The impact of COVID on entrepreneurship in Canada – Blog #20

17, January, 2022

There are two possible ways COVD-19 could affect entrepreneurship in Canada:

  • It could reduce it, because potential entrepreneurs weigh up the risks of a
    prolonged COVID pandemic and the potential effect on their businesses and
    decide to hold off starting a new business;
  • It could increase it, as entrepreneurs see opportunities to benefit from
    opportunities created by the pandemic, and feel confident they have the skills to
    be successful.

Both of these have happened in Canada in the last two years. In 2020 the startup
activity (as measured by the Global Entrepreneurship Monitor (GEM)) decreased by
about 14% compared with 2019. And in 2021, startup activity increased by 29%
compared with 2020, and surpassed the 2019 level by 10% to a record level.

This is illustrated in the graph below, where the TEA (Total early stage
entrepreneurship) measures the percentage of the adult population actively planning to
start a new business or within 42 months of startup.







Why the difference between 2020 and 2021?
According to GEM there were three factors underlying these differences.

  1. Perceived opportunities. Entrepreneurs are constantly looking for new
    opportunities, and their perception of the opportunities available to them is a big driver
    of entrepreneurial activity. In 2020 the number of people seeing opportunities declined
    from 67.1% in 2019 to 49.1% in 2020, a decline of 27%. This is shown in the graph. In
    2021 that number increased by an astonishing 44%, to 70.5%, well above the 2019
    number, and significantly above the USA.









2. Fear of failure. Fear of failure is when a potential entrepreneur is deterred from
starting a business because of their assessment of risks and likelihood of failure. In
2020 the fear of failure increased from 49.7% in 2019 to 57.5% in 2020, an increase of
16%. From 2020 to 2021 it decreased to 53.8% – still more than 2019, but a significant
decrease from 2020.








3. Skills and knowledge.  Entrepreneur’s self-confidence is measured by their perception of whether they
have the skills and knowledge to start a new business. In 2020 this decreased a
little from 2019, down from 56.5 to 55.6. In 2021 it jumped back up to 58.9,
higher than the 2019 number.

Summary. So in 2020 it appears that potential entrepreneurs, faced with the
surprise and uncertainty of COVID-19, decided to hold off starting a new
business, rationalizing this as they saw fewer opportunities, felt less capable, and
had a higher fear of failure. As the pandemic progressed, these attitudes
gradually changed and more opportunities appeared, confidence returned and
fear of failure subsided, leading to a burst of new entrepreneurial activity. We
don’t know in detail what new opportunities they saw, but it is a safe bet that
many were related to COVID – for example, new delivery services, technologies
to enable remote working and online learning.