Workers Quit to Start New Businesses

​In 2021, a record number of employees left their jobs to seek greener pastures as part of the Great Resignation. The reasons why vary, from wanting more flexibility to not feeling safe from COVID-19 at work to not wishing to comply with vaccine mandates. Some have simply re-evaluated their lives and decided they'd be happier not returning to their jobs.

Yet a primary reason has nothing to do with their employers. Instead, it's that many employees are ready to become their own bosses. The number of unincorporated self-employed workers has risen by more than 500,000 since the pandemic began, the U.S. Labor Department reports. And 4.5 million new businesses applied for federal tax-identification numbers from January through October of 2021, a 56 percent surge from the same period in 2019, according to the U.S. Census Bureau.

In fact, since the pandemic began, an average of 380 out of every 100,000 adults became new entrepreneurs each month, according to the Ewing Marion Kauffman Foundation. That's up from 310 per 100,000 in 2019 and by far the highest level of new entrepreneurship in the 25 years the foundation has tracked this data, according to the Hechinger Report. The entrepreneurship rate is highest among Latino and Black Americans, the report found.

Employers' Perspective

While starting a new venture can be exciting for entrepreneurs, it poses a unique challenge for employers that are already struggling to find and retain workers. Marilyn Gaskell, founder and hiring manager of TruePeopleSearch in Arizona, said she lost one of her best employees to entrepreneurship when the worker decided to launch an online fashion business.

"During the pandemic, she realized that she wanted to start her own sustainable fashion brand after getting inspiration from many others who had started their own ventures during the lockdown," said Gaskell, who was unable to convince the employee to start the business on the side but was still supportive of her former employee.

At PDFLiner, a company with 14 employees and five freelancers in Wilmington, Del., two employees decided to leave early in 2021 to start their own software-as-a-service (SAAS) platform in a different sector.

"They notified me about their decision two months before leaving and provided full guidance to the new specialists I hired, so it wasn't as stressful for the company as it could be," co-owner Dmytro Serheeiv said.

Although employees who have left to become entrepreneurs make up a small percentage of the former workforce at ResumeSeed in Baltimore, it is still a significant uptick from previous years.

"They opted to go in a variety of directions [like] baking, power washing [and] dog sitting," said Diane Cook, HR specialist.

And at Restaurant Clicks in Philadelphia, CEO Brian Nagele said potential hires have fallen through because they decided to pursue their own ventures instead.

"We were looking for an in-house content writer and didn't get our top candidate because they decided to continue freelancing rather than taking a full-time role," he said.

How Employers Are Coping

While some employers look to hire new full-time workers immediately after someone leaves, others are relying more on freelancers instead. For instance, Gaskell has already hired several freelancers on an as-needed basis.

"We have two writers who work on our blog, and we also occasionally hire graphic designers when we need something done for our website or social media pages," she said. "It works great for us because we only hire when the need arises, and the job is generally performed well."

Nagele also relies on contractors for his company, which has six full-time employees and dozens of contract workers.

"Rather than fighting an uphill battle trying to get freelancers to be full-time employees, we just hire them on a contract basis," he said.

Scott Hasting has instituted a robust training procedure for employees at his company to protect his business and ensure that he has the help he needs.

"Whenever one leaves, we hire another one and train him," said Hasting, co-founder of BetWorthy LLC, a 100-employee firm in Torrance, Calif. "Since we have a good training workflow already, it's easier for the new hire to catch up. We also have hired some freelancers to help [with] the tasks while our new hire is getting equipped with the tools and practices needed for the job."

Morale at PDFLiner is high because the employees who quit to start a business made sure the new hires who replaced them were good enough for the job, Serheeiv said.

"What is more, we still have relations with these two ex-workers. They outsourced several projects to us so that both of our companies have continuous benefits even after the split," he said.

Rose Belcher-Hargrove, who runs Wellness Cleaning & Lifestyle, a cleaning business in Indian Trail, N.C., also lost employees who launched businesses. Now, she's working on boosting employee benefits to encourage new employees to stay.

"I've rebuilt the foundation of my business, and I'm working on an employee compensation plan to enable employees to have a thriving life [if they] don't want to manage their own business," she said.

Finding the Positive in the Loss

To be sure, many business leaders encourage employees who wish to venture out to follow their dreams. That's because many of them once did the same thing.

"I don't see any drawbacks," Serheeiv said. "The market is an ever-developing environment. As an entrepreneur, I highly appreciate it when people learn how to think like an entrepreneur and build their 'own thing' to be more independent."

Cook said she knows not to take it personally when an employee quits.

"Being in the world of HR, at the root of your nature is the want and need [for] the best for your employees, regardless of where that might be," she said. "If an employee leaves to start their own business, I often find that it's less about your company and fit and more about their specific dreams and goals."

As for Belcher-Hargrove, she always keeps it in the back of her mind that her employees may return. 

"Not all people have the interpersonal skills needed to manage a business," she said. "But the chance gives them the experience and knowledge to know what it takes to run a business. Some can take that and run their own, or they come back with more appreciation for the owner and manager."

Kylie Ora Lobell is a freelance writer based in Los Angeles.