The Cisco Designed Small Business Resiliency series shares stories and resources for businesses working to recover from the economic impact of COVID-19.
The 2008 financial crisis wiped capital away from the startup ecosystem overnight, causing many companies to go under. Despite the economic uncertainty, many of today’s tech leaders were founded in the wake of 2008. From Silicon Valley darlings like Airbnb and Square to homegrown Canadian success stories like Wave and Axonify, entrepreneurship did not die with the Great Recession.
Like the 2008 financial crisis, the COVID-19 pandemic has caused massive upheaval. According to Cisco’s Small Business Resiliency Guide, 72 percent of all small business owners say that COVID-19 will have permanent effects on the way they run their business.
Having now experienced both crises, Axonify CEO Carol Leaman and Wave CEO Kirk Simpson shared their insights with BetaKit on what today’s new founders need to do to survive the pandemic.
2008 vs. COVID-19
By 2008, the tech world had largely recovered from the dot-com bust, and new billionaires were minted from the likes of Facebook, Google, and Amazon. This led to newfound exuberance in entrepreneurship; everyone suddenly wanted to build a startup that would make them an “overnight” billionaire.
“The encouragement people were getting from incubators, associations, etc., was never more than it was 10 years ago,” said Leaman.
When COVID-19 hit, the world was in nearly the opposite place. Capital was plentiful, driving huge investment rounds in the ecosystem. On the flip side, Leaman said that entrepreneurship had been injected with a “dose of realism.” The entrepreneurial spirit is still strong, but founders are more aware of the realities of building a business after seeing thousands of failures for every Facebook.
However, both Leaman and Simpson agree that great companies can emerge from the COVID pandemic, like the financial crisis before it, if they navigate its challenges well.
The new entrepreneurial playbook
One clear takeaway from the pandemic is that a single event can wipe away years of growth. In response, Leaman advises founders to have a plan for long-term sustainability, moving away from a growth-at-all-costs mindset. But in crisis comes opportunity. Since the pandemic began, for example, there have been new opportunities for innovators to fight the COVID pandemic or to fill health needs presented by a digital-first world.
If founders want to survive the pandemic, they will need to “adapt to become much more consumer-centric.”
– Kirk Simpson, Wave CEO
Leaman noted that all entrepreneurs need to be ready to take advantage of short-term opportunities, conserving cash and resources to do so. For Simpson, identifying new opportunities requires becoming more customer-focused. He added that the pandemic accelerated consumer demands for digital payments, contactless purchases, and delivery – and if you don’t provide it, a competitor will. If founders want to survive the pandemic and spot new opportunities, Simpson said they will need to “adapt to become much more consumer-centric.”
COVID-19 has also accelerated the adoption of remote work, creating a leadership challenge where managers can’t easily read body language or perform ad-hoc check-ins as they would in the office. Simpson said founders leading in this new reality must have more empathy and intention when they check-in with employees, pushing beyond a simple ask of how things are going. On the flip side, Simpson added that founders have to get better at checking in with themselves, ensuring they have the energy and mental health capacity to reach out to employees.
“All of those things would have been good in the old [pre-COVID] world, but are more important now,” Simpson said.
Another concern for leaders is how employee engagement is shifting. The old startup adage was to take a risk at a high-growth, high-potential company. Employees had poorer job security, but when times were good people didn’t mind that tradeoff for the potential of stock options worth millions. However, the pandemic has fundamentally changed employee expectations, said Leaman. Instead of looking for the potential to strike it rich, employees want to see that leaders have a plan for sustainability, career growth, and flexibility.
In the same vein, Leaman warned founders that raising capital is likely to be much harder post-COVID. She predicted that existing funds, which have an obligation to distribute capital, will become far more conservative. This means not only fewer big bets but also focusing on industries and businesses they believe to be COVID-proof.
“This environment has created fear,” said Leaman. “And I think investors who have to deploy capital are going to put their money where they think it will be the safest in the short term.”
After this capital is deployed, though, Leaman doesn’t think it will be replenished for some time, further highlighting the importance of a sustainability plan and the capability to take advantage of short-term opportunities.
“My intuition is that, in the next five years, we won’t see the number of funds being raised that we saw in the last five years,” said Leaman.
A changed world
Both Simpson and Leaman said that whether the pandemic has been good or bad for your business, don’t kid yourself into thinking the world will ever be the same again. Not all change will be bad, as Simpson noted with the acceleration of digital payments and ecommerce. Whichever way you slice it, though, founders need to get ready for what will surely be a wild ride to recovery from the pandemic.
“Whether we like it or not, the world is forever changed,” said Leaman. “You need to make sure your pitch takes into account the relevance of your idea in light of a COVID economy and world.”