With one crisis after another on the international scene, the future could not be more uncertain for entrepreneurs. That said, periods of major crisis always bring the ingredients for a paradigm shift that allows for the emergence of new models.
Following the health crisis, geopolitical instability is now cited as the main risk to growth in the majority of countries according to the latest McKinsey World Economic Survey. Leading authorities such as Sequoia Capital and Founder Institute have predicted severe turbulence in the start-up world (2). While it is difficult to predict how global financial markets will react to the impacts of COVID-19 over the long term, anxiety is now pervading all spheres of the economy and beyond. Moreover, recent events in Eastern Europe add to the uncertainty and new predictions of a paradigm shift.
In this atmosphere of growing concern, can we still objectively envisage prospects for business creation and development? How can we talk about growth opportunities when an unprecedented paradigm shift is taking place both in the market and in consumer habits? Is this crisis-like upheaval an opportunity for a start-up?
Will history repeat itself once again?
According to the UN Framework for Immediate Socio-Economic Response to the Crisis, the COVID-19 pandemic is much more than a health crisis. It affects societies and economies at their core. While its impact varies from country to country, it is likely that, like all major economic crises, it increases the practical difficulty of business creation and development in many ways.
Indeed, in the various markets, the economic microcosm that has been developing for many decades sees start-ups (generally considered as risky investments) financed by venture capitalists and through participatory financing. Therefore, in a crisis context, the risk of seeing this source dry up is important. And for good reason: startup financing suffered greatly during the previous economic crises of 1982, 2000 and 2008.
So, difficult days are ahead for start-ups?
The crisis is often a vector for growth
However, there are many advantages to the current market configuration and the consumption habits of new customers. We are now evolving in a kind of giant incubator in which, every day, a new success story is being written.
This is what Adam L. Penenberg explains in his book Viral Loop. The history of companies such as Facebook, Twitter, Uber, AirBnB or Skype illustrates this growth potential which, according to him, is difficult to match in times of growth.
This is a common characteristic of many of the most successful companies in our history.
For example, you can go back to 1851, when the U.S. economy was sluggish about a third of the time. Yet 16 of the companies that make up the Dow30 (3) were founded during the crises of that era. Moreover, about 60% of the Fortune 500 companies (3) were launched during the same period.
How to turn crisis into opportunity
Microsoft, Home Depot and Apple grew up as stagflation choked the U.S. economy.
The bursting of the dot-com bubble in 2000-2001 didn't stop Facebook, Twitter and other social media companies from achieving unimaginable performance in just a few years. But how can we explain it? After all, aren't venture capital investments supposed to decline significantly when the economy underperforms?
In fact, the ability to recognize opportunities and propose innovative solutions in the midst of an economic downturn has been shown to be a much more important determinant of a start-up's success than during times of economic prosperity. In other words, the best time to be subversive and launch your own business is when things are going badly.
In contrast to companies created out of necessity, there is also evidence that companies created out of opportunity are more likely to innovate and thrive in times of crisis. Perhaps this is the perfect opportunity for you to integrate CSR, a new guarantee of development and performance, into your core values.
Moreover, money is spent much more intelligently in times of crisis. At the cusp of the dot-com bubble burst in 2000, investors had contributed over $100 billion in capital to startups. With the crisis of 2008, that number dropped by nearly ¾ to a total of 27 billion and in 2009(4). But that didn't stop boxes like Instagram from emerging in the aftermath.
The benefits and opportunities of recessionary times
Economic downturns are one of the most favorable times to launch new ideas. This is because these are times when the majority of companies shift their assets to safer, more stable bets. This, on the one hand, opens up new markets and, on the other hand, reduces the number of entrepreneurs offering innovative products.
On the other hand, the unemployment rate is higher during these periods. It becomes easier and cheaper to recruit and retain talent.
In addition, the crisis makes value for money an imperative for business survival and growth. The need to do more with less to increase productivity quickly integrates your values while preparing you for a big upswing when growth returns.
Certainly, studies show that the ability to evaluate risk is affected by feelings and that decision-making is guided by emotions during periods of uncertainty(5). (5) And even if venture capitalists are somewhat reluctant to invest, participatory financing remains a very interesting alternative. In this perspective, the rise of crowdfunding platforms allows innovative startups to maintain a high probability of success.
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