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COVID-19 - The End of the Startup?

November 20, 2020

Misconception in times of crisis, or bitter reality?

The coronavirus pandemic has shaken international corporations and entire economies to the core. How are new and unknown startups supposed to weather this crisis? Do we have to brace ourselves for the end of the worldwide startup boom? Should would-be entrepreneurs hold back until things look up again? “That might seem like the obvious advice,” Prof. Nikolaus Franke, Academic Director of the Professional MBA Entrepreneurship & Innovation, says. “But in fact, the opposite is true.” In the following, the expert in entrepreneurship and innovation from WU Vienna will analyze the reasons why founding is a good idea especially in times of crisis and why more people should dare to go freelance with their own startups.

Pic of a rocket as symbol for startup
Can new and unknown startups survive in difficult times, or is a crisis startup poison?

The coronavirus pandemic and the measures taken to counteract it constitute one of the most drastic change-induced shocks since the end of World War II. We experience this shock in the shape of a dramatic economic crisis as well as a social and political stress test: the gross national product has nosedived, unemployment has skyrocketed, the number of insolvencies is on a constant rise, and national debt is completely out of control in many countries. Investors and consumers are equally anxious. One might think that this was not the best time to start a company.

Learning From History

Looking backward can be quite illuminating sometimes. During the big financial crisis of 2008, the world was seemingly on the verge of collapse. But what many among us probably don’t know is that particularly during this time of plummeting stock market rates and economic shockwaves, a large number of extremely successful and innovative companies such as Uber, Airbnb, WhatsApp, Instagram, Pinterest, or Slack were founded.

Pic of the apps of two successful startup
During the 2008 financial crisis, successful companies such as AirBnB or Uber were founded. Photo © CC0 Licence

How is that possible? There are three specific features of a crisis that are responsible:

1. More Potential Entrepreneurs Equals More Startups

First of all, there are more potential founders. Companies are focusing on the most essential operations. Budgets are frozen. Promising projects are put on pause. Enterprises stop hiring and dismiss even highly qualified employees. Put together, all these circumstances create a huge pool of people who see opportunities, who (are forced to) look for new windows of opportunity, or are suddenly shoved outside their personal comfort zone.

2. Shifting Demand Equals Entrepreneurial Opportunity

The current need for remote work is creating an increasing demand for communication media and team platforms. During a lockdown, services like online shopping, delivery, or entertainment software are thriving. Heightened hygiene requirements also increase the demand for disinfectants. At the same time, new consumer demands are born. Masks, rapid COVID-19 tests, and vaccines are just some examples for that. Increasing demand, on the other hand, creates the necessary leeway for innovation and new business opportunities that founders need. 

3. On the Supply Side: Torpid Tankers vs. Maneuverable Jet Skis

Another factor is that the newly formed demand is met with a supply that opens up new chances for startups. Many existing companies are completely focused on themselves, fighting to survive. Cost-reduction schemes and restructurings stand in the way of long-term investments, which are a prerequisite for innovation. Add the fact that large corporations are notoriously weak when it comes to flexibility and speed of reaction: even medium-sized companies are often significantly faster. The difference between large and small companies is often compared to that between a tanker and a speedboat. And if medium-sized enterprises are as agile as speedboats, startups are the economy’s jet skis

pic of jet ski and tanker as a startup comparison
Small companies are much more flexible and can react more quickly to new circumstances than large ones - like a jet ski compared to an oil tanker. Photos © CC0 Licence

No other type of enterprise comes even remotely close to the agility of a small team of founders. Neither coordination requirements nor bureaucracy are holding them back. Structures that were established in the past and are now doggedly resisting change simply do not exist. Ideas that come to founders while they are having their morning coffee are on their way to being implemented by the time they are having lunch. This way, startups can make an important contribution to quickly offsetting the imbalance between supply and demand brought on by the crisis, and thus help us get through this critical period.

Cure-All in the Fight Against Global Challenges

But that’s not all we need right now. The coronavirus pandemic is exposing our society’s vulnerability. Nevertheless, the virus is not the only big challenge we are facing that requires entrepreneurial ideas and innovative solutions. Climate change, migration, energy security, and demographic shifts are just some examples of such challenges. It is undeniable that startups are already contributing their creative energy to all of these issues. One of many great examples is a startup called “Dachgold” (literally: roof gold) and their “Thousand and One Roofs” initiative. Together with her team, the former WU student Cornelia Daniel is fitting company roofs with solar panels. They are currently at 648 roofs – an amazing contribution to protecting the climate, which has earned her the coveted “Austrian Woman of the Year 2020” award. No question about it: a founding boom will benefit humanity as a whole.

For more information about the Professional MBA Entrepreneurship & Innovation, please click here.

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