What are the impacts of COVID-19 on entrepreneurship?
Marie-France Derderian, Senior Lecturer and Director of our Master’s in Hospitality, Entrepreneurship and Innovation, investigates the potential impacts of the current crisis on one of the global economy’s greatest engines of growth: entrepreneurship.
In the face of the global COVID-19 pandemic, entrepreneurs have to face a new reality: that it is not only a huge sanitary and health crisis affecting millions, or even billions, of people across the world. This is also provoking an unprecedented downturn in the global economy.
The numbers are shattering. At the time of writing, France had recorded its biggest fall in GDP – 5.8% – since 1949 in the first quarter of this year. Meanwhile, in the USA, the numbers unemployed or underemployed have now passed 40 million. This reveals the breakability of our economies and their fundamentals.
If the world has quickly shifted under our eyes, the different scenarios and realities are not the same depending on where you are running your business today.
The government, public health and economic responses are hugely different if you are an entrepreneur based in USA or in Europe. As business founders, you will also need very different action plans in place depending on your sector and industry.
If you are in online shopping, food delivery, video gaming or video conferencing industries, where business is currently booming, it’s a completely different picture than if you are running a business in the hotel, restaurant, retail, entertainment, or sports industries.
Those entrepreneurs in COVID-impacted sectors should be ready to lose 50% to 80% of their turnover, as well as a major portion of their market value. For example, the urban mobility e-scooter start-up Lime, formerly a star company, has lost around 80% of its value. The company’s 2019 fundraising ($310m) established its valuation at $2.4 Billion. But by May this year a proposed investment by Uber valued the company at just $510m.
Ditto for Airbnb, the short-term rental platform that has also been a star performer in recent years. Airbnb planned to enter the stock market in 2020, but the IPO will now be postponed to next year. According to the Financial Times, the company has cut 16% from its potential market value, which has decreased from $31 billion to $26 billion. And just to underline the commercial impact of the pandemic, Airbnb has recently announced that it’s laying off around 1,900 staff members – some 25% of its workforce – as it struggles to deal with the downturn in business.
Some positivity too
Nevertheless, there are two positive thoughts we should always keep in mind:
- Entrepreneurs are fighters; by nature optimistic and resilient. They will overcome this difficult period because it is in their DNA to bounce back.
- Every crisis has an end point. And this will be the cue for entrepreneurs to undertake something new.
The industries most impacted by COVID – particularly those in “social” sectors like hospitality, could take the opportunity to innovate, with more digitalization and disruption implemented in their business models in order to increase the touchpoints with their customers.
My tips for entrepreneurs to manage this crisis
A basic reminder: a company needs three assets to be profitable and sustainable:
- Money (access to capital)
- Know-how or specific expertise
- A team (People)
1. Your first asset: Money
Keep playing to win, not to survive:
In this way, you should manage to survive; and, at the same time, you’ll prepare for the day after the crisis ends.
Action 1: The Diagnostic
Accept that your previous business plan is now outdated and irrelevant; then prepare and plan for a worst-case scenario. You need to face the present realities.
– Where were you at the beginning of 2020? Were you in good shape or not, and why?
– Where will you see yourself in Q3 or Q4, 2020?
– How much money do you have in cash today?
– How much money do you need to stay alive during the coming 18 months? Prepare a Q1 2021 plan
Action 2: Cash (expenses and revenue sources)
Cash is key. It’s time to review all your expenses: non-essential expenses must be cut in order to reduce your cash burn rate. You have to make your company leaner by transforming your fixed costs into variable costs in order to become more agile. Reduce marketing and events costs; everything which is not essential to the daily life of the company should be cut.
Pinpoint and look after your revenue sources. Analyze your customer portfolio to try to guess who among your customers might not be able to pay their invoices anymore. If you can, encourage faster payments from your clients.
Action 3: Access to capital
Evaluate and calculate the potential risks. At the same time, validate with your VCs, your shareholders, your partners, your banker, your trust relationships, if they are ready to support you and help you during this crisis period; and until where and when. Secure the funding which you calculated you’d need to stay alive during the next 18 months. Bear in mind, fundraising via video conferencing doesn’t work well, at least at present. Trust and confidence are not easy to establish behind a screen.
Do not: wait for the end of the crisis without taking immediate actions, simply thinking this sanitary crisis is not under your control and responsibility.
Do: position your company for growth. A downturn is the best opportunity to improve your fundamentals, as I’ll explain below.
2. Your second asset: your expertise, your value proposition, your market fit
Take this opportunity to improve your fundamentals and to make them more robust.
Your technology and developer teams could use this time to go deeper and to improve your product. Make sure you are creating a pain killer. Take this time to train your tech team to new software (online and free open platform).
The executive team:
Take this opportunity to improve your market fit. What is your real value proposition? Strategic thinking is possible since, for once, CEOs and executives are not slaves to the short-term figures and the tyranny of monthly/quarterly turnover and performance reporting. Try to take a step back; look to change or adapt your strategy and put new processes in place.
The sales and marketing teams:
Take this time to talk and innovate with your best customers. Analyze your NPS (net promoter scores), understand why they love your product and why they could leave you. Dive deeply into your customer database. Find out your advocates and discover what product features are missing: do you have time to implement them and to make your product or offer 10x times better?
It’s also time to innovate and forge new collaborations. Restaurants can move to take away food; some restaurants are providing a daily recipe each morning on their social media channels, while customers can order food or dishes for delivery via collaborations with UberEATS or other delivery food apps – something many businesses would not have imagined one month before.
3. Your third asset is People: reimagine your new future and ways of working
During this crisis your employees must remain more committed than ever, in order to keep going through it. Communication is crucial. Increase your daily communication and try to reduce uncertainty as much as possible, so your employees’ morale doesn’t suffer. Take care of them, protect them, be sure they are heathy and safe. Be crystal clear and honest with your teams on what you know and what you don’t know.
Bear in mind, remote working offers more flexibility, but it will kill some of the chemistry of creativity (spontaneous decisions taken at the coffee machine). Trust and humility are critical to reinvent or innovate your managerial practices. Be closer to your teams. Managerial innovation could be less control and more trust. You should reinvent and change your way of working with their input. This troubling time requires different cultural shifts. Don’t hesitate to ask them how they would like to work when the ‘normal’ routine returns.
Every crisis is an opportunity
Don’t forget that some of the most disruptive or interesting companies have been created and took off during times of crisis. I’m thinking of Google, eBay, LinkedIn… after 2001; and Uber, Airbnb, Instagram, WhatsApp after the 2008 financial crisis. This means there are great opportunities for great leaders!
After the COVID-19 crisis the lessons to learn are:
- More limited travel of goods and people, notably business travelers (more remote working and remote meetings) due to the impact of physical distancing requirements. We must factor in future sanitary crises or even new wars due to global overcrowding.
- The potential growth in “dematerialization” of products and services: for example, we could witness a boom in 3D printers to produce masks and ventilators in each country.
- More agility in corporate decision-making: for example we’ve seen companies like Apple changing their operations virtually overnight to design, produce and ship face shields for medical workers.
The low-cost product sourcing model, where China and India are the world’s manufacturers, will be ended. Globalization as well. This crisis will change the relationships between countries and states: presenting new challenges, new stakes, new dangers, new threats (health and climate).
Governments must, and will, demand to be independent and autonomous with regard to critical medical supplies and medicines. We can learn how Korea, Singapore, and Taiwan have rapidly contained COVID-19, but their populations are ready to accept personal tracking and facial recognition technologies which are not yet acceptable in other societies (much of Europe for instance). A world less open and, probably, less free is to be expected.
With virus containment likely to persist in many parts of the globe, we’ll see for sure new ways of life producing new needs, which will in turn create new opportunities for entrepreneurs. Some new business models, new offers around dematerialization, will have to be invented.
In the coming years, the new king of the world will be the “Amazon of dematerialization”. And it will be the entrepreneurs who will implement this new world.
- Click here to find out more about our Master’s in Hospitality, Entrepreneurship and Innovation