Starting your own business in the age of COVID
The coronavirus pandemic has dramatically reshaped UK businesses across various sectors. Many organisations have been forced to make difficult decisions in the name of survival.
Indeed, recent research conducted by NerdWallet on managers in British businesses shows that over two fifths (44%) have been forced to make least one employee with redundant over the course of the pandemic.
Taken in isolation, there is little here to inspire optimism. However, when paired with further data, we can observe a trend which may spark hope for the economic recovery to come.
Due to dramatic changes in people’s employment status and the adjusted role of work in their lives, many have taken it upon themselves to create their own jobs. Accordingly, the UK is undergoing an entrepreneurial boom.
The numbers are striking. Companies House has recorded a substantial spike in monthly company incorporations for the duration of Britain’s various lockdowns. For example, January 2021 saw 16,108 companies registered, showing a marked year-on-year increase of 118% over the previous January’s 7,366 registrations. This trend has held throughout the pandemic, and underlines a new wave of entrepreneurial spirit coming over Britain.
It must, however, be noted that the success of a new startup is not guaranteed. In the last quarter of 2020, Companies House registered 40,212 company dissolutions - a 28.7% rise from the year prior. Of course, much of this can be accounted for by established businesses struggling with the effects of the pandemic, but it demonstrates the underlying reality of uncertainty in the market today.
As such, aspiring business leaders should avoid looking at the current trading conditions and seeing a sure path to fast and sustainable growth. Those who take the time to develop a robust, realistic, and scalable plan will be the ones to reap the rewards.
Get the basics right
Budding entrepreneurs must consider what their product or service offering is, and what customers they will seek out. This may seem an obvious point, but it’s a common mistake many will make when rushing a product to launch. Indeed, this is a crucial first step that can make or break a business from the offing. As such, business owners must conduct thorough and well-targeted market research.
Additionally, individuals should then review in granular detail their operations. A fluent understanding of operational capacity, and deliverables under current capabilities will avoid headaches later down the line - for instance overpromising on an order they cannot fulfil in a timely manner.
These are the fundamentals. Only once these details have been considered should business owners begin to plan how to scale that basic structure appropriately as revenues increase.
This will require further strategic thought. Staffing priorities are a vital part of scaling at the right pace. This will vary by business; for instance, it may be prudent for one individual to invest in hiring a skilled employee to increase their operational capacity and ramp up supply, while another would look to invest in sales and marketing to ensure demand is in place as the product launches.
Of course, businesses of all shapes and sizes should avoid losing sight of these underlying details. Indeed, a robust business model, alongside a sensible scale-up strategy will prevent hasty decision-making, and provide flexibility to take advantage of a rapidly changing marketplace.
Unsurprisingly, funding is also a key consideration for entrepreneurs.
A recent study highlighted that UK startups cost, on average, £5000 just to get to the launch stage. A further study highlighted that the average entrepreneur will need £22,756 to invest in operating just through the first year. For most people this is not small change, so awareness of sources of financing will be critical, particularly in the pre-market stage.
Business owners may take an informal loan from friends or family, which comes with the obvious likely benefit of highly favourable interest rates when compared with traditional business lenders. It may also be possible for some to raid their personal savings to fund the venture. While this source of funding will produce lower running costs in the long term through reduced debt servicing, this will not be an option for every individual at the level of funding required.
So, many will look towards the traditional lenders. Loans and credit may be available through banks. However, it should be noted that most providers will require evidence of trading history before agreeing to offer credit, which means it is unlikely for funding from this source to be in place in the crucial pre-market stage. Accordingly, entrepreneurs should conduct thorough research in this area to avoid wasting time and resources on applications like this that are unlikely to be accepted.
Individuals who have exhausted these avenues will still find themselves with other potential options at hand. For instance, the Government run a startup funding scheme, which typically have much less stringent requirements to being accepted than the banks, so entrepreneurs would be wise to research their eligibility.
On the other hand, it will be crucial that startups keep their overheads as low as possible. Raising finance is hard enough, but using the money wisely will be the greatest challenge.
The pandemic has, in some ways, helped level the playing field. The rapid overnight trend towards eCommerce by consumers and businesses alike favours agile startups more than the high street retail model of the past.
At the same time, the COVID-driven shift to remote working will also favour SMEs, opening up a wider labour market and raising the possibility of hiring better skilled workers from further afield, or making costs savings on wages that can again be invested into other areas of the business. What’s more, it means that businesses will not necessarily be encumbered by expensive rents on commercial properties, and can divert such savings into their product offering.
There can be little doubt that now is a promising time for startups, fuelled by the rise in entrepreneurial spirit and encouraged by a renewed ability to compete with big business. While entrepreneurs will of course benefit, this could be good news for everyone, with more innovation, competition and an incentive for established enterprises to improve the quality of their offering. If a sensible and robust approach for launch is married with a considered plan to scale in the long-term, startups could take full advantage of this rare opportunity - but only if they get the finer details right.