Discovering the real impact of COVID-19 on entrepreneurship

  • More than 70% of startups have had to lay off full-time employees since the start of the COVID-19 pandemic;
  • Many entrepreneurial companies have adapted to meet new needs for goods or services that have emerged from the crisis;
  • The way entrepreneurial business models and approaches have been affected by the pandemic will impact how entrepreneurship is perceived as a career choice in the future.

The outbreak and spread of COVID-19 has left few, if any, people untouched. Governments around the world have been repeatedly tested and overwhelmed. They have established new rules and norms to try to restore confidence and give economies a chance to survive.

We have a rare and narrowing window of opportunity for change to build a better world after the pandemic.

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However, the effects of the pandemic on entrepreneurial companies are less perceived and discussed. When funding sources dry up, more than 40% of new businesses will fall into the so-called “red zone” if they only have enough cash for three months or less of normal operations.

How many funding months are available to start-ups?

How many funding months are available to start-ups?

Image: Startup genome

Since the beginning of the crisis More than 70% of start-ups had to terminate contracts from full-time employees.

Employee terminations since the beginning of the COVID-19 crisis

Employee terminations since the beginning of the COVID-19 crisis

Image: Startup genome

But while a large number of startups have suffered from the pandemic, COVID-19 has also led to an increase in entrepreneurial activity. Businesses and individuals around the world have come together to respond to and, where possible, manage this crisis. From music festival organizers overseeing pop-up morgues to Auto companies transitioning their manufacturing to much-needed ventilators, there was a surge of creativity. People and businesses have come up with new ideas to respond to existing or emerging needs that are poorly addressed by governments and mainstream institutions.

The picture of how entrepreneurs and their systems are affected is more nuanced than we might initially believe, but it’s important to understand: how it’s (re)designed today will have long-term implications.

State support for high-growth start-ups

Government support for industry has always been essential in times of crisis. Think back to Franklin D. Roosevelt’s response to the Great Depression, the introduction of the new accord, and the spending to get America back on its feet. Modern examples are the furlough schemes in the UK and the effective implementation of a basic income system in the US.

During the COVID-19 crisis, governments around the world have taken action to support local ecosystems. The UK government has one £1.25 billion rescue package to help start-ups, with support for ‘companies that drive innovation’, ‘tomorrow’s unicorns’ and ‘the technological success stories of the future“.

But while these innovative start-ups are undoubtedly vital to the future of innovation and supporting them is vital, the current COVID-19 crisis also shows the importance of small businesses with more incremental approaches to innovation. To fully understand how the entrepreneurial landscape is changing, we need to examine these other types of entrepreneurial activity as well.

Finding opportunities in the crisis: agility is crucial

Some fledgling entrepreneurs and startups have been more opportunistic during the pandemic, realigning their businesses through a kind of “repurposing.” Redirecting existing knowledge, skills, people and networks to emerging needs. From startups and individuals making and selling face masks and shields to their local communities local taxi companies As they evolve into food delivery companies, the nature of innovation is often incremental, yet at the same time essential to surviving and adapting to our “new normal”.

A repurposing approach is not without its challenges. Many of these entrepreneurs come from a variety of backgrounds, and this poses a problem for those who want to do business with them: how can they judge their trustworthiness or legitimacy without having a good history in the field?

While most startups see repurposing as a short-term opportunity or solution, it remains a fundamental survival strategy and growth opportunity for countries’ economies and industries. Therefore, in order to harness the potential of these entrepreneurs, governments and other supporting institutions need to develop appropriate policies to support this type of entrepreneurship. For example, public procurement could help start-ups gain market access and be a useful means of building a good reputation so that these companies are seen as legitimate business partners.

Changing perspectives on entrepreneurship

It is almost certain that the way entrepreneurial businesses are affected today will have an impact on how entrepreneurship is perceived as a career choice in the future.

The changes we are seeing today could be a double-edged sword. Some may argue that the crisis could negatively impact the risks associated with entrepreneurship and ultimately prevent start-ups from attracting the right talent; others might suggest that the changes we are seeing today could be changing perceptions of entrepreneurship for the better.

In recent years, entrepreneurship has become increasingly associated with stereotypical high-tech startups and entrepreneurs, often based in specific geographic areas and fertile environments around the world. While the achievements of these fledgling companies are undoubtedly essential to the progress of our societies, some might argue that entrepreneurship has become a game for the lucky few, those who have access to the right kind of education, funding, and networks.

What we are seeing today is the potential to democratize entrepreneurship and create new entrepreneurial role models that people can more easily identify with. This could ultimately lower the entrepreneurship threshold for many and encourage people to start their own businesses.

With so many large institutions shedding talented and well-qualified employees, perhaps this crisis and its aftermath will encourage more people to take the risks associated with entrepreneurship when they believe they have spotted or discovered an opportunity. There are so many new needs and gaps that need to be filled, and startups are typically much quicker to adapt and fill gaps than incumbents

COVID-19, the first global pandemic in more than 100 years, has spread across the world at unprecedented speed. At the time of writing, 4.5 million cases have been confirmed and more than 300,000 people have died from the virus.

As countries attempt to recover, some of the longer-term economic, business, environmental, societal and technological challenges and opportunities are just beginning to materialize.

To help all stakeholders – communities, governments, businesses and individuals – understand the emerging risks and knock-on effects created by the impact of the coronavirus pandemic, the World Economic Forum, in collaboration with Marsh and McLennan and Zurich Insurance Group, has its forum brought to life COVID-19 Risk Outlook: A Preliminary Mapping and Its Implications – a companion for decision makers, building on the Forum’s annual Global Risks Report.

The report shows that the economic impact of COVID-19 is dominating corporate risk perceptions.

company are invited to participate in the work of the forum to address the identified emerging risks of COVID-19 across industries to create a better future. Read the whole thing COVID-19 Risks Outlook: A Preliminary Mapping and its Implications, report hereand ours impact history with more information.

While many start-ups will not survive the crisis, the pandemic has also led to more or new entrepreneurial activity – a reminder for us to rethink how we value innovation in entrepreneurial systems.

The question we are facing today is how this will affect our further development and what the different actors can do to ensure that we are moving in the right direction.

How will the experiences of thousands of entrepreneurs who will lose their jobs during the pandemic affect perceptions of entrepreneurship? Will government and private finance and education undermine decades of efforts to improve the business environment and diversify our economies? Or is it just the restructuring needed to restructure the system?

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