With an unprecedented crisis, comes unprecedented opportunities. It sounds counter-intuitive when the world seems to be slowing down and contracting from the current pandemic, but history tells us that this could be the perfect opportunity to turn that startup idea into a reality. In a 2009 study conducted by non-profit Ewing Marion Kauffman Foundation, well-over half of the companies on the 2009 Fortune 500 list, and just under half of the 2008 Inc. list, began during a recession or bear market. Like the dotcom bubble 20 years ago that killed-off so many tech companies but strengthened current tech giants like Amazon and Google and more recently and tech success stories like Airbnb and Slack coming out after a period of recession, the current pandemic is also testing even the best in any industry. It is not just changing how we live our lives, but also creating opportunities for new businesses to thrive.
So, here’s our take on why you should consider launching your startup now:
There’s nothing like an actual crisis to uncover new pains, needs or amplify an existing problem. Millions are stuck at home, be it for work or school, and there are a plethora of problems from this situation needing solutions. Afraid to get on crowded public transport? How about taking an e-scooter or other urban mobility solution? The retail, tourism and travel industries are among the biggest hit during the pandemic. We can expect innovative solutions to come out from these sectors in the next few years.
Resilience is built into the process
Companies born in times of crisis will tend to minimize expenditures, preserve cash, and avoid corporate debt by operating cheaply. Therefore, from the very start, they run with resilience built in. Companies operating this way rely on innovative, low-cost ways to get the business going. They tend to focus on growing faster by automating and reducing human costs. In weathering the crisis, they develop resiliency and will tend to fare well once the crisis has passed.
It’s undeniable that many industries have been, and will continue to be, affected the current pandemic. Unemployment is through the roof across all sectors. This means there is great talent just waiting for new opportunities. In uncertain times, many will also consider ‘jumping ship’ and are more open to changing employers. There are others – the entrepreneurial ones – who will take this opportunity to start their own companies or opt for a startup environment rather than joining a more established company.
Access to funding
Access to capital will undoubtedly be tighter but will not dwindle. In fact, smart investors will want to invest in a downturn, especially in early-stage rounds as these are of smaller ticket size compared to later-stage startups. Shortage in funding does not necessarily mean a bad thing. This forces startups to be leaner, more frugal, and to not rely on corporate debt. Think of it as forced bootstrapping. Funding will also come with stricter controls, allowing startups to exercise greater control and caution in the use of funds. If debt is unavoidable, interest rates tend to be generally lower during downturns.
Costs tend to be lower during a crisis or recession. In case a physical space is absolutely needed, rent is lower as most companies have adopted for the work-from-home option, therefore freeing-up a lot of office space. There is less demand for certain kinds of ad space which will in turn lower marketing fees. The same could be true for equipment, where demand could not be strong resulting in lower costs.