Business Creation

Business creation is the process of developing a new enterprise. Entrepreneurs start businesses to provide goods and services to consumers and businesses, or to exploit opportunities for profits. Business owners are often required to invest substantial amounts of money and effort to make their ideas successful. In addition, entrepreneurs must meet regulatory requirements in order to operate their companies. Many entrepreneurs seek out investors or venture capitalists to help finance their ideas. These investors will often receive equity in the company in exchange for financing.

Entrepreneurs create jobs and generate wealth for society. They also bring innovation, enabling existing companies to expand into new markets and develop technologies that improve productivity. According to economist Joseph Schumpeter, entrepreneurship results in the development of new industries and in combinations of previously existing inputs (for example, the combination of a steam engine with current wagon-making technologies).

The business creation process involves significant financial costs. Only about two-fifths of all business startups reach profitability. Therefore, policies designed to facilitate business creation will need to balance these costs with the social benefits of fostering more firm formations.

Some observers believe that economic downturns are good times for new businesses to be created because competition is low and inputs such as labor and supplies are cheaper. However, research shows that business applications have risen during the pandemic—and continue to rise—even though the number of likely employers has fallen since mid-2009. Whether the surge in business applications represents a shift in long-term trends or merely a temporary blip, policymakers must continue to work with bipartisan support on efforts to encourage strong rates of business creation.