No one would argue that the COVID-19 pandemic has created a landscape in which any business can thrive, but it has been particularly brutal for startups and young businesses. In a world where only 56% of businesses make it to their fifth year in service, coronavirus has forced entrepreneurs, startups, and new small businesses to show their grit, determination, and ability to innovate at a moment’s notice. That’s not a landscape in which half-hearted businesses can survive. You’re either a winner or a loser – you either continue to serve your customers, or you don’t. And if you can’t? You either have to innovate or have a strong case as to why you should receive funding from investors or a willing bank (and those are thin on the ground).
Coronavirus is the Ultimate Test for Startups: Who Will Survive?
So, How many winners and losers will there be?
At this time, there’s no way to predict how many startups will die an early death due to the global economic shutdown. Just as we can’t truly predict how many people have contracted the virus, or if it will have a resurgence come the winter, it will likely take months or even years of distance to truly know the effects. What we do know, is that we won’t have a sudden return to normalcy – both in the ways we live our lives and in the way we spend as businesses and individuals. With some experts forecasting another 18 months before the world returns entirely to normal, some startups (and mature businesses) simply won’t survive.
THe businesses most likely to lose
Obviously, this isn’t as cut-and-dry as saying “businesses in the travel industry will struggle”, because while that’s true, there will be those that survive. There will also be small businesses that essentially go dormant and have a resurgence as soon as people begin to travel again. So, who’s really set up to lose?
Startups on venture capital life-support
Under normal circumstances, ambitious startups seek funding via venture capital for a year or two of operating so they can hit the ground running. Of course, as soon as the market crashed, the flow of venture capital stopped. And, since nothing like this has happened in living memory, few startups were in a financial position for their momentum to essentially be halted.
According to analyst Alexander Davis, over 7,200 startups in his database were likely running out of money as early as mid-March. While government lending may help keep their payroll running – if there are clients to serve – it won’t help them six months down the line when, potentially, they would normally use VC to keep pumping blood through the business’s veins. VC firms are going to be extremely selective about who they continue investing in.
In short, if a startup hasn’t found a way to continue operating while working from home, you’re going to be in trouble. This isn’t to say that businesses that rely in manufacturing are going to collapse. Many have continued operating at a reduced capacity and are starting to return to work. What it does mean, is that if you can’t quickly implement remote systems that allow your teams to work remotely, your startup will likely fail. As Jeff Richards, partner at VC firm GVV Capital said, “I travel[ed] over 200,000 miles per year for work. Now that doing board meetings, interviews, and other mission-critical meetings via video has been normalized… I definitely think it’s a behavior shift that will stick.”
Startups may have to pivot to not grow because of venture capital, but to grow with whatever they have that remains. It’s common for startups who get substantial funding to jump into business with both feet – but the beautiful offices and designer furniture for client meetings is no longer important. Systems and money are. Money is the blood that pumps through a business’s veins, and when it dries up, the business dies. Since an influx of money is much more unlikely, it’s time to get savvy and focus on profitability, not simply growth.
As Mike Michalowicz, serial entrepreneur and author of The Toilet Paper Entrepreneur and Profit First says, “A lack of profitability is consistently the major reason cited for business discontinuation.” That won’t change during the pandemic, either.
What do winners and losers look like
Let’s take a quick look at some of the real-world examples that are currently thriving, and are likely to continue doing so.
Winner: Help-on-Demand Apps
Who and Why? Doctor and vet-on-demand apps have become not only a good idea, but a necessity. Apps like Kry, Qare, Babylon, and Petsapp have experienced a huge rate in clients and downloads. This new trend isn’t just for the pandemic – it will become a new way of easily and quickly contacting the professionals we need.
Loser: Tourism apps and booking services
Who and Why? GetYourGuide has seen a 50% drop in bookings since February, and that’s continuing to decline as it becomes more obvious that travel for pleasure is still a way off. Airbnb has seen their bookings drop 50-90%, depending on the locality. Airbnb is likely to survive, simply due to its size and global reach, as it will be able to benefit as different parts of the world return to normal.
Winner: remote work Saas and meeting solutions
Who and Why? The whole world has been forced to move to online, work from home solutions, so it’s only natural that these businesses are thriving. As working remotely is a trend that’s likely to stick. Smarp, Hopin, Trello, and other productivity web apps are also seeing increased use. Roope Heinilä, cofounder of Smarp, an employee communications platform, said “Our inbound pipeline has grown 110% compared to Q1 of last year.”
So, what do you think is going to happen as we move forward? Do you think these workplace trends are likely to continue? Do you think the fact that VC has become more selective is beneficial, or will we see innovative businesses get passed by in preference for “safe” investments? Let us know – we’d love to hear your views!
If you’re using this time to better yourself as an entrepreneur and business leader, we’re here to support you. Continue reading with us on the Peakzone blog: Will Remote Work After COVID-19 be a Permanent Solution?, How to Navigate Difficult Conversations, or find out how we help reduce investment risk.