Entrepreneurial activity returned to pre-crisis level in 2021: More female, young and opportunity entrepreneurs

• Number of business start-ups grew by 13 % to 607,000
• Share of women grew to 42 %
• Digital and Internet-based start-ups rose to record highs of 31 % and 41 %

After the pandemic slump, entrepreneurial activity in Germany has returned to pre-crisis level. Bolstered by start-ups deferred from the year 2020, the number of people entering self-employment in 2021 rose to 607,000. According to the new KfW Entrepreneurship Monitor, that was 70,000 or 13 % more than in 2020. Start-up activity also changed structurally. More opportunity start-ups were realised, the share of younger entrepreneurs grew and more women started a business than in the previous year.

The number of female entrepreneurs, which hardly changed for three years, grew disproportionately last year, with 257,000 women starting their own business (+52,000 / +25 %). The number of male business founders grew to 350,000 (+18,000 / +5 %). Thus, the share of female entrepreneurs increased to 42% (2020: 38 %). Young women in particular contributed to this growth. Among female entrepreneurs the share of under 30-old women rose from 28 % to 37% year on year. Among male business founders the share of under 30-year olds also stood at 37 % in 2021, although the increase was not quite as strong as among women (2020: 34 %).

As was already the case in the first year of the pandemic, the share of enterprises that were launched to seize a business opportunity also grew in 2021. That means a higher share of people who were especially confident about their start-up became entrepreneurs. That is good news for the economy because these opportunity start-ups on average have higher survival rates and are more employment-intensive. Their proportion grew again slightly from 80 % to 82 %, with the number of opportunity start-ups rising by 70,000 to 498,000. Businesses founded for lack of better income alternatives remain in a trough, sitting at 91,000 (15 %).

The coronavirus pandemic has mercilessly exposed the weaknesses of traditional “analogue” business models. Business founders have obviously responded to this. In 2021 significantly more start-ups were digital and Internet-based, reaching their highest shares thus far of 31 % and 41 % in overall entrepreneurial activity.

Other key findings of the KfW Entrepreneurship Monitor:

• Entrepreneurial activity increased in the form of both full-time (+35,000 to 236,000, or +18 %) and part-time start-ups (+35,000 to 371,000, or +10 %).
• Most businesses were started from the ground up, in other words, they did not previously exist as a legal or organisational entity. Their share reached a new all-time high of 85 % in 2021 (2020: 80 %).
• Financial risks and funding difficulties remain the two main entrepreneurial barriers. Opportunity costs, that is, foregoing the benefits of salaried employment (such as limited working hours, protection against unfair dismissal, integration into social protection systems, etc.) ranked third.
• The survival rate of start-ups can be roughly determined on the basis of the KfW Entrepreneurship Monitor, which has found that around 30 % of entrepreneurs close their business again within three years of operation. After five years, just under 60 % remain in business. The reasons for aborting are diverse. By far the largest proportion of business founders (32 %) discontinue their venture in the first five years for personal reasons, not because of immediate financial need – so for example because of family pressures, stress, illness, dissatisfaction with income achieved or because a better employment alternative presented itself (28 %).
• Start-up plans were on a similar level in 2021 as they were in 2020. After 4.4 % in the previous year, the rate of employable persons with start-up plans was 4.1 %. Since many business start-up plans were deferred because of the coronavirus crisis, however, there is today a weaker correlation between the change in the rate of start-up planners and the rate of businesses expected to be established in the subsequent year. Many business plans are actually completed and ready for implementation but their launch has been deferred because of the pandemic. That means they have a significantly higher probability of realisation, so that the start-up rate may even be better than anticipated from the variation in the planning rate. Despite a slightly decreasing planning rate, entrepreneurial activity can therefore be expected to be on a similar level in 2022 as in 2021.

“Start-up activity in Germany overcame the coronavirus slump and returned to the pre-crisis level in 2021. That is both good news and bad news. The recovery is very pleasing, and moreover, entrepreneurial activity is now younger, more female and more digital. But given the multi-year downward trend we are on a very low level. Entrepreneurship is well below its peak at the beginning of the 2000s”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW.” In addition to the prolonged labour market boom which offered potential entrepreneurs attractive employment alternatives, the main cause is demographics. We are an ageing society, and people lose entrepreneurial appetite as they grow older. Lively entrepreneurial activity, however, is economically desirable. Business founders are good for competition and have special importance for the future viability of an economy. They force established enterprises to constantly put themselves to the test and bring out their best,” said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Consumers benefit from more favourable prices and new products or services, modern technologies ensure higher efficiency and develop new markets, innovative and digital start-ups drive the transformation of the economy. And finally, entrepreneurs also create permanent jobs. Promoting entrepreneurship and removing barriers to start-up activity must therefore be given high priority in economic policy.”

The new KfW Entrepreneurship Monitor can be downloaded from www.kfw.de/Gründungsmonitor.

The dataset:

The KfW Entrepreneurship Monitor is a representative telephone survey of the population on start-up activity in Germany which has been conducted annually since the year 2000. It is based on information provided by 50,000 randomly selected persons domiciled in Germany. It covers a broad range of entrepreneurship categories: full-time and part-time male and female entrepreneurs, self-employed professionals and business owners, new businesses and takeovers. The KfW Entrepreneurship Monitor thus provides a comprehensive picture of entrepreneurial activity in Germany. The survey for the current edition ran from July to December 2021.