Mankind has not yet encountered a crisis similar to the COVID-19 pandemic. Although experts in various fields compare it with the 2007-2008 mortgage crisis, economists have come to a unanimous conclusion: the economic crisis and the total lockdown caused by the pandemic will be much harder and more serious than the mid-2000s crisis.
They agreed that the global economy will need 3 years to fully recover from the effects of the crisis and return to the indicators of the end of 2019. This forecast will take place only in the most favorable scenario when there are no new outbreaks of the disease. But it is doubtful since new cases of infection are reported in the regions that have seemingly defeated the virus.
Meanwhile, in most countries, people continue to stay at home, and businesses of all sizes and specifics suffer from disrupted cash flows and operations. Tech development companies, like purrweb.com, were forced to continue providing their services remotely. Still, small businesses that do not have a financial airbag received a huge blow.
In our article, we will talk about how much COVID-19 influenced startups, and also try to give some tips on how to cope with this situation.
The impact of the pandemic on startups is obvious. And the vast majority of companies have experienced negative effects, mostly. That’s why we will talk about them first.
Speaking about the negative consequences for startups, we can briefly highlight the following points:
- Capital. About half of startups do not have financial savings and are in the red zone. Those who raised some investment in rounds A and B can last less than a year. Government support varies from country to country, but often includes interest-free payday loans and helicopter investments, which are often not enough;
- Employees. 74% of startups reduced their staff due to the crisis. Speaking about geography, most employees lost their jobs in North America, followed by Europe and Asia. This is due to the fact that the United States leads in the number of sick and dead from the virus by a wide margin. In Europe, the situation is not so deplorable. Asia seems to have coped with the pandemic faster than others, so there are fewer layoffs;
- Revenues. Estimates are approximate, and yet: more than 70% of startups declare a reduction in their income. Statistically, about a third of them faced a critical decline in profits of more than 80%.
There are also positive trends, however. While B2B startups have been affected the most, B2C companies are more likely to survive the pandemic with less serious consequences. It depends on the sectors, of course. For example, people continue to order food, read books, or watch films online.
- Growth. One-tenth of startups report a slight increase in their income. There are absolutely incredible stories. For example, the shares of video conference service Zoom grew by more than 275%. Any crisis opens up new possibilities;
- Operating activities. The level of digitalization in the modern world is very high. That is why most B2C online startups continue to operate. Some say that nearly 96% of tech startups run despite the crisis.
It is very difficult to derive exact numbers here. There are too many factors to consider: industry, type of startup, level of digitalization, the presence of a financial airbag, and so on. In general, the crisis has hit startups hard and caused a negative impact, no doubt.
Not all startups can survive in this crisis, but here are some universal tips to improve your chances.
- Develop a plan. The effects of the crisis will be felt for several more years. That is why startups that are hoping to continue operating after the lockdown, should have a clear plan of action. All stakeholders should be involved in the development of this plan, from ordinary employees to potential investors;
- Assess damage and redistribute income. Understanding the exact numbers is crucial. Diversify your cash flows, reduce expenses as much as possible, and outline several possible financial scenarios — from the most negative to the most positive;
- Choose a new direction. Evaluate how your activities and the specifics of your startup can be useful to the world in times of crisis. For example, car-rental company ZoomCar focused on providing services to healthcare industry workers, as well as delivery services;
- Lean is the key. You need to be as lean as possible. The lower the costs now, the greater the chance of survival;
- Search for investors. Not everyone in the world is losing money now, and many investors view this crisis as an opportunity. Therefore, conduct a thorough market analysis and try to make your startup profitable for certain investors;
- Don’t panic. Nerves and panic will definitely not help you. Accurate calculations and a cool head are really important right now.
We would like to finish on a positive note. Yes, the situation is extremely difficult and many will not be able to get out of it. However, these are the days when we should show our compassion and willingness to help. Startups are one of the most vulnerable types of business in any crisis. Nevertheless, there are chances to survive.
The key tasks here are either to put the business on hold for several years so that it will reopen when the economy recovers. Or, to reformat your startup in such a way that its activities are in demand in the new reality. Just believe that the good fortune lies ahead.