Future resilience
“It’s hard to think that these firms will not retain this new model alongside the existing one, once lockdown has completely ended. ”
While it’s still too early to tell what the final impact on the economy will be in a year, or even two years’ time, one thing that will be on most entrepreneurs’ to do list is how they can build resilience into their business going forward.
Whether they’ve been adversely affected or not by the COVID-19 pandemic, (around two-thirds of businesses have been working in some form) all firms have had to step well and truly out of their comfort zone and do things they would often never normally consider – for many, that includes taking on board finance.
A recent report we did with The Entrepreneurs Network Unlocking Growth: How to Expand Access to Capital, pointed to the fact that even before the pandemic, 10 per cent of firms were so-called ‘discouraged borrowers’. These are people who, for whatever reason, don’t want the risk of taking on board any form of debt.
As the scramble to fund businesses through this has progressed, the Government’s Bounce Back Loans Scheme (BBLS), for example, has seen hundreds of thousands of firms, often self-funded and uninitiated in the world of borrowing compared to most, take out sums of up to £50,000. To date the scheme has lent £22bn.
This undoubtedly includes those classified as discouraged borrowers. You only need to look to how difficult some local authorities have found giving away the £617m grant pot to confirm that’s the case. Yes, these are unusual times, and yes, the toss up is often to take on debt to survive or throw in the towel. But after many have had no choice but to take the first step towards investment, might they do so again, perhaps less reluctantly? Could they see the need to invest, grow and go on to create more jobs? Will the pandemic lead to a generational change in attitude towards investment? Let’s hope so.
The other element the crisis has demonstrated is the need for a solid strategy. For many firms, real, thoughtful and evolving strategy can get shelved because founders are simply trying to get on with the ‘doing’ element. They are delivering. With time on their hands, a finite amount of cash to play with and a very uncertain-looking customer base, businesses are looking for advice and plotting their come-back. Will this good practice stick?
So how do you build in resilience to avoid being in a position again when your business model is suddenly unworkable?
A recent poll from Enterprise Nation demonstrated that rather than look to things like income insurance, entrepreneurs said they were looking for ways to diversify (63per cent). For some this meant adding another delivery method to their existing model, or moving from a trade customer base, to predominantly consumer-facing. If you look at firms like Hampshire-based ChalkStream, which pre-COVID-19 supplied its fresh British trout to top London restaurants, such as those run by Yottam Ottelenghi, to pivot towards the home-cook, producing boxes and products for home delivery quickly and efficiently. And winning the praise of home-cook champion Jamie Oliver into the bargain.
Similarly Bristol-based Office Pantry pivoted from a firm delivering lunch to office workers to building an e-commerce platform called Home Pantry, picking up the slack from struggling supermarkets to deliver their products safely to homes.
It’s hard to think that these firms will not retain this new model alongside the existing one, once lockdown has completely ended.
According to Beauhurst’s report into the impact of COVID-19 on the economy, it’s the scale-up firms, the ones that have already had funding, that are most at risk – or critical in 22 per cent of cases, 43 per cent at moderate risk. Meanwhile firms at seed-stage are much less likely to be impacted.
The tech sector is most likely to have been positively impacted. This is because it already has remote working in place. It’s very likely a home-working policy will be retained at many firms that understand the need to be flexible, while bringing a normality to home-working for the future.
According to Coworking Insights in its Future of Work report, 87 per cent of those working from home during lockdown would recommend it to a friend. It’s hard to see how this can be ignored.
According to the Sunday Times, the start-up investment ecosystem is down significantly.
The paper reported EIS investor Vala Capital saw funding in the first quarter of 2020 was down 70% on last year. Wealth Club, another big EIS fund, said investment had dropped 62% in two weeks in April. Two more of the largest funds, Kuber and Sapphire Capital, are understood to have been down more than 50%.
Beauhurst predicted investments announced were most likely to be follow-on rounds, such as that announced by London-based fintech Smart Pension in May.
Could this see firms cultivating relationships with investors and working more closely in the future with them in order to simplify the investment journey, whilst creating a more-willing patron available in times of need?
All of this boils down to resilience and it’s undoubtedly going to spark new tests introduced by investors that will eventually become more widely adopted into normal ways of starting and growing a business going forward.