Challenges and Opportunities for Startups in the Time of COVID-19

It’s no secret that the COVID-19 pandemic is posing unprecedented challenges to businesses of all shapes and sizes. For startups in the most vulnerable stage of their development, however, it is an existential crisis — and one that may prove to have significant ramifications on the economy and job market for many years to come.

Combined, huge shifts in consumer behaviour and buying power, supply chain disruptions and office shutdowns have forced companies across the globe into an “adapt or die” situation, with survival depending on the rapid embrace of digital technologies.

To survive the pandemic and the new digital-first world it is creating, businesses — and especially SMEs and startups — need future-proof business management and communication tools. As such, cloud-based ERP solutions like metasfresh are fundamental — by shifting key business processes to the cloud and combining them all under one all-seeing, all-knowing information system, startups gain the agility they need to navigate the disruption and facilitate a remote workforce for the long-term.

This is crucial. Startups are central to economic growth and job creation. They are also the driver of radical innovation across industries, as they tend to invest disproportionately in developing new technologies and solutions that they rapidly translate into innovative new products and services. Startup survival, therefore, is the greatest hope for a fast economic recovery and for fuelling innovation in the future.

But what are the challenges and opportunities for startups in the time of COVID-19, and what will it take for them to survive the crisis?

According to OECD.org data, startups and young firms account for about 20% of employment in OECD countries, create almost half of new jobs, and contribute significantly to aggregate productivity growth.

However, the crisis is not only reducing the creation of new startups, it’s also costing existing ones revenue and access to funding — challenging their survival and limiting their growth. A survey conducted in June and published as part of the European Startups project — a two-year initiative by Dealroom and Sifted, supported by the EC, which aims to supply real-time insights into the health of startups across the EU — finds that 35% of companies saw their revenues decline by more than 25% in March and April, with 40% expecting total 2020 revenues to be at least 25% below plans.

Fundraising has also been affected. The survey found that over 40% of imminent fundraises have been delayed, which could have significant ramifications further down the line — particularly for the one-third of startups that have less than a year’s worth of cash in the bank.

Unsurprisingly, with falling revenues and reduced access to investment funds, nearly half of startups (43%) have stopped hiring, and nearly one-third (28%) are hiring less than previously planned.

Meanwhile, new firm creation dropped significantly globally between March and April, which will likely have long-term consequences. As OECD puts it: “A reduced number of new firms, even in a single year, has sizeable and persistent effects on different social and economic outcomes, including innovation and notably aggregate employment.”

OECD researchers find that a 20% decline in the number of new firms leads to employment loss of 0.7% of aggregate employment three years after the shock, and still 0.5% 14 years after.

Challenges abound the startup ecosystem — of that there can be no doubt.

However, the crisis may also create both short- and long-term opportunities — especially for those with the agility and willingness to adapt.

As noted by Dan Dalton, Senior Advisor at Allied for Startups, in a recent article for EURACTIV, startups are the very lifeblood of a competitive economy, challenging incumbents, offering new and diverse employment opportunities, and giving consumers greater choice.

They are also resilient — and, if history is anything to go by, are just as likely to thrive in times of economic crisis as fail. Indeed, even as the overall number of new business registrations generally drops during recessions, many successful innovative startups have emerged from such periods.

Dalton points out that over half of all Fortune 500 companies were founded during a downturn, and more than 50 unicorns were founded in the recession following the Great Financial Crisis, including Uber, Dropbox, Airbnb and Pinterest.

This confirms that, while posing new challenges, times of upheaval also provide new opportunities for startups to address new constraints and difficulties in the market and respond to changing needs and preferences. During the current pandemic, billions of people across the globe have been quarantined — and many startups have leapt to the challenge of solving some of the world’s most pressing problems. Startups are at the forefront of the development of coronavirus tracking apps, for example, while ecommerce and food delivery services have doubled as consumers have taken to ordering goods online rather than venturing to stores — a trend that is expected to last long after COVID-19.

As such, as coronavirus induces persistent changes in the market and consumer habits, valuable opportunities arise for startups that are able to anticipate these changes. According to a recent study by Station F, 18% of startups have already pivoted to address a new market since the beginning of the crisis, and a further 13% are considering such a move in the next six months.

For startups to implement the changes needed to survive the current crisis and thrive beyond it, they need digital solutions that are affordable, facilitate a remote workforce and do not introduce new IT and infrastructure burdens to the enterprise. In short, they need the cloud.

Organisations that had implemented cloud computing technologies before COVID-19 have already seen how the cloud has helped them ensure business continuity throughout the crisis. Now, emerging startups and scaleups must follow suit in preparation for times to come — not least to meet increased demand for work-from-home.

Cloud ERP solutions such as metasfresh are nothing short of a lifesaver for startups. A key aspect of metasfresh Cloud ERP is that it serves as a centralised business management system. It provides the whole enterprise — no matter if individuals are working from home or in the office — with direct access to an extensive suite of business management tools and live data from any device with internet access. What’s more, with metasfresh Cloud ERP, organisations are provided with all the benefits of large IT infrastructure without the need for large amounts of in-house hardware — and equally large teams to maintain it. This means that startups already feeling the financial strain do not have to procure vast new swathes of infrastructure to support the shift to digital — they can leave that up to us here at metasfresh.

At metasfresh, our aim is to free up your valuable in-house resources so you can focus on the development of your core business and adapt as necessary to changing market conditions — both now and in the future.

Talk to us here at metasfresh. Since 2006 we have been developing our ERP software non-stop with open source components and under the open source licences GPLv2 and GPLv3. Our mission is to enable each and every company to access a powerful ERP system that supports digital transformation and fuels corporate growth. Get in touch today for more information and insights.