Tom Sharbaugh: There is an increase in business startups — really?

One of the surprising trends in the recent shutdown of the U.S. economy is an uptick in the number of people in Pennsylvania who are starting companies. Why would anyone have the confidence to start a business now? The answer is that many people have more confidence in themselves than in their current or recent employers.

Through my role as director of the Entrepreneur Assistance Clinic (EAC) at Penn State, which serves startups and early-stage businesses that cannot afford traditional legal representation, I speak with entrepreneurs from across Pennsylvania every day. There is a clear difference between investors, who need to depend on someone else, and entrepreneurs, who primarily rely on themselves. The investors may be on the sidelines now, but the entrepreneurs are coming to the front lines.

Several weeks ago, the statewide director of the Pennsylvania Small Business Development Centers (SBDCs) cautioned me to be ready for an upsurge in startup activity. He is a veteran of previous recessions and explained that people consider starting businesses in downturns after they are laid off or when they see that their current jobs are vulnerable.

He was right — the EAC tracks its new-client statistics and noticed a quick increase starting in late March. Although we cannot yet tally the final results for April, the number of new-client requests will definitely be double the number for March.

These new entrepreneurs are entrepreneurs of necessity as opposed to entrepreneurs of opportunity. The FAANG group (Facebook, Apple, Amazon, Netflix and Google) comprises entrepreneurs of opportunity: They perceived a new way of filling a particular need, whether distributing products or media, more efficiently and on a large scale. The entrepreneurs of necessity are much different: They are generally trying to support their families, not as a side hustle, but as a replacement for insecure employment. They include the omnipresent convenience stores, gas stations, sandwich shops and dry cleaners that we encounter every day (when we are not sheltering in place).

And Pennsylvanians are thinking about starting new businesses every day of the week and at all times of the day. The 24/7 online intake process for my organization, which serves residents across the entire commonwealth,received numerous requests for help over the Easter weekend — several on Saturday night around midnight.

In addition to seeing an influx of new entrepreneurs, we have also seen a rise in changing needs. Although launched to help with business formation and growth in Pennsylvania, we recently expanded our scope to assist small businesses with managing their commitments under loans, leases and other contracts, which are often in default following the covid-19 shutdown.

While we have assisted a number of entrepreneurs whose businesses are based on sophisticated technologies, many of our clients are base-level retail and service businesses like hair salons, home contractors, family farms, bed and breakfasts, and family restaurants. They are facing new challenges during the stay-at-home orders necessitated by the pandemic, and we’ve been able to help fill some of their needs. In fact, being based in the middle of Pennsylvania, we were fans of Zoom long before most people knew it existed, using videoconferencing to help small businesses all over Pennsylvania, regardless of any connection to Penn State.

Many of these entrepreneurs — such as a woman opening a main-street bakery in the Lehigh Valley, two sisters in South Central Pennsylvania leasing a minibus to start a transportation business, and numerous residents opening domestic and commercial cleaning services — are just trying to make a living. While their companies may never have an IPO, it’s gratifying to help many Pennsylvania small businesses and entrepreneurs start and maintain their businesses in this uncertain environment.

Tom Sharbaugh, a native of a small town in Cambria County, practiced business law in Philadelphia for many years before joining the faculty of Penn State Law.