The Covid-19 pandemic turned out to be a worldwide economic disaster, with consequences for almost every industry and market similar to and beyond the 2008 crisis.
The cross-border economic downturn has influenced everyone: large enterprises, small
businesses, and startups, as all companies are struggling to handle business and employee setbacks.
A recent “Startup Genome” survey shows а global picture of the startup situation: 41% of the startups are threatened in what is called a “red zone”. They have a cash runway of three months or less. Lots of young startups live with only a few months in cash, and some were facing difficulties even before, but the crisis has put 40% more of them in that precarious position.
On the other hand, not every business suffers from the crisis. In fact, some entrepreneurs have thrived in its midst. Examples are delivery apps, digital health, online learning platforms and many others. Yet these are still “niche” businesses, and the overall picture for startups is not very bright. Since the beginning of the pandemic, 74% of the startups have terminated full-time employees. 39% of all startups had to lay off 20% or more of their staff, and 26% had to let go of more than 60% of their workers. No one understands the ultimate economic effect of the epidemic of Covid-19, but everyone agrees that we have a global economic reset on our hands.
There are two sides to the coin and two ways to look at this crisis. If you are dedicated enough to make it through the pandemic, and keep things flexible, this may turn out to be a great opportunity for your startup, or at least lead you in the right direction. Any crisis brings opportunities. Just look at the current Fortune 500, where 50% of the companies started during a contraction and more than 50 unicorns were founded in the (last) Great Recession alone. Many people agree that the Covid-19 crisis is likely the next such big opportunity.
Lots of entrepreneurs and investors advise to stay positive, ask for help or help others, switch to online communications, and cut expenses (reduce office space; taxes; utilities; employees and etc.), but there are a few important tips that might improve a startup’s situation and we are going to take you through each one of them. In short, you have two options: give up or commit to your startup 100%.
Trust the data
Startups will have to adapt to the current market demand and adjust their business models as the world learns to live with the Covid-19 pandemic. What was working until now, often won’t work for businesses going forward. There is a drastic behavioral change which can give you clues on which direction to take if you take a close look at the data. For example, a study shows that there is a rapid decrease in cinema attendance, even before theaters were closed. This suggests that the shift was driven by consumer behavior and not the measures itself, likely because there is an absence of innovation. On the other hand, live sports attendance declined only when games were formally canceled or postponed due to the pandemic.
A behavioral study shows that the average time for a new habit to form is 66 days and we have been dealing with this situation for more than 10 months. You need to challenge all assumptions about your startup by taking a careful look at the new market environment. This requires you to actively look out for changes and anomalies to avoid becoming irrelevant.
Identify growth opportunities
Companies who seek to emerge from the pandemic even stronger than before must develop an understanding of these changing habits. For startups this means identifying and analyzing shifts before they become visible to everyone. The first step is to spot the potential behavior changes in order to recognize which business opportunities will grow and which will contract as a result.
Retrieved from Harvard Business Review
After you identify the potential growth opportunities, categorize them based on whether they are short term or long term changes and whether they existed before the pandemic or not. Is the shift temporary or it will bring a structural change with permanent effects in other areas of interest to our business.
So how can you reposition your startup to align with the new trends?
Maybe your startup can contribute to remote health/wellness or online education and communication. If you manage to relate your value proposition to Covid-19, your next step is to reach out to potential customers and partners in a manner that reflects understanding of their new needs.
Expand customer niche; keep iterating
The current crisis is a great opportunity for startups to expand their markets across borders and in regions that are not well served or developed. A great example is the VIPKid case, one of China’s unicorns, which allows communications between English speaking countries with children in China who want to learn English. With education switching from traditional to remote, the company saw an opportunity to expand its customer base and connection between both students (China) and teachers (USA, Canada, and the UK).
By reaching out to different markets you will have the opportunity to attract many new customers from different segments who might need your services even more. They can even help you to better understand their demands for future projects .
What this comes down to is doubling down on the core asset of early-stage startup development: iteration and validation. Startups can exponentially improve their chances by going back to the drawing board and validating new channels, new markets, new product offerings.
Adapt the value you offer and change focus
Companies from classical sectors managed to change the way they offer value to their customers, for example, by selling online. Thinking about upselling to existing customers and offering innovative value to new customers is a key to the current adaptation.
Another thing to take into consideration with your startup is whether to collaborate with complementary rivals or combine resources for a new product or service launch that may be in greater demand. A very basic example of how this is done is seeing 3D printers being reused for protective equipment and distilleries producing hand sanitizers. So why can’t you think of a way to adapt the value your startup provides to consumers.
Vitosha partner Marin Iliev mentioned in a recent interview that now is probably not the best time to invest in marketing, for example. Change your focus to your internal operations during this situation and see how you can handle it before you reach out to customers.
Power up your fundraising
The next tip for you and your startup is to not lose hope in fundraising. You never know who needs your idea and who wants to invest in it. Startups with excellent ideas that solve problems always get more funding. Many investors look at this crisis as an opportunity to invest in disruptive innovation. This is actually the time to come up with brilliant solutions and ideas, when we are all facing many problems caused by the virus. Also, getting in touch with investors is in many ways easier now: many are now just a Zoom call away, without need for meeting them physically first, or obtaining an old-school in-person introduction. At Vitosha, we also modified our traditional methodologies and work processes to help and support startups during the crisis. We switched all of our interviews and meetings from traditional to online and all of our accelerator related activities will be performed according to the safety regulations. It's safe advice to double down on fundraising, and be much more proactive and diligent with approaching investors and following up with them. Perseverance always wins, and now even more so.
What it comes down to is going back to the drawing board, reassessing all options, and going with double speed and strength after the client and investor opportunities you have available.
We see very often that founders either remain married to their preferred solution, without validating the customer needs enough from the outset, or stop validating very quickly once they’ve found the first product-market fit for the problem they want to solve. Most of the time, this attitude doesn’t allow for long-term stellar growth into becoming a sustainable, high-growth business. And in times like these, it’s even more crucial: whatever fit you have found, Covid-19 will probably disrupt it. So it’s back to validation, over and over. Firsт validate, then build. Then grow and raise your next round.
We will get through this challenging time together, and we will emerge more focused on our customers’ needs, more adaptable, thoughtful, and united because of this experience.