The challenges and opportunities presented by COVID
While the economic ramifications of the ongoing coronavirus pandemic are still very much a selection of rather worrying predicted lines and correlations on graphs, there is no doubt the world of commerce and industry is set to be deeply impacted in the long term, and likely changed for good, by the crisis.
'Unprecedented' is the buzzword often found in these conversations, and such unprecedented times have created chaos in the business world, none more so than for startups. However, where there’s change, for better or worse, there is also opportunity, and startups capable and willing to adapt to the crisis can find success amid the current economic fog.
Trouble for existing startups, but opportunity for new business?
Start-ups are a central force of modern economic growth. As the drivers of change and innovation in the market, investing heavily in product development and job creation, the health of the start up industry is critical for wider economic progress. Thus, the challenges currently facing many start-ups in their most vulnerable stages of development are an unwelcome sight for all.
Changes and restrictions to consumer behaviour, disruption of supply chains and interspersed, prolonged office shutdowns have all contributed to the misery of startups with an already established path of progression. A summertime survey from Flourish found that over a third of EU startup businesses were more than 25% down on revenues, with annual revenues for those business expected to be down a quarter against predicted, too.
Unsurprisingly, numbers for new startups were also notably reduced, with data from the OECD suggesting a 20% drop in new firm creation in recent times. There is, however, hope and opportunity awaiting startups who do brave the current climate. With the right direction and safeguarding, prosperity for new firms is certainly on the cards – but more on that later.
Cash is no more king than in the startup world, and fundraising during the period has been severely implicated. According to the same Flourish survey, 41% of businesses have had to delay their fundraising for at least 6 months, and in an industry format where cashflow problems are one of the top derailers of new businesses, this is a significant issue.
Businesses do have various branches of opportunity for investment, though. Steadfast startups can rely on committed existing shareholders to reinforce their investment, while fledgling bright spark brands may offer appeal to venture capitalists (VC). There are also three government backed schemes currently in place for businesses to apply for – the UK government’s £250m “Future Fund”, the state guaranteed Coronavirus Business Interruption Loan Scheme (CBILS) and £750m of research and development grants and loans via Innovative UK.
Of course, not every business has had success in accessing one of these funding streams, but there are at least multiple funding channels available to those in need.
Safeguarding for the future via digital transformation
For those businesses that can find suitable backing and can afford to take a moment to focus away from the immediate, one of the next steps is to consider scenario planning to safeguard against any future crises of a similar nature. That doesn’t necessarily (and hopefully won’t) mean another worldwide pandemic, but rather a crisis that has implications for normal operation ie. disruptions in the supply chain or physical office presence.
The best way to do this is via digital transformation of communication and business management tools. The adoption of cloud ERP systems, for example, are virtually a must for most startups who want to protect their operation from interruption in future “unprecedented” scenarios. Digital safeguarding will present more opportunity for startups, should the unthinkable happen again.
Innovation opportunities, changes of course and tech, tech and more tech.
We mentioned that with the right direction, opportunities are available for startups right now, but what is that direction? Understanding the potentially permanent changes spanning from the pandemic into the market are key for new businesses. If it wasn’t happening already, the world of commerce and industry has progressed even further towards being fully digitally led.
With that in mind, companies with innovative plans within hot sectors like tracking, e-commerce and food delivery stand in good stead, which is no more exemplified than by our domestic impact tech scene being by far the fastest growing on the planet. London, for example, is now the global impact tech hub of choice, with VC investment in the city rising by 800% in the last five years.
There is also the opportunity for young startups to reinvent themselves and pivot into a new market. A brave move, perhaps, but not an uncommon one, with nearly a fifth of startups having already taken the plunge to move to a new market, and another 13% considering the shift in the next half year. Within that, the advantages currently presented to new startups over existing ones is apparent. Those with the flexibility to adapt are doing so, while those further down the path are having to try to survive within their current business plan.
Though the challenges for businesses through this period have been well documented, the opportunities for new startups, albeit the lesser number of them, should be noted. It’s worth remembering that half of the current Fortune 500 companies were formed in an economic downturn, while many of the world’s most recognisable unicorn companies began their journey in a recession period. For budding startup owners, the hope is that the pandemic will turn out to be an unexpected platform for fairy tale success.