Wisconsin saw a surge in new businesses during the pandemic. They now face inflation and a tough labor market.

Wisconsin, like much of the country, saw a surge in new businesses created during the COVID-19 pandemic. But those businesses have faced challenges in the form of inflation and the ongoing labor shortage.

Despite obstacles and uncertainty around the global economy, many of the state’s new entrepreneurs have persevered.

“They are, by-and-large, a very optimistic and positive group,” said Missy Hughes, secretary and chief executive of the Wisconsin Economic Development Corp. “They’re excited about what they’re doing. They have been impacted by inflation, but they’re working through it.”

Wisconsin has seen about 500 new businesses form per month since the summer of 2020. That’s up from between 300 and 400 per month prior to the pandemic, according to research from University of Wisconsin-Extension based on projections from the U.S. Census Bureau.

Those numbers only account for businesses that hire employees and file payroll taxes, and do not include businesses in which the owner or owners are the sole employees, said Tessa Conroy, an economic development specialist for UW-Extension.

“A lot of businesses — in fact, three quarters or more — operate without any employees,” Conroy said. “So, there may be many more businesses that are operating that exceed what we would expect based on pre-pandemic trends. But we just don’t see them because we’re not tracking them.”

What fueled the rise in entrepreneurship?

Jim Wickersham is the Fox Cities Chamber of Commerce senior director of investor relations. He said the pandemic created an opportunity for people to explore starting their own business when many businesses closed in 2020.

“People didn’t have those allegiances to their careers that they had at one point, so some of their ideas percolated to the top,” he said. “This, ‘We might as well try it now if we’re going to try it at all,’ type of mentality came, and it really struck hard.”

Beyond a rise in entrepreneurial spirit, Hughes said the state’s Main Street Bounceback grant program helped support those looking to open their own businesses in vacant downtown properties.

The program gave businesses or nonprofits $10,000 to move into a vacant property in Wisconsin’s downtowns. The funds could be used to pay leases, mortgages, operational expenses and other business-related costs.

So far, the program has awarded more than 8,500 grants to businesses. Hughes said the program was especially beneficial for women-owned businesses.

“The women that I talked to didn’t want to take from their family savings in order to start a business,” she said. “That $10,000 gave them a chance to do what they’ve always wanted to do, without risking their home or their nugget that they have in the bank that they want to protect, in case there’s an emergency.”

However, Conroy with UW-Extension said the Federal Reserve’s efforts to raise interest rates to curb inflation could cause a slowdown in new business creation by making it difficult to borrow money to finance a business.

“They might decide that the things that they were considering a month ago or a year ago don’t make sense, that they’ll go back to what was their original employment circumstance,” she said. “But I still think that what we saw during the pandemic was a lot of exciting entrepreneurial intent, and I don’t think that that has gone away entirely.”

New businesses have been impacted by inflation, labor shortage

Wickersham said the ongoing labor shortage has been one of the main hurdles facing new businesses — primarily in the restaurant industry.

That’s been the case for Mill City Public House, an Appleton restaurant that opened last year. Co-owner and general manager Rusty Leary said finding workers has been especially challenging because his business has to compete with manufacturers that can offer better pay and benefits.

While a small downtown retail store could operate with few employees, a restaurant typically needs kitchen staff and servers to adequately serve customers, Leary said.

“It’s really tough,” he said. “It’s really competitive, and we just have to constantly be on the lookout for great people when they pop up.”

Inflation has also presented challenges because raw product prices have increased and profit margins for restaurants have traditionally been very slim, Leary said.

“We’re charging a premium for the product that we’re offering simply because we have to,” he said. “We’re paying a premium to get it in the door in the first place, so those costs do get passed on to the consumer ultimately.”

Leary isn’t the only small business owner battling inflation. Lauren McConnell is co-owner of Alexandria Games, a board game and hobby shop in Ripon that opened in 2021. She said inflation has been a consistent challenge in terms of offering competitive pricing as costs per unit have increased.

Although Alexandria Games tries to keep its prices relatively close to what large retailers are charging, it isn’t always possible, McConnell said.

“We’ve had customers before in our shop say, ‘I really want to support you, but Amazon has this for $15 less,’ or they’re pulling up Target’s page while they’re in the shop,” she said. “While that kind of stings a little, we understand that people have to do what’s going to work for their family.”

That’s why the business has emphasized customer service and providing a unique experience to shoppers, McConnell said.

“You can buy something off of Amazon, you can walk the aisles of Target and get something, but neither of those places — and really no big box store — is going to offer you a walkthrough, offer you a table to sit down and look through things (and) help you understand or interpret the directions,” she said.

The hurdles haven’t deterred Alexandria Games from planning an expansion later this year, McConnell said.

Another business that expanded during the pandemic is CC’s Chocolates in Fond du Lac, which moved into its own location about a year and a half ago. Owner Claudette Rahmer said both inflation and the labor shortage have been obstacles.

Despite those challenges and global economic uncertainty, Rahmer said she still has a generally positive outlook for the future.

“People still keep coming in and buying the product, so we’re just going to keep on making people happy and doing what we do and just take it as it comes,” she said. “I don’t plan to change locations or anything like that because there’s cost involved with that and right now we’re in a good place. I would feel that way, whether it was a normal year or with the current situation with how the world is.”