Start-ups play a key role in OECD economies, but the COVID-19 crisis is reducing their creation, challenging their survival, and limiting their growth. Business registrations have been dropping significantly in recent months and a missing generation of new firms has significant implications for economic outcomes, notably employment. This column argues that these can be mitigated by taking steps to support existing start-ups and the creation of new firms. Policymakers should tackle short-term challenges, supporting short-term liquidity and availability of funding, but also and importantly foster the ability of start-ups to grasp new business opportunities. Policies that reduce barriers to entrepreneurship provide incentives for start-ups, and boost entrepreneurial potential could help speed up the recovery and preserve aggregate employment in the long term.
The corona virus pandemic has changed the business landscape we are all familiar with, and it’s hard for anyone to accept the sudden, devastating changes. Yet accepting the changes is the best step moving forward. The best action any startup founder can take is to not panic.
During the COVID-19 crisis, start-ups have continued to play a critical role for economies. Some innovative young firms have reacted fast and flexibly to the pandemic, and have been critical in helping many countries shift towards fully digital work, education, and health services, and have provided innovations in medical goods and services.
Most existing start-ups face significant challenges due to the COVID-19 crisis, as they are more vulnerable than older incumbents to the shock brought by the pandemic. They tend to engage in high-risk activities compared with other small and medium-sized firms (SMEs), face constraints in accessing traditional funding, and have a formative relationship at best with suppliers and customers. They also often crucially rely on a small founding team, and this can further increase their vulnerability to labour supply shocks during the pandemics.
At a time marked by significant economic uncertainty and with their revenues affected by containment measures and significant drop in demand, start-ups become even more financially fragile and need support for their short-term liquidity needs, critical for their survival.
In many countries, policy responses aimed at shielding the economy from the crisis are already targeting firms’ financial fragilities, especially for SMEs. These include measures to sustain short-term liquidity needs, such as loan guarantees, direct lending, grants or subsidies. However, policy responses should take into account the specificities of start-ups with respect to other SMEs. Some countries have introduced measures more specifically focused on start-ups. For example, France has set up a €4 billion fund to support start-up liquidity, including bridging start-up funding rounds; Germany has announced a tailored start-up aid program, expanding and facilitating venture capital financing; and the UK has announced a co-financing fund for innovative companies facing financial difficulties.
Here are eight actions startups should take to weather the pandemic.
DO A REALITY CHECK
Redo your company’s strategy to face the current reality. Take a hard look at all the business assumptions you made about your customers, markets, product, revenue, and cost forecasts. Most likely they’re no longer true. They might be invalid, changed for the worse, maybe for the better, or have remained the same.
Make a short-term strategic plan instead of a long-term one. The plan doesn’t have to be perfect because you need to be able to survive right now. Just make a plan that adapts to the new reality, review it daily, and update it weekly. That’s really the key.
Next, act on those new strategies decisively and immediately—whether that’s offering a new product or service, canceling a product line, or cutting costs. In this time of crisis, there’s nothing worse than being indecisive and taking no action. Remember, the most important goal right now is to survive until the economy restarts or seize new opportunities to grow the company.
LEND A HELPING HAND
Your customers are also struggling during this time so talk to them to better understand their challenges. Try to go above and beyond by offering free products or services. If you can’t afford to do this, find other ways to lend them a helping hand.
A difficult time like this is the best time to show one’s character and build long lasting trust with customers. The more you can help your customers, the more you will also be able to weather the storm together.
CARE FOR OTHERS
Be sure to take care of your employees and help the community.
In this time of crisis, a lot of people around you have needs. Protect your employees by lessening the risk of exposure to the virus. Give them a safe working environment. Also help out the community if you have the means and resources to do so. I know many startup founders who are doing just that.
Communication is particularly difficult for founders of tech companies who often focus more on building their company. But good communication is essential. Employees, customers, investors, and purchasers are anxious and worried. Now is the time to keep them updated on where the company is going and or what the current situation is.
Founders should communicate authentically and with compassion about the situation and the changes made to their business activities so they can win people’s hearts and their support. Compassion is a key because this is not just about business, but rather a crisis that is having an emotional impact on everyone.
USE YOUR TIME WISELY
You and your team may now have more time on your hands. Use it to plug the holes in your business or do all those important but not urgent projects you’ve
been putting off because you were too busy. These could include conducting performance reviews of your employees; reviewing strategies, processes, and products; rewriting company policies; or streamlining procedures.
When you return to business, you’ll be stronger and more able to weather the aftermath.
APPLY FOR FINANCING
Fundraising during this time will be harder than before the pandemic, so founders need to be aware of alternative funding streams. These could include government-funded programs aimed at helping small businesses and special low interest or no-interest bank loans.
LOOK FOR NEW OPPORTUNITIES
While the pandemic might have shuttered your company’s traditional business, new opportunities could open up. But you need to know where to look for them. By keeping communication channels open with others, you might discover new lines of business that you can take on immediately to generate new revenue streams.
Instead of thinking, Oh no, all my opportunities have closed. Now is a really good time to look at new business opportunities.
No matter how severe and disruptive this crisis is, one thing is for sure, the war on this pandemic will be won.
Founders who navigate through this storm with bold, compassionate, and flexible leadership will not only survive, but also come out of this situation even stronger.