How Does COVID-19 Affect Challenges Facing Entrepreneurs? Trends by Business Age

The importance and difficulty of challenges facing entrepreneurs can vary based on where they are in their entrepreneurial journey.[^{1, 2}] The effect of COVID-19 on businesses has been large and overwhelmingly negative, and effects can vary related to business characteristics, like industry, and business owner characteristics, like race.[^{3, 4}]

This brief takes a closer look at how business age matters in the way entrepreneurs feel the effects of COVID-19. It discusses challenges facing entrepreneurs before and during the pandemic, based on surveys with business owners during COVID-19 in spring 2020 and before COVID-19 in fall 2019.[5]

Challenges reported by owners of new, young, and mature businesses during COVID-19

For entrepreneurs of all business ages, finding new customers was the most common challenge reported. Among those with a new business less than 1 year old, 4 in 5 reported this as a challenge (80%), compared to about 7 in 10 owners of businesses that were 5 years or older (70% among those whose business was between 5-10 years old, and 69% among those whose business was 10 years or older).

Entrepreneurs with a new business face the greatest difficulty keeping existing customers: nearly 7 in 10 reported this to be a challenge (68%) compared to just over half of those with a mature business 10 years or older (54%).

Accessing startup and growth financing during COVID-19 conditions was a challenge for more entrepreneurs with a new business.

Entrepreneurs with a business under 1 year old were almost twice as likely to report funds to start the business as a challenge compared to those with a business older than 5 years (72% vs. 39%). Although startup funds are most often reported to be a challenge by owners of the newest businesses, they are still a problem facing more than half of those with businesses 1-5 years old (56%). The challenge of finding funds to grow the business was somewhat different, with the same percentage of owners of new and young businesses under 5 years reporting this to be a challenge (64%). Entrepreneurs with businesses 5-10 years and 10 years and older report similarly about growth financing challenges (45% and 47%).

Self-doubt and fear was reported as a challenge by nearly 3 in 5 entrepreneurs whose business was less than 5 years old (58-59%). Less than half of entrepreneurs with a business 5 years or older reported this as a challenge (43-47%).

Approximately half of entrepreneurs with a new business under 1 year old identified laws, policies, and regulations as a challenge (52%). This was 6-10 percentage points more than what was reported among those with a business older than 1 year (42-46%).

Just over half of entrepreneurs with a business less than 1 year old reported skilled employees as a challenge (52%) compared to approximately a third of entrepreneurs who had been in business longer (34-35%).

Approximately half of entrepreneurs with a new or young business under 5 years reported networks and connections was a challenge (49-51%). This compares to 1 in 3 entrepreneurs with a mature business (33%).

Close to half of entrepreneurs with a new business under 1 year old reported information, education, or knowledge necessary for running a business as a challenge (48%). This is more than twice what was reported by those with a mature business (21%).

Entrepreneurs with a new business were more than twice as likely as those with a mature business to report social support as a challenge (43% vs. 18%).

For entrepreneurs whose business was between 1 and 5 years old, 34% reported this to be a challenge, compared to 24% of those whose business was between 5 and 10 years old.

Approximately 2 in 5 entrepreneurs with a business less than 5 years old reported time to devote to the business as a challenge (38-41%). This compares to 32% among those in business 5-10 years, and 24% of those in business 10 years or more.

Nearly 2 in 5 entrepreneurs with a business less than 5 years old reported location, region, or geography as a challenge (39%), compared to nearly a quarter of entrepreneurs with businesses aged 5 years or more (24%).

Between 3 and 4 out of every 10 entrepreneurs identified technology as a challenge. This was most commonly reported among those with a new business (38%).

More than a third of entrepreneurs with a business less than 5 years old reported mentors who can provide guidance as a challenge: 34% of entrepreneurs whose businesses were less than 1 year old, and 38% of entrepreneurs whose businesses were between 1-5 years old. This compares to just over a quarter of entrepreneurs whose businesses were between 5-10 years old (26%) and roughly 1 in 5 entrepreneurs with businesses 10 years or older (21%).

Entrepreneurs with a business less than 1 year old were twice as likely to report inclusion based on race, ethnicity, gender, income, or other factors as a challenge compared to entrepreneurs with a business 10 years or older (28% vs. 14%).

Top challenges by business age during COVID-19

Figure 1 shows the top five challenges entrepreneurs face by business age. Across all age categories, entrepreneurs are most concerned with finding new customers. Entrepreneurs with a new business under 1 year old report funds to start the business as more challenging than those with older businesses.

Funds to start the business is not a top challenge reported among owners of businesses that are 5 years or older: these entrepreneurs instead point to laws, policies, and regulations as one of their top challenges. Self-doubt and fear appears in the top five challenges for each group. This is not surprising given the level of economic and business uncertainty during the pandemic.

Figure 1. Top Five Challenges by Business Age

How has COVID-19 changed challenges for entrepreneurs in business under 1 year?

Nearly all of the challenges that entrepreneurs with businesses less than 1 year old were asked about have become more prevalent during the pandemic.

The exception was networks and connections, which was reported as a challenge by a smaller share of these entrepreneurs (63% pre-pandemic vs. 51% during the pandemic).

Notably, while funds to start the business was the top challenge before the pandemic (64%), finding new customers became the top challenge during the pandemic (80%). Yet the share of entrepreneurs with a business under 1 year old who reported funds to start the business as a challenge increased from 64% before the pandemic to 72% during the pandemic. The proportion of entrepreneurs with a new business that reported funds to grow the business as a challenge also increased from 54% to 64%.

Self-doubt and fear was reported as a challenge by 58% of entrepreneurs with a business less than 1 year old during the pandemic, compared to 50% before the pandemic. The share of these entrepreneurs that reported laws, policies, and regulations as a challenge more than doubled during the pandemic, from 23% to 52%. Approximately half of entrepreneurs with a new business reported skilled employees to be a challenge during the pandemic (52%), compared to 39% before the pandemic.ⁱⁱ

Among those entrepreneurs with a business under 1 year old, the shares that reported information, education, or knowledge necessary for running a business; social support; and time to devote to the business as challenges increased, up from 39% to 48%, 36% to 43%, and 36% to 41%, respectively.

Location, region, or geography was reported as a challenge by more than twice the share of entrepreneurs with a new business, from 17% before to 39% during the pandemic. The proportion that reported inclusion based on race, ethnicity, gender, income, or other factors as a challenge rose from 17% to 28%.

Notes

(i) Response categories for keeping existing customers and technology were not included in the Fall 2019 survey and were added in Spring 2020.

(ii) Interestingly, entrepreneurs whose businesses were less than 1 year old was the only group for which reporting skilled employees as a challenge increased. For those with older firms, there was a notable drop in reporting skilled employees as a challenge during the pandemic.⁶

About the Data

Findings presented in this report are based on data from two separate surveys, both conducted by Global Strategy Group on behalf of the Kauffman Foundation. The first survey was administered in fall 2019 and included 405 entrepreneurs and 109 aspiring entrepreneurs. The second survey was conducted in spring 2020 and included 850 entrepreneurs. In both surveys, entrepreneurs were identified as individuals who had either opened or co-opened their own business.

As part of these surveys, entrepreneurs were given a list of potential barriers and asked to rate each as “very challenging,” “somewhat challenging,” “not that challenging,” “not at all challenging,” or “not applicable to my business.” In this brief, responses of “very challenging” or “somewhat challenging” are considered challenges. Business age categories include: less than 1 year, at least 1 year but less than 5 years, at least 5 years but less than 10 years, and 10 years or more. Probability weights were used to calculate descriptive statistics.

Both surveys are representative of business owners across the United States, rather than of businesses or industries. Findings from the surveys and this report, therefore, reflect trends among business owners and should not necessarily be used to make conclusions about businesses.

Sources:

1. Bennett and Chatterji. 2019. The entrepreneurial process: evidence from a nationally representative survey. Strategic Management Journal.
2. Looze and Desai. 2020a. Challenges Along the Entrepreneurial Journey: Considerations for Entrepreneurship Supporters, Ewing Marion Kauffman Foundation.
3. Fairlie. 2020. The effect of COVID-19 on small business owners: evidence from the first three months after widespread social distancing restrictions. Journal of Economics and Management Strategy.
4. Kochhar. 2020. The financial risk to US business owners posed by COVID-19 outbreak varies by demographic group. Pew Research Center, April 23.
5. Looze and Desai. 2020b. How Has COVID-19 Changed Challenges for Entrepreneurs? Implications for Entrepreneurship Support. Ewing Marion Kauffman Foundation.

Acknowledgements: Jessica Looze and Sameeksha Desai

Please cite as: Ewing Marion Kauffman Foundation (2020) “How does COVID-19 affect challenges facing entrepreneurs? Trends by business age.” Trends in Entrepreneurship, No. 13, Kansas City, Missouri.

This is a publication by the Ewing Marion Kauffman Foundation utilizing content and data from multiple sources and external contributors. Every effort has been made to verify the accuracy of the information contained herein, and it is believed to be correct as of the publication date. Nonetheless, this material is for informational purposes. Readers are solely responsible for validating the applicability and accuracy of the information in any use they make of it.