Will the Covid-inspired startups flourish or falter in a post-pandemic economy?

Smiling young African entrepreneur standing in front of the counter of her cafe talking on a cellphone and using a tablet, single parent business owner

Article by Ritam Gandhi, Founder and Director, Studio Graphene 

The past eighteen months has been, to say the least, an interesting period in the business world. Naturally, most established enterprises were forced to pare down their operations to some degree to ensure survival.

For some, this will have meant slimming their fixed costs, through furloughing and redundancies; for others, receding their auxiliary operations to concentrate on the most revenue-critical elements of their business, or re-allocating resources away from long-term prospects.

The creation of new gaps in the market coincided with so many of the workforce having more time to invest in their ideas, resulting in a fertile ground for budding entrepreneurs to launch a business during the pandemic.

In fact, figures from the ONS show that more than 400,000 new startups were created in the UK over the course of 2020, with Q2 seeing the highest rate of year-on-year growth since 2012. Conversely, on top of the realisation of the anticipated surge in company dissolutions last year, we remain in a precarious business landscape; the Federation of Small Businesses predict that 250,000 businesses will close during 2021, even under less trying economic conditions.

Many businesses which launched have uncertain fates – it is not yet known whether the concepts will ‘stick’ to consumers once necessity is removed as a motivating factor. A concrete example can be found in the share price of video-conferencing app Zoom, which soared throughout 2020, but fell by more than 18% between ‘Freedom Day’ and the end of August.

This falter in product relevance is likely to apply more broadly. For instance, meal kit deliveries had an attractive product profile, affording customers a parallel to restaurant quality food, and the ability to support their favoured local businesses while venues were shut. As restrictions lift, and restaurants are able to operate under far less stringent restrictions, it is unknown whether the niche carved out by meal kits will retain its value – or market share – going forward.

While certainly a narrow set of examples, this paints a picture of the potential for regression to the norm across many sectors which were forced to adapt; and therefore, the fortunes of the startups launched in response to new opportunities in these markets.

To explore this further, Studio Graphene commissioned a survey of 2,000 UK adults, delving into the challenges entrepreneurs had faced during the pandemic, and assess their level of ambition and optimism towards scaling in the future.

Strikingly, 15% of those surveyed had founded a new business during the pandemic. Amongst this group, the vast majority (72%) report their business is now their primary professional focus – an encouraging sign for those concerned that many of these businesses were formed as an opportunistic response to circumstance, and would struggle to adapt. Indeed, for most founders, the side-hustle has already evolved into a full-time gig.

What does the future hold for Covid startups? 

While there is much cause for optimism in the findings, among entrepreneurs there are real anxieties about their ongoing fortunes. A number of particular risks and concerns were identified by founders as obstacles to getting their business properly off the ground. Of these, perhaps only one is foundational; nearly half (46%) of founders are worried their business will be less relevant to a post-pandemic marketplace. Of course, should this come to pass, this would not necessarily spell the end of their startup, but will require some considered strategic thinking and agility to respond to further changes in trends.

In turn, there are several concerns which could be assuaged with financial support (or support in other areas) from the government. A majority (59%) of respondents felt the government had prioritised the health of established businesses through the Covid crisis, to the cost of the lean and ambitious startups looking to take fullest advantage of their perceived market opportunities. Indeed, six in ten felt their lack of financial resources had hampered their ability to scale as they had hoped, with more than half (54%) having leant on government support schemes to launch and grow their business.

It is no surprise that startups had to make the most of scant resources as they look to scale at pace. In fact, pandemic or not, building a healthy financing base and allocating it appropriately is the great challenge for any new business.

Digital is just as important

With national lockdowns precipitating an eCommerce boom, it is natural that the firms who were able to thrive under pandemic conditions were the ones who could translate their product successfully to digital platforms.

As such, the limitations many founders felt on their access to technology, developers, and crucial digital skills, comes as a concern – most respondents (55%) reported their business being held back by a lack of nous in digital. This issue is not entirely separate from the limited access to finance; those with the most to invest are best placed to furnish their operations with high quality tech products, and access to any support needed – from a web developer, or digital agency, for instance.

Meanwhile, the Covid startups were engaging with digital to the best of their abilities, with nearly six in ten (58%) using social media platforms like Instagram and TikTok to develop their brand. As third-party digital platforms, however, these naturally have restricted utility, while reach to customers, and therefore conversions, is at the mercy of ever-evolving algorithms.

Accordingly, the best use of social media platforms is generally as a complementary asset to an owned digital platform. It is encouraging to note that most founders (58%) intend to invest in recruiting a digital agency to develop their in-house platforms over the coming 12 months.

The digital boom of the past eighteen months appears to be a sustainable development, even as restrictions ease. Accordingly, when looking for appropriate measures to support startups and SMEs, the government should look just as carefully at digital support measures as financial. Startups, by nature, should be lean and agile as they muscle in on the market share of established enterprises. For these businesses to continue to compete with revitalised big business, startups should be encouraged and incentivised to develop their products, services and processes – affording these founders access to top-class digital tools and development opportunities would be a positive start.

Ritam GandhiAbout the author

Ritam Gandhi, is the Founder and Director of Studio Graphene – a London-based company that specialises in the development of blank canvas tech products including apps, websites, AR, IoT and more. The company has completed over 100 projects since first being started in 2014, working with both new entrepreneurs and product development teams within larger companies.

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