Fake Startup Boom: 5.8 Million New Companies Registered Annually in the US, 70% Will Never Hire Anyone

Author: Ed Elson

Compiled by: TechFlow

TechFlow Editor's Note: The number of newly registered businesses in the US hit a record high last year, but behind the data lies an awkward truth—70% of new companies have no intention of hiring anyone; they are just side hobbies wrapped in an LLC shell. When "founder" becomes the trendiest social label and starting a company is cheaper than a date, true entrepreneurial spirit is being diluted into an Instagram persona.

There isn't much good news for the US economy right now. Oil prices are soaring, mortgage rates are rising, labor force participation is plummeting, and the cost of living crisis is intensifying.

However, there is indeed one highlight that excites many economists: American entrepreneurial spirit is on the rise. Last year, nearly 6 million new business applications were submitted (a record high), and we expect to break this record in 2026. Setting everything else aside, the US might be more entrepreneurial than ever before.

This is why I was shocked when my colleague Dan Chiolan shared the following data last week: of the 5.7 million new businesses established last year, only 30% are expected to create any jobs... ever.

Wait... What?

That's right, you read that correctly. According to the U.S. Census Bureau, approximately 70% of new businesses in the US are classified as "likely non-employer businesses," meaning they are not expected to create any jobs at all. How do we know? Through various factors, such as whether the business owner provided a date for the first payroll payment, or whether they indicated they are hiring. The data tells us that the US is not creating more businesses, but just submitting more paperwork.

Is this an isolated case? No. Over the past two decades, the proportion of new businesses unlikely to hire people has doubled. Meanwhile, the proportion of "high-propensity" businesses (those likely to hire) has halved, and the actual number has stagnated, meaning (true) American entrepreneurial spirit has actually stalled.

Figure: Trend of new business registration applications in the US from 2006–2026, light pink for "likely employers," dark orange for "likely non-employers." Source: U.S. Census Bureau, Stripe.

How is this possible? Is it related to AI? Probably not, as this trend started well before ChatGPT appeared. Looking at the surge in 2020, it's more likely related to COVID, meaning it might be related to people being idle at home. Allow me to introduce my latest economic theory:

The Fake Startup Boom

What we are witnessing is not the rise of entrepreneurial spirit, but the rise of what I call fake businesses. What is a fake business? Literally what it sounds like. It's the "creative side hustle project" your high school friend started when bored during pandemic lockdowns. It's your distant cousin's "lifestyle brand" that hasn't sold a single product but already has a Substack. It's the "collective" whose mission is not to collect revenue but to collect Instagram followers. It's the business you can barely squeeze time for without quitting your job, because... it's not a real business at all. It's a hobby you happened to register.

How do people have time to register hobbies as companies? Because now creating an LLC takes only about 15 minutes. The cost is about $130—about 30% lower than the average date price. In other words, the easiest hobby to pick up in the US is not pottery or pickleball... it's starting a business.

Can I prove my theory? No. But like gravity, I don't know what other theory makes sense. The number of non-employer businesses is soaring, while the revenue generated by these businesses is plummeting, meaning there are millions of new businesses with almost no sales. Given how many friends I have who launched Instagram accounts disguised as "companies," one can only infer from this evidence and conclude: they are the problem.

Figure: Comparison of the number of non-employer businesses (left) and average revenue (right) in the US from 1997–2023. Source: U.S. Census Bureau, Bureau of Labor Statistics, Bloomberg.

The Cult of Founders

So the question is, why would someone start a fake business? Why not just have a hobby alongside work? Why turn it into an LLC? The answer is as simple as all trends: because it's popular now.

The hottest profession in the world today is "founder." From Jensen Huang to Musk, founders are the rock stars of our digital age. The data reflects this: about 70% of Gen Z say owning a business is "part of the American Dream" (significantly higher than other groups), and nearly half say they don't want a regular 9-to-5 job at all.

However, more important than being a founder is being able to call oneself a founder. The word "founder" evokes independence, fearlessness, and bravery—traits people love to showcase on dating apps or social media. Therefore, the number of Americans adding "founder" to their LinkedIn profiles surged by 69% last year.

Figure: The number of US LinkedIn users adding the "founder" title to their profiles surged 69% last year. Source: LinkedIn.

I suspect most of these new "founders" are running fake businesses. Honestly, I get it. Unlike starting a real business (which requires significant sacrifice), a fake business allows you to keep your real job while also becoming a "business owner." It's all the delicious taste of being a founder without any of the calories. Does what your business does or whether it makes money matter? Of course not! What matters is just that you have a business.

The Founder Cult...

Why is this happening? Over the past two decades, our society has been psychologically conditioned into a state of founder worship. Founders are no longer just businessmen—they are trendsetters, celebrities, cowboys, and taste-makers. They appear on magazine covers and billboards. They host podcasts, write manifestos, and dominate our algorithms. Founders are a unique combination of wealth and relevance, something many dream of but few achieve.

Figure: Statistics on the number of episodes featuring guests with titles containing CEO, Founder, or Entrepreneur on the Joe Rogan Podcast from 2018–2025. Source: Spotify, Prof G Analysis.

Therefore, being a founder carries huge social capital. Starting a company today not only makes you rich but also makes you interesting. For a generation that says their life lacks meaning, this is a powerful proposition. In the past, people used alcohol, affairs, and eventually yoga to fill the void within, but today, they fill it with startups.

...Gone Awry

An unhealthy obsession with founder status can lead to dark places. I know countless examples of people who ruined themselves due to a deep desire to become Jobs (Elizabeth Holmes, SBF, Charlie Javice, etc.). However, what fascinates me most is a recent scandal involving Bill Gates' daughter, Phoebe Gates.

The 23-year-old Stanford graduate is currently under investigation because her shopping startup, backed by Hailey Bieber and valued at $185 million, was exposed for falsifying sales data. This fraudulent behavior, known as "cookie stuffing," is common in the affiliate marketing industry, but it also raises a deeper, more interesting question: Why did the daughter of the 19th richest person in the world feel the need to become a founder through fraud? We now have the answer: Because it's cool.

I should have known from the moment she publicly announced her Series A funding; it looked less like a financing event and more like a Coachella lineup. I should have also known when she and her co-founder launched one of the most popular fake businesses of the moment: a podcast. Or when she achieved the holy grail of fake businesses: appearing on the Call Her Daddy show. Anyway, the point is there were signs.

Harder Than You Think

You may have noticed, I don't like the fake startup boom. Setting aside the fakeness, I despise the lie it promotes, which could mislead millions of careers: starting a business is easy.

To put it plainly, it is not. One in five US businesses fail in the first year, and half disappear within five years. Although the dream of securing VC funding is tempting, for most people it's just a dream: only 0.05% of startups have ever received VC funding, and among those that did, about three-quarters failed to return a penny to investors.

Figure: Failure rate of US businesses by years since establishment; nearly 80% of businesses cease to exist after 20 years. Source: Bureau of Labor Statistics, Clarify Capital.

I'm not trying to discourage anyone from starting a business. Done right, it can be transformative. But we should also acknowledge the truth about becoming a founder: it is very difficult, often unrewarding, requires huge personal sacrifice, and likely won't end well. This is not an opinion—this is a statistical fact.

Many seem to believe they can avoid the negative effects of entrepreneurship by starting a fake business. "Do it in your spare time," they think, "that way you don't have to go all in." What they don't realize is that nothing meaningful is achieved in spare time. There is an important reason for this: meaning does not come from the result, but from the process. That's why it's called meaning. It is proportional to the extent of your willingness to sacrifice.

A better option is to make a choice. Either choose to start a business or choose not to, but don't deceive yourself into thinking you can choose both. This applies to all other areas of life as well. From side hustles to "situationships," young people have developed an allergic reaction to making decisions. We can hardly decide what to eat or watch, let alone what to do with our careers. This may stem from our addiction to algorithms, because the more we outsource responsibility to our phones, the less we take responsibility for ourselves. But for too many young people, the result is that we are not living our lives, but letting life happen to us.

This state of limbo is something we have the power to reject. Whether or not you become a founder, huge meaning is within anyone's reach. It exists both in your work and outside of it, in your current job and your next one. It is there waiting for you to take. All you have to do is choose.

See you next week.