Should Startups Review Their Plans?

Things had changed considerably over the past month or so. Earlier predictions about the Covid-19 being like SARS in 2003 had disappeared. The comparison now is with the Spanish Flu pandemic of 1918 which killed tens of millions of people. However many countries around the world and numerous states in the US had recently moved to ease the lockdown. Their reason was that the number of cases of coronavirus infections and deaths has tapered. Whether this downtrend in infections and deaths would continue or result in a second wave of infections like the Spanish Flu pandemic remains to be seen.

With the lifting of the lockdown in many places, it was hardly business as usual. There were reports of most people avoiding crowded places like shopping malls in places where the lockdown was lifted. The most significant aspect of this change is the need for social distancing to continue. Some believe that the days of mass air travel with cheap fares would disappear with social distancing. Places like restaurants and cinemas had to scale down the number of patrons by half or more for the same reason.

Some observers speculated that Covid-19 could lurk in the background for some time, even up to 2 years. Many others also felt that the world of work and play would permanently change even after the pandemic is over. If that happens, it would have great implications for startups which do not take this into account. For instance, if your startup idea is in brick and mortar retail without any online presence, you may want to review your strategy. This example may be obvious but there are many startup ideas where the implications are not so visible.

Another problem is the number of unemployed made redundant by the closure of many businesses and companies. Those without gainful employment are not likely to have much spending power while collecting unemployment benefits if any. This would translate into much lower demand for goods and services down the road. Even if the infection and death rates of Covid-19 continue to drop, the unemployment rate would take some time to come down. This means that tepid demand could be around for a while. Startups would have to factor in this situation in their plans.

The other problem is the number of businesses and companies going bust due to the drastic drop in demand. They would therefore shed workers leading to a rise in unemployment.  This would result in a vicious circle as more unemployment leads to further drops in demand which in turn accelerates the demise of businesses and companies.

While government grants and schemes could help stave off immediate bankruptcy, prolonged low demand would make many businesses and companies unsustainable. There is a problem though with governments propping up so called zombie companies. The prevention of them folding up would damage the survival of more viable companies through their intense competition for the remaining pool of customers. This would have the effect of making the downturn worse. Startups wanting to enter the market at that point should take this into consideration.

Finally the most critical aspect would be the risk of a second wave of Covid-19 infections and deaths which is more drastic than this first wave. This was exactly what happened when people lowered their guards when the first wave of the Spanish Flu ebbed. As a result, the second wave of the Spanish Flu claimed many more lives than the first wave. Entrepreneurs should  factor in this possibility in their startup plans. In any case, they should be prepared for any eventuality.