Schafer: Year of pandemic turned out to be a blockbuster for business startups

When Mankato entrepreneur Kate Hansen tried to find the perfect shirts to mark a hiking adventure to the Porcupine Mountains of Michigan, the uninspiring selection managed only to inspire her to design some herself.

Recognizing a business opportunity, she started planning an online store she decided to call Cabin No. 4. Then the coronavirus pandemic erupted.

The blank T-shirts she had ordered had yet to arrive and could be shipped back at no charge. It wasn't too late to put everything on hold.

It was just a couple of thousand dollars of inventory, she explained last week, but she was a self-funded entrepreneur and who would want to buy a $25, fun T-shirt in a pandemic? Then her husband pointed out that boxed T-shirts on a shelf don't spoil. "So I kept going," she said.

Cabin No. 4 sold its 500th shirt the weekend of Thanksgiving. Hansen's new business makes money and her biggest problem now might be getting enough high-quality T-shirt blanks from her supplier to restock the store.

This is an inspiring story of launching a promising new business in a year that's been routinely described as having the worst economy since the Great Depression. But as it turned out it's not that rare of a story.

New business formation was up by a lot last year. The country hadn't seen anything like it since before the Great Recession of the late 2000s, based on closely watched U.S. tax data. It's one of the most hopeful things to come out of a very challenging year.

By many measures it wasn't a miserable year, and not just what's happened in the amazingly buoyant stock market. Back in the recession year 2008, for example, holiday retail sales slipped by billions of dollars, while they actually increased in 2020.

New business formation didn't fully recover after the Great Recession of the 2000s, except maybe for the first year after the big 2017 tax revamp that made it more advantageous to book income through a small business.

After that blip though, the trendline more or less flattened again.

This information about new businesses comes from applications for an employer identification number, a tax ID that's really the Social Security number of the business world.

The term high-propensity means that it appears from answers to questions on the form that it's intended to be more than a tiny business, more than a side hustle. The peak month for this kind of new business application in 2019 was March, with about 29,000.

There doesn't appear to be any one reason why last year turned out to be a big year for starting a business. One explanation is that the CARES Act funding, including additional unemployment benefits and the $1,200 stimulus checks, provided money people could use to launch a business.

If $1,200 doesn't seem like it could be much of a grub stake for a new company, getting started might not take as much financial capital as you would think.

It's a rule of thumb these days in the technology startup community that entrepreneurs with big aspirations shouldn't seek outside investment until they first have a product and a paying customer.

Upon first hearing this it might be puzzling, because if the founders had to design and build the product and also get a customer, all without any outside funding, why does the venture-capital industry exist?

In fact, there are good reasons to one day look for investors. But the point worth remembering is that it's at least possible to get the business launched with next to no money.

Laptop computers aren't free, of course, but a capable ThinkPad laptop costs maybe only a quarter or a third of what a popular business class model cost during the Dot Com boom 20 years ago.

A lower bar to get into business helps explain the explosion in selling products online, too, not just that potential consumers were more likely to be staying at home last year. The weekly number of new nonstore retailers roughly doubled after the CARES Act was passed in the spring, compared to first part of the year.

Hansen, the founder of the Cabin No. 4 outdoor shirts online store, knew the WordPress website tool from operating her principal business of graphic design, so she launched her new venture using WordPress and WooCommerce. She suspects there are easier ways to do it, like using the platform offered by the Canadian firm Shopify, Inc.

Getting into business is not the same thing as actually doing much business, of course, making profitable sales and shipping to customers. Developing a brand, building awareness of her store and the other work Hansen described didn't exactly sound easy. But the year ended with solid sales.

"And so super fun," she said. "It is so cool to me when I ship a shirt to North Carolina, or to New York or to Oregon. Wow, people all over the country are wearing stuff I designed."