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Are early-stage startups "dead-by-default" when Coronavirus is causing significant harm to the world’s economy?

ilonacodes profile image Ilona Codes Originally published at indiehackers.com ・1 min read

Today the Coronavirus outbreak has plunged the world's economy into a global recession, which will cause a period of a global economic slowdown.

Regarding tech startups, the truth is that 90% of startups fail—all the time.

In fact, startups are ventures in search of a business model. Frankly, they don't have revenue in any economy.

However, now the time might be more limited for these tech startups to reach that point of profitability. In other words, it's never been so important to be lean for early-stage startups and turn the profitability switch to remain in business.

In this case, even if a recession does occur, it will not stop many startups on the road to being a unicorn later. The world economy 2020 is bad, meaning costs are lower, and probably, there would be less competition.

What do you think, which kind of startups could survive or even thrive through this crisis?

Discussion (30)

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bernardbaker profile image
Bernard Baker

I think that start-ups that are disruptive in any industry or economy get noticed by the right people.

With the current world crisis, funding is bleak. But a lean start-up has more chance in surviving the storm which is yet to come. Adapting a business model is also key at this moment in time. And I don't personally condone companies which make a profit from the suffering or loss of people.

I recently created a start-up, lean, agile and with very limited capital. Just one team member. Well two, Googles search AI. I intend to shift the focus of consumer interest, raise awareness and promote, action and help attain UN sustainability goals.

My reason for this is that I knew I wanted to create the start-up, I revised the product offering once in the very early days of attendance to a business boot camp. And I knew deep inside me that I had a purpose which in time, became clearer and clearer as I found it difficult to decide on the course of a business operational goal. I knew I wanted to make a change in the world. For the better. But how I would do this. That was a challenge in its self.

The world we live in has changed dramatically in the past months. I want to make a change in the world. And make it a better place.

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zenulabidin profile image
Ali Sherief

In my opinion, finding VC funding isn't a bigger problem than it was in the past few months just because lots of things are quarantined. The bigger issue to me is if their employees need to work from home, have they prepared the infrastructure for it? They are small startups so they likely did not have time to consider this possibility, and it hit them abruptly all of a sudden at the wrong time. That might make a small hole in their VC money which they will need to compensate for by slashing other areas they could've innovate in to save costs.

Assuming free VPN software, devices for say 10 people amounts to about $10K, two VPS servers or three brings will burn something like $5K. You may also have to cover broadband for video conferencing but that shouldn't be a big deal since you can pay $50/month for each person for an unmetered connection. Do they have this much in cash available to spend?

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bernardbaker profile image
Bernard Baker • Edited

I think you may have misunderstood. A lean-agile startup. Many cases will see founders and team members working remotely. Reducing any possible operational overhead costs to a minimum.

Regarding hardware three VPS servers wouldn't be needed. Simplicity is in the complexity of the programming provided by technology providers. Resulting in services made available in remote areas.

I am open to discussion if you would like to continue this conversation on the topic.

What did you mean as I may have misunderstood but after you read my reply please get in touch so I can understand.

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zenulabidin profile image
Ali Sherief

Thanks for replying, I was trying to say that remote working infrastructure might be a large part of startup's operational costs.

I think you may have misunderstood. A lean-agile startup. In many cases will see founders and team members working remotely. Reducing any possible operational overhead costs to a minimum.

Yeah, I definitely missed that part ☺️. I haven't followed remote startups much so there are a quite a few things I'm not aware of. So is remote working "baked" in such companies business model, and costs incurred by it are manageable?

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bernardbaker profile image
Bernard Baker

Well the idea is to reduce operational cost and maximise organic growth.

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aclarembeau profile image
aclarembeau

Hi,
I hope not, as I've just launched mine (fiwit.io).
From what I see for the moment, search traffic and online presence seem to have increased in this very difficult period. I hope that with the crisis, people will start thinking about how to reduce costs, leading to increased use of disruptive products (which will help them achieve a better efficiency), and, not become afraid of spending at least a very little of money.

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bernardbaker profile image
Bernard Baker

I had a look at the services you're offering. If they're all based on the cloud. the remote working aspect would be a benefit to you.

Money you money is always spending any kind of I.T operation. Reducing operational overhead is normal.

In these times, everyone needs to spend less because of the uncertainty in the economical markets.

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nicolasini profile image
Nico S___

If you are running lean and can manage to maintain your traction, or even grow a little, then that will have a great impact later on. Any start-up that shows growth during a recession will be very attractive to investors at the end of it.

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ilonacodes profile image
Ilona Codes Author

Especially startups that focus on real problems or problems that need solutions right now!

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jcabot profile image
Jordi Cabot

Well, for some, it may be the opposite. Ours is a chatbot platform and I guess many small business are now realizing that a key aspect for its survival is to increase its online presence (and chatbots are always a good complement for that)

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nicolasini profile image
Nico S___

We are in the same situation at Ambit

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ilonacodes profile image
Ilona Codes Author

Yes! Today, delay in reply will harm any tech startup online.

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alvaromontoro profile image
Alvaro Montoro

Startups with products and services related to telepresence and remote work/study/entertainment could thrive, maybe now more than ever, especially if they have a catchy or niched enough product.

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ilonacodes profile image
Ilona Codes Author

For example, video chat apps will actually have a hard time because there are dominant competitors on the market already (think Zoom, Google Meet). Entering this market will require 1.5x-3x times the marketing budget of a dominant competitor, which requires a lot of venture capital, and doesn’t sound like it can be done via a customer-funded approach.

What could work is the education/consultancy business that helps companies set up their work processes for remote work, because a lot of companies went remote overnight, and have no idea how to do this.

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bernardbaker profile image
Bernard Baker

That's so interesting. And make sense.

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recipetotableapp_com profile image
recipetotableapp.com

Like others have mentioned, there may be products from startups which could see a positive impact.

See ours Recipe to Table for Online Grocery Shopping without the need to leave your home.

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akashkava profile image
Akash Kava

This is PAUSE, its not a dead end.

This was very much in need when people in 21st century did lack the most important resource TIME, now people have time to listen, time to revisit, time to relearn and actually stay away from all disturbances.

It is also the time to prepare a next big hit, as soon as everything will resume after 3-6 months, every business will be in its peak, and anyone who is crying will be the biggest looser.

This is an opportunity for startups to test/improve their ideas.

This is an opportunity to open books.

This is also an opportunity to tweak and change your startup to face the next upcoming economic growth after everything resumes. And even new startups can emerge from this situation.

Most startups are essentially virtual, that requires very less hardware/human investments, all of them can continue from home. All software startups will survive with help of number of open source and online collaboration suites. Small teams in garage can continue.

I feel this was very much needed for the current generation which lacked a huge attention deficiency, and it will bring maturity to current generation.

Big startups funded by big corporations will anyway survive as everyone will throttle their expenses. Travel/Electricity/Internet expenses are the biggest expenses, they are down to zero. All money saved will be reused later.

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vinayhegde1990 profile image
Vinay Hegde

Adding to the diverse insights here, I believe startups that were focusing on delivering an experience via their product/SaaS offering rather than just sales and/or only hopping through rounds of funding will be the ones to survive.

In India startups working in AgriTech, Smart Waste Disposal will be ones that'd thrive.

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lehmannsystems profile image
Mike

It's going to be very hard in any sector... everyone is going to be very tight with their money in times like this.

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ilonacodes profile image
Ilona Codes Author

That's why the smart and the best thing to do for startups is to be capital efficient, listening to customers, and rely directly on customers for revenue.

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bernardbaker profile image
Bernard Baker

Would you consider reducing operational costs to a minimum as a factor in this?

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lehmannsystems profile image
Mike

I think some will have to just to survive. I also think a side effect of all of this is that investors might be MUCH more picky on the other side of all of this. They may not have as much cashflow to play with.

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valentinprgnd profile image
Valentin Prugnaud 🦊 (he / him)

This is when bootstrapping becomes the priority over external investment

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ilonacodes profile image
Ilona Codes Author

Agree! It may be bad times for the startups that rely on venture funding to keep the lights on.

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theodesp profile image
Theofanis Despoudis

Depends on the startup. If their target group is in the heavily affected sectors ( Hospitality, Entertainment, etc) then they will have more troubles.

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ilonacodes profile image
Ilona Codes Author

Unfortunately, they might be out of luck in times of crisis, unless they or other startups will find a creative way to help at this time.

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steelwolf180 profile image
Max Ong Zong Bao

I think it will be those startups that have been bootstrapping and focus on finding their product-market with an actual revenue to survive these tough times.

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ilonacodes profile image
Ilona Codes Author

True! We will see a shift towards "customer-funded" startups in the future.

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meatboy profile image
Meat Boy • Edited

Only those, for which is needs on the market. Startups which don't make money will fall since venture capitals and angels are going to be more strict and won't be experimenting.

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ilonacodes profile image
Ilona Codes Author

Yes, that makes sense! It’s tough to connect with new investors right now.

Also, plain talking to potential customers is hard as well, unless startups have already been in touch and can have a video call with them.