More founders than customers: the social frenzy behind America's wave of fake startups
Author: Ed Elson
Compiled by Deep Wave TechFlow
Original title: Wave of false entrepreneurship: the US registers 5.8 million new companies every year, 70% never hire people
Guide to Deep Wave: The number of newly registered companies in the US reached a record high last year, but there is an embarrassing truth behind the data — 70% of new companies don't plan to hire people at all; they are just part-time jobs covered by LLC. When “founder” became the trendiest social hashtag, and starting a company was cheaper than dating, true entrepreneurship was being diluted into an Instagram personality.
There isn't much good news for the US economy right now. Oil prices have soared, mortgage interest rates have risen, the labor force participation rate has plummeted, and the cost of living crisis has intensified.
There is, however, one bright spot that excites many economists: American entrepreneurship is on the rise. Nearly 6 million new business applications were submitted last year (a record high), and we are expected to break that record in 2026. All else aside, America is probably more entrepreneurial than ever before.
That's why I was shocked when my colleague Dan Chiolan shared the following data last week: Of the 5.7 million newly established businesses last year, only 30% were expected to create any jobs... forever.
Wait... what?
That's right, you read that right. According to the US Census Bureau, about 70% of new businesses in the US are classified as “likely non-employers,” 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 wage payment, or whether they indicated they were hiring. The data tells us that the US isn't creating more businesses; it's just submitting more paperwork.
Is this just an example? It's not. The share of new businesses that are unlikely to hire people has doubled in the past two decades. At the same time, the share of “high-propensity” companies (that is, those that are likely to hire) has halved, and actual numbers have stagnated, which means that (real) American entrepreneurship has actually come to a standstill.
Figure: Trends in new US business registration applications from 2006 to 2026. Light pink is a “likely employer” and dark orange is a “likely non-employer.” Source: U.S. Census Bureau, Stripe.
How is that possible? Does it have anything to do with AI? Probably not, because this trend started long before ChatGPT appeared. Looking at the surge in 2020, it's more likely related to COVID-19, which means it's probably related to people staying at home doing nothing. Let me introduce my latest economic theory:
The wave of false entrepreneurship
What we are seeing is not the rise of entrepreneurship, but the rise of what I call fake businesses. What is a fake business? It just means it literally. It's a “creative side business project” that your high school friend started when they were bored during the pandemic lockdown. It's a “lifestyle brand” for your distant cousin. It hasn't sold a single product yet, but it's already running Substack. It's the kind of “collective” whose mission isn't to collect revenue but rather to collect Instagram followers. It's the kind of business you can barely make time to do without quitting your job because... it's not a real business at all. It's a hobby you just happened to sign up for.
How do people have time to register their hobby as a company? Because now it only takes about 15 minutes to create an LLC. It costs around $130 — around 30% less than the average appointment price. In other words, the easiest hobby to start in America isn't pottery or pickleball... it's starting a business.
Can I prove my theory? Impossible. But just like gravitation, I don't know any other theory that makes sense. The number of non-employer businesses is soaring, while the revenue generated by these companies is plummeting, which means there are millions of new businesses with little to no sales. Given how many of my friends started Instagram accounts pretending to be “companies,” people can only extrapolate this evidence and conclude that they are the problem.
Figure: The number of non-employer businesses in the US (left) compared to average income (right) from 1997 to 2023. Source: U.S. Census Bureau, Bureau of Labor Statistics, Bloomberg.
Entrepreneurship education worship
So the question is, why would anyone want to start a fake business? Why don't you just have a hobby outside of work? Why turn it into an LLC? The answer is as simple as all trends: because it's popular now.
The most popular profession in the world today is “founder.” From Hwang In-hoon to Musk, the founders are rock stars in 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 the rest of the population), and nearly half say they don't want a normal 9-to-5 job at all.
More important than being a founder, however, is being able to call yourself a founder. The word “founder” evokes independence, fearlessness, and bravery — these are the qualities people love to display on dating apps or social media. As a result, the number of Americans adding “founder” to their LinkedIn profile surged 69% last year.
Figure: The number of LinkedIn users in the US adding the title “founder” to their profile surged 69% last year. Source: LinkedIn.
I suspect most of these new “founders” are running fake businesses. Honestly, I understand. Unlike starting a real business (which requires significant sacrifices), a fake business allows you to keep your real job while also being a “business owner.” It's all the wonderful flavors of being a founder without any calories. Does it matter what your business does or whether it makes money? Of course not! All that matters is that you have a business.
The founders adore...
Why is this happening? Over the past 20 years, our society has been mentally domesticated into a state of founder worship. Founders aren't just businessmen — they're trendsetters, celebrities, cowboys, and tastemakers. They are on magazine covers and billboards. They do podcasts, write declarations, and dominate our algorithms. Founders are a unique combination of rich and relevant that many people dream of but rarely achieve.
Figure: Statistics on the number of Joe Rogan podcast guests with titles including CEO, Founder, or Entrepreneur from 2018—2025. Source: Spotify, Prof. G Analysis.
As a result, being a founder has huge social capital. Starting a company today not only makes you rich, it also makes you fun. This is a powerful proposition for a generation that says their lives lack meaning. In the past, people used alcohol, extramarital affairs, and eventually yoga to fill their inner hollows; today, they use startups to fill them.
... going astray
An unhealthy obsession with the founder's identity can lead to dark places. I know countless people ruining their own examples because of their deep desire to be Jobs (Elizabeth Holmes, SBF, Charlie Jarvis, etc.). What fascinated me most, however, was the recent scandal involving Bill Gates' daughter Phoebe Gates.
The 23-year-old Stanford graduate is currently being investigated because her shopping startup, which is supported by Hailey Bieber and valued at $185 million, was revealed to have falsified sales data. This type of fraud 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 man in the world feel the need to fake it to become a founder? We now have the answer: because it's cool.
I should have known that from the moment she publicly announced her Series A funding round, it didn't look like a fundraising campaign, more like a Coachella Music Festival lineup. I should have known long ago when she and her co-founder launched one of the most popular fake businesses of the moment: podcasts. Or I should have known when she achieved the Holy Grail of Fake Business: Call Her Daddy. All in all, the key is that there are signs to follow.
Harder than you think
As you've probably already seen, I don't like the wave of fake startups. Fictitious aside, I hate the lies it promotes, which can mislead millions of people in their careers: it's easy to start a business.
Frankly, that's not the case. One-fifth of American companies go out of business in the first year, and half disappear within five years. Although the dream of investing in venture capital is tempting, it's just a dream for most people: only 0.05% of startups have received venture capital funding, and about three-quarters of those that have received capital have failed to bring back a penny to investors.
Figure: Failure rate of US companies by age of establishment. Nearly 80% of companies have ceased to exist 20 years later. Source: Bureau of Labor Statistics, Budgetary Capital.
I'm not trying to discourage anyone from starting a business. Done right, it can make a difference. But we should also acknowledge the truth about becoming a founder: it's very difficult, often unrewarding, requires huge personal sacrifices, and most likely won't lead to anything good. It's not an opinion — it's a statistical fact.
Many people seem to believe they can avoid the negative effects of starting a business by starting a fake business. “Do it in your spare time,” they thought, “so you don't have to put your whole heart into it.” What they don't realize is that nothing meaningful is achieved in their spare time. There's an important reason for this: meaning doesn't come from the results, but from the process. That's why it's called meaning. It's proportional to how much you're willing to sacrifice.
The better option is to make a choice. You either choose to start a business or choose not to start a business, but don't fool yourself into thinking you can choose both at the same time. This also applies to every other area of life. From side jobs to “contextual relationships,” young people are already allergic to making decisions. We can hardly decide what to eat or watch, let alone what to do with our careers. This probably stems 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 don't live our own lives, but let life happen to us.
This unresolved state of affairs is something we are capable of rejecting. Whether you become a founder or not, the great significance is within everyone's reach. It exists both in your job and outside of your job, in your current job and in your next job. It's there waiting for you to pick it up. All you have to do is choose.
See you next week.
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