporarily, has coincided with an extraordinary explosion of new businesses over the past 18 months in many OECD countries, most notably the US, UK, France, Australia and Japan. This trend has puzzled economists because it diverges so much from past experience. Yet it may signal an even more profound change, marking a “welcome and disruptive end to a lost decade of US entrepreneurship”, according to the Washington-based Economic Innovation Group.
After the great recession that followed the 2008 financial crisis, US businesses were dying faster than they were being born and some economists expected the latest downturn to follow a similar pattern. Many small businesses have indeed gone bust during the pandemic. Massive government support, mostly targeted at incumbent big businesses, might also have suppressed new ventures. But a record 5.4mn applications to form new businesses were filed in the US last year.
“It is hard to overstate the difference between this crisis and the last major crisis. It is truly night and day,” says John Lettieri, chief executive of the EIG. “The big open question is about durability. But I think there is a historic opportunity to reset the American landscape towards a more entrepreneurial and equitable future.”
To some extent, the surge reflects the desperation of those thrown out of work and forced to set up their own gig economy businesses. But it also reflects new opportunities, especially in ecommerce, to serve home-based workers. Another incentive may have been provided by the flood of capital pouring into the start-up sector. According to PitchBook data, VC-backed companies in the US raised $329.6bn in 2021, almost twice the previous record set the previous year.
Perhaps the biggest, and most intangible, factor has been a change in mentality in so many pandemic-hit countries. “People suddenly discovered they could work from where they want and do what they want,” says Roxanne Varza, director of the giant Station F campus in Paris that has hosted 3,800 start-ups since opening five years ago. “There has been a huge cultural shift towards entrepreneurship. The crisis has had a catalysing effect.”
Based on past experience, most of these new businesses will fail, or will fail to grow. But those that succeed could help transform economies around the world. Historic US data shows that surges in new business formation have, with a short time lag, led to corresponding surges in productivity, says John Haltiwanger, professor of economics at the University of Maryland. “Younger businesses are highly innovative, put competitive pressure on mature businesses and lead to productivity growth.”
Many governments are currently intent on regulating Big Tech, for understandable reasons. But this should not distract them from nurturing a fresh Covid generation of creatively destructive entrepreneurs, who may be best placed to exploit the business parklands of the post-pandemic world.