Post-Pandemic Unemployment Should Lead Brazilians to Open Their Own Business

RIO DE JANEIRO, BRAZIL – Opening one’s own business is one of Brazilians’ main dreams. According to the last annual report of Global Entrepreneurship Monitor (GEM), released in 2020 with data from 2019 and conducted in Brazil by SEBRAE (Brazilian service of assistance to micro and small enterprises) and the Brazilian Institute of Quality and Productivity (IBQP), entrepreneurship ranks fourth on the wish list, behind only buying a car, traveling around Brazil, and owning a home.

The impact of the novel coronavirus pandemic, which has hit small-sized businesses hard and has already claimed the jobs of thousands of Brazilians, is expected to leave a challenging legacy for the new generation of entrepreneurs in the country.

Between 2008 and 2019, the number of Brazilians aged 18 to 64 who owned a business or were involved in creating one skyrocketed from 14.6 to 53.4 million. Among early-stage entrepreneurs – including startups, the most vigorous face of this phenomenon, which has gained ground in recent times with incentive policies and the creation of entrepreneurship disciplines in undergraduate and graduate courses – the report points out that 26.2 percent decided to open a business to “earn a living because jobs are scarce,” while 1.6 percent made the decision to “make a difference in the world”.

For experts, the first impact of the crisis – given the rise in unemployment and the prospect of a severe downturn in the Brazilian economy – is reflected in the drive for entrepreneurship. Data from GEM show that of the 55 countries analyzed, Brazil is among the top ten where the lack of employment is most considered when opening a business.

Will the dream of entrepreneurship become a nightmare? The inexistence of cash flow, the distance from the client, and the not very encouraging projections of economic rebound, which may lead to this being the worst decade in the country’s history, place the entrepreneurial ecosystem in question.

“Entrepreneurship is relevant in both economic euphoria and depression. In times of euphoria, many undertake as a result of new opportunities. In a recession, out of necessity. In the coming months, we will see many people who lost their jobs being forced to open a business. The challenge is to find opportunities according to the needs”, says Marcelo Nakagawa, an entrepreneurship professor at INSPER (Institute of Higher Education and Research).

In March and April, 1.1 million formal jobs were lost in Brazil. Overall, including casual jobs, the unemployment rate reached 12.6 percent, and it was not higher only because the number of discouraged people who had given up looking for jobs was unprecedented. Among the positions, around 54 percent of formal jobs in the market are created by SMEs (small and medium-sized enterprises), according to the SEBRAE.

“Looking ahead to the next semester, many people will choose entrepreneurship because the labor market will not fully rebound. Entrepreneurship will be a solution in 2021 and 2022,” says Gilberto Sarfati, a professor at FGV EAESP (Getúlio Vargas Foundation Business School).

According to the SEBRAE-SP superintendent Wilson Poit, this scenario should lead to a significant increase in the number of individual micro-entrepreneurs in the post-pandemic world, with many self-employed professionals, such as personal trainers and architects, becoming owners of their own companies. Over the past month, the number of MEIs – microbusiness entities – reached as many as ten million in the country.

Those who do own their own business are now, in many cases, trying to keep afloat. In the first weeks of the crisis, 12 percent of small-sized businesses had already dismissed employees and 44 percent had shutdown their activities because of the crisis, according to a survey conducted by SEBRAE between April 7th and May 5th.

Going digital by force

Apps for exercising, ordering food, shopping for food, plants, or clothes. Live broadcasts, distance learning, fully online events, from wedding ceremonies to medical appointments and therapies. Whoever invested in the company’s digitalization or digitized on time, has been able to be part of the new post-pandemic world.

“The novel coronavirus crisis has forced companies to be more agile and innovative in their search for new ways to sell, provide services, interact with employees, suppliers, and customers. The pandemic has made them turn their operations into more digital ones by force,” says INSPER’s Marcelo Nakagawa.

According to SEBRAE-SP superintendent Wilson Poit, businesses going digital is the second most searched topic by entrepreneurs in these two months of crisis, behind only “how to get credit”. The organization registers attendance records in live broadcasts (daily average of 220,000 people connected), scheduled consultancies (450 per day) and daily phone service assistance (2,875), in addition to a 230-percent increase in the number of people who completed the courses offered.

Poit assures that many of the entrepreneurs assisted have recently started their businesses or are thinking of starting a company amid the pandemic. “There are people willing to venture and have discovered a niche now,” he adds.

For Nakagawa, the pandemic will mark the emergence of new consumer needs and the return of old demands. “Among the new ones, I emphasize the concern for health, self-development, and new learning. Among the old ones, and once an effective solution to the novel coronavirus is found, there will be greater demand related to personal indulgences (travel, food, fashion) and also face-to-face interaction with other people (events, happy hours, face-to-face services)”.

According to the fourth edition of the “ILO Monitor: COVID-19 and the world of work”, a study conducted by the International Labor Organization (ILO), more than one in every six youths has stopped working since the start of the pandemic. Regarding career-building in a pre-pandemic scenario, the GEM report pointed out that ‘making a career’ ranks eighth on Brazilians’ wish list.

For the coordinator of FAAP Business Hub, Alessandra Andrade, young university students are the most affected by changes in labor relations and, thus, see entrepreneurship as a way to combine university education with purpose.

“Employment, as our parents knew it, will no longer exist. A study by the Foundation for Young Australians shows that 70 percent of incoming jobs for youths will be affected by automation. Sixty percent of students are being trained for jobs that will be radically changed,” she says. “Young people will have a different perception of careers. And that’s where entrepreneurship comes in, not simply to start a business, but in behavior, in protagonism, in self-responsibility. It’s going to be a different career path for them,” she concludes.

Entrepreneurship since school age

To fulfill the desire for entrepreneurship, shared by many youths from an early age, universities throughout Brazil have included entrepreneurship subjects in undergraduate and graduate courses in recent years. In 2019, the Federal University of São Carlos (UFSCAR) added modules to the bachelor’s degree in Computer Science in response to students’ wish to build their own startups.

Incubators and business accelerators are also part of university facilities throughout the country, fostering and supporting entrepreneurial students. Technology Colleges (Fatecs) and State Technical Schools (Etecs) have included entrepreneurship subjects to guide students. Currently, 185 Etecs work to develop entrepreneurial skills, either through projects or by offering specific subjects. At Fatecs, 40 of the 80 courses available work on the subject.

With the spotlight on technology, startups also gain projection in this scenario. In 2015, Brazil had 4,151 startups. Currently, there are 13,115, according to the Brazilian Association of Startups (ABStartups). Experts agree that this environment is safe, including in terms of raising investment, except for unicorn startups (companies worth over US$1 billion), which jump from round after round of investment before producing positive revenue results.

“We must pay attention to companies that sell and deliver solutions to customers. That’s what will become the new standard,” says Sarfati. According to Nakagawa, this is the moment in which investors are ready to commit funds already raised, only waiting for “a logic that shows how the current crisis will evolve. Investors will tend to be more logical by choosing startups with more solid business models in terms of cash generation capacity”.

Brazil has 11 unicorn startups (PagSeguro, Loft, 99, Stone, Gympass, Ebanx, Arcoeducação, Quinto Andar, Loggi, Nubank, iFood). Of these, three have had to dismiss employees due to the impact of the pandemic.

Source: O Estado de S. Paulo