In today's scenario during Covid-19 pandemic, a small startup has more capability to withstand the current condition because of being lean and nimble compared with the bigger giants. Also, it doesn't have much to lose compared to the bigger giants.
So, if you have been thinking to get into the start-up world, this might be the perfect time to jump in.
The Covid-19 damage
It’s been just some time since the coronavirus pandemic has spread across the world which got started in Wuhan, China. However, the economic shock can be felt by innumerable businesses across the world.
Big brands such as Apple, Microsoft, and GE are preparing themselves for loss in sales due to closed shops.
Consumers are not only staying at home but also are cutting their personal expenses. Stock markets are going through a lot of fluctuations. In short, buying the latest model of the iPhone is not a priority anymore.
Many big companies have already seen their stock price falling down. A lot of them will be losing on their quarterly earnings and this would take time to recover.
Many start-ups are also affected by the same factors especially the ones who have their manufacturing bases in countries such as China. But when it comes to surviving the recession due to the pandemic, being small is always an advantage.
Lean and nimble
Let's consider the case of Nike: They produce around billion units of shoes every year which accounts for around 60 per cent of its overall revenue. If their main product unit gets locked down for a couple of months, they are going to have a huge problem to set up another unit that can produce similar kinds of output.
At the same time, say, there is a startup shoe company that manufactures stylish sneakers and sells a million pairs of shoes every year. It is much easier for them to find a factory that can produce a million pair of shoes compared to billions.
The advantage of startups is they have small needs compared with the larger brands. Agility is a huge advantage. This helps them to move swiftly in such critical situations.
Cost is a huge factor that startups can withstand during such a situation. Nike employs around 75,000 people globally. A startup shoe company may have less than 200 employees in its team. A lean and nimble team is a great boon during a crisis like COVID-19
Tech startups can be classified into these three categories: B2B (Shopify), B2C (UBER) and software (Slack or AirBnB).
Technology: The core differentiator
For majority of the tech startups, 90 per cent of their sales comes from online channels. They don’t have offline dependencies such as shops, people, etc. This helps them to reduce their operational overheads substantially which means they can run longer with their current burn rate and cash on hand.
Hence, majority of the startups have been unaffected by the COVID-19 crisis. In fact, a lot of tech startups have seen a spike in sales during this time. Tech startups which are in to food, grocery delivery, fitness apps are getting a lot of momentum during this time.
Tough times don’t last. Tough people do. Economic crisis like COVID-19 would separate wheat from the chaff. It will test businesses and people who are able to withstand and survive will emerge as winner.
If you go back a decade to around 2008 -2009, the US had lost around $19 trillion. Real estate market had completely collapsed and unemployment rates were hitting through the roof. Many people had lost their homes, jobs and ran out of money.
A lot of businesses suffered through that crisis and every day a new business was shutting shop. It was one of the darkest moments in the history of the US.
However, it was also a fertile ground for innovation, disruption, and hope.
During this time, innovative companies were born. UBER and Airbnb were both founded in 2008. Startups such as Slack, Dropbox, GitHub took their first step during the times of recession.
Today, each of these startups are valued more than $1 billion, or even more. Not only they were able to build a revolutionary business but they also gave fruitful exits to their earliest investors.
Reiterating the fact, this why I believe that this is a perfect time to launch your startup.
Startups which can beat a pandemic like COVID-19 might well have a chance to get into the Unicorn club as well.