Business Applications Jump 24% as AI Lowers Startup Costs

New U.S. business applications hit 5.6 million in 2025 and have risen 24% since ChatGPT launched, Citadel Securities reported in a July research note, citing data from the U.S. Census Bureau.

The median number of employees at seed-stage startups fell from five to four in the first quarter of 2023, one quarter after ChatGPT’s release. Citadel noted the decline coincided with rising interest rates and softening hiring demand, which may also help explain the shift.

Citadel’s rough estimate suggests new business formation now offsets the lower labor intensity of individual startups. “Those gains may accrue most powerfully to the bedrock of the American economy: small businesses and entrepreneurs,” Citadel analyst Frank Flight noted in the analysis.

AI is lowering the minimum efficient scale of a business, the revenue level at which hiring a specialist becomes economical, Citadel Securities found. A founder who once needed separate employees for accounting, marketing, customer service and compliance can use AI to pool those functions across a much smaller team. The threshold at which a business becomes viable has fallen. That makes it economical to start companies that would not have justified the overhead before.

A Single Founder Built a $401 Million Company in One Year

Matthew Gallagher launched Medvi, a GLP-1 telehealth startup, from his Los Angeles home in September 2024 with $20,000 and no employees. Medvi posted $401 million in sales in its first full year, served 250,000 customers and produced a 16.2% net profit margin, the PYMNTS reported in April, citing The New York Times. The company is tracking toward $1.8 billion in 2026 revenue. In comparison, Hims and Hers reported $2.4 billion in revenue last year with 2,442 employees and a 5.5% net margin. Gallagher is running nearly three times that margin with two people, after bringing on his brother, Elliot, as the company’s only hire.

The tools were not proprietary. ChatGPT, Claude and Grok handled code and copy. Midjourney and Runway produced ads. ElevenLabs handled voice-based customer communication. Custom AI agents connected his systems. Gallagher outsourced the regulated components including licensed physicians, prescription processing and pharmacy fulfillment to specialist partners, CareValidate and OpenLoop Health, while retaining ownership of the customer relationship. That division of labor allowed him to concentrate on growth while partners absorbed the compliance burden that typically consumes early-stage telehealth capital, PYMNTS reported.

The Digitally Fluent SMB Is Pulling Away From Everyone Else

PYMNTS Intelligence found in its May 2026 Small Business Week report that SMBs generating more than $1 million annually reported average revenue growth of 13.7%, while businesses earning less than $150,000 grew just 0.6%. The report also found that larger, more digitally fluent SMBs were more likely to sell across multiple channels, accept a wider range of digital payment methods and express greater confidence about future growth, highlighting a widening performance gap between digitally advanced businesses and their smaller peers.

Citadel’s analysis points to a structural consequence not yet visible in aggregate employment data. AI-exposed occupations are seeing some reallocation of labor across industries, but the dominant signal in S&P 500 earnings calls is not substitution. Companies framing AI as a complement to hiring outnumber those framing it as a substitute across nearly every job function analyzed, Citadel Securities found in an April analysis of earnings-call language. A company that once needed five employees to justify its early overhead now needs four. That headcount is not eliminated. It is deferred until the business reaches the scale at which human judgment becomes the binding constraint.