The Coronavirus Crisis Is a Prime Time to Launch Your Tech Startup
Due to COVID-19, unemployment has shot through the roof. People are forced to stay home and many are losing their jobs. The economy could be heading into the next Great Depression. You know where this is heading.
But hear me out. Because in every crisis there are new opportunities. And although the coronavirus is an unprecedented crisis, that means it may present unprecedented opportunities.
Whether you’ve already played with the idea of launching a startup, or you’d like to do so in the future, your plans probably got slammed by this crisis. But keep your plans going, because it may well turn out that there has never been a better time to launch than now.
Accessing Funding Has Never Been Easier
Even though investors are getting more selective, plenty of money is available right now for new founders. This money will likely be distributed in a similar fashion as during the Great Recession, where later-stage funding rounds got rarer and came with lower valuations. The volume and amount of seed funds remained the same or grew, however.
Therefore, startups that only needed a seed fund or a Series A did quite a good job at getting through the recession. Those companies that needed a Series B or C funding round were those that had a hard time.
We’ve seen this same pattern in previous crises, and it will likely play out again. Plus, a bunch of new seed funds are popping up right now, showing that investors are seeing new opportunities and learning from the outcomes of previous crises.
Since the startups for these new seed funds have already been cherry-picked by investors, it’s hard to get in at this stage. Traditional startup accelerators are also seeing opportunity right now, though, so if you have a good idea and a few like-minded co-founders, applying to those does no harm.
Resilient Companies Are Founded in Crises
About a third of the past 200 years have been recessions. Only a quarter of companies on the S&P 500 were founded during these times. These, however, were less likely to go bust in the next recession. Both IBM and General Motors were founded during the Great Panic of 1910–11. More recently, Airbnb and Slack emerged during the Great Recession.
Companies that were born in times of crisis tend to focus more on preserving cash and not racking up too much corporate debt. They will also try harder to automate their operations wherever possible, therefore cutting human costs.
The times are dire and will probably get direr still before things come to an end. But eventually, these wild times too will pass. When they do, your company can enjoy economic recovery and the markets going uphill again. And until then, you can watch your competitors fade away due to the crisis.
Recession-born companies tend to operate cheaply and rack up less corporate debt. Not only will this help to get through the next crisis. It also adds to their resilience and makes them grow faster, compared with companies that made it through the crisis but are less resilient overall.
One example of an extremely effective cost-cutting but extremely effective strategy comes from marketing. Burger King, which was founded shortly after the recession of 1953, started a guerilla marketing campaign on Twitter in early 2019. It got major influencers to mention the company name by liking their posts from 2010. The influencers, bewildered about why anyone would like decade-old tweets, started talking about Burger King. The enormous wave of attention that followed would have cost a load of cash if the influencers had been paid for mentioning a company. Burger King got all that buzz for a dime.
These kind of cheap-but-badass moves are expected from recession-built companies since they must prioritize low costs. Operating in a cheap but innovative way is a cornerstone of success in every company, but the children of recessions are the ones who really nail it.
Now Is the Time to Hire Talent
As more and more companies are letting employees go, the pool of unused talent is growing at a record pace. If your startup is already big enough to hire people, the availability of talent presents an opportunity for you. A ton of top talent is floating around like never before, just waiting to join your company.
If you’re still a small team of founders without hiring capacities, that’s not a problem. Just keep in mind that, the earlier you can launch, the higher the chances that you’ll be ready to hire while there’s still a lot of excellent talent looking for an exciting new challenge with your company.
Negotiate for Lower Costs
Another reason that this is a primetime to launch is that start-up costs are likely to be lower than before. This includes lower rents, lower marketing costs, and the costs of raw materials.
Since most people are working from home at the moment, new companies don’t need to rent or buy an office immediately. Moreover, as remote work becomes the new normal for many citizens, companies might need less office space in the future.
For example, Twitter is giving its employees the option to work from home indefinitely. Google’s mother company Alphabet has pulled out of deals to acquire more than two million square feet of office since the beginning of the pandemic.
Even if you eventually do open a physical office, chances are that you can get space for a lot less than before. If the moves by Twitter and Google are of any indication, demand will stay at a lower level than in pre-lockdown times. Since office space won’t magically vanish, this will result in lower rents and acquisition costs.
When the time comes to promote your company, you’ll also face good news. As demand has stalled, ad space has become a lot cheaper. For example, prices for Facebook ads saw a drop of more than 40 percent from March to April. At the same time, the number of users is seeing a surge of growth on the platform.
This drop in ad prices is certainly a temporary phenomenon. But if you’re ready to start out now, it’s worth seizing the moment. Even if your product isn’t ready yet, you could promote a landing page where people can sign up for an email newsletter. Or you could promote posts that inform about your product and create some excitement for the launch.
Finally, the costs of raw materials are lower right now. While supply is disrupted through the lockdown, the shocks on demand are having a greater impact at the moment. This results in lower prices. For instance, the price for refined tin sank to levels as low as 2016 on the London Metal Exchange.
To make the best of this situation, you could fix the price of raw materials for your products in a long-term contract with the supplier. Keeping all these expenses low creates more runway for your startup and gets it in a better position to weather the next crisis.
Forget About Popular Branches
We’ve all heard the news that the startups that are getting funded right now are mostly in healthcare, online education, and delivery services. That doesn’t mean that your startup should be in one of these sectors, though.
You want your startup to be around when all of this is over. Chances are, once we’re through this, we’ll still want restaurants, taxi drivers, and hairdressers. The present moment isn’t one we’ll be in forever. Designing a product to meet the moment might be successful, but that doesn’t mean you can only think about the immediate future.
So if you’re not an expert in the hot, up-and-coming branches of this moment, don’t despair. Think about what people will want later on. Prepare for tomorrow.
The Bottom Line: Necessity Drives Innovation
This crisis is the time to cut all the unnecessary stuff in our lives and focus on the essentials. Although that’s a difficult proposition, it may yield interesting consequences. Namely, people will likely get more creative as a result of this time.
Think about it: Would you get better ideas in a room with no distractions, or in a completely cluttered one? In the cluttered room, you might get some inspiration, but your best ideas often come when you’re not distracted at all.
When you’re forced to do only what’s necessary, you’ll get more creative than ever. Use that creativity as a driving force for your startup.