As a founder of a biotech company and passionate ecosystem builder I am fortunate to know both sides: I am a founder of a biotech company and work with international ecosystem builders at the Startup Heatmap Europe. From this perspective, I feel obliged to stress the point that for startups the current COVID19-related situation is very stressful – and ecosystem builders need to understand this.
The general mode of a startup is the survival mode. So, when the economy contracts, this struggle and stress intensifies exponentially. I will shoot the founder perspective straight to the point and hopefully this will help to understand the stress level and issues that most startups have.
Don’t downplay the dangers
Oftentimes startups are approached too soft. I believe that such an approach is generally dangerous even in the beginning of the startup journey. Why? Because building a company is super tough and because the market doesn’t care if the product or service has no market fit. A too soft approach and coaching might mislead the founders.
But the soft approach is even more dangerous in a crisis. Today’s, dynamic here is very clear:
The Death Valley for startups has become deeper and wider. You have to speak clear words here. Liquidity is essential and there are clear guidelines (See this letter of Sequoia to their founders).
Loans are irresponsible
Governments issue regulations for access to loans for small companies and some ecosystems promote it as a solution for the liquidity problem. In my opinion, as long as a startup does not have a history of positive cash flows and/or funds from the raised funds on the bank account, promoting loans is irresponsible. This step would just postpone the problem and, depending on the company structure, could possibly lead the founders into personal liability in case of insolvency. There are always exceptions, but in uncertain times and contracting economy the startup journey is by far a different game than in a growing economy. Here are some words by Mark Cuban about starting a company on a loan. A better alternative can be a convertible. But I haven’t heard of governments being open to such a solution so far. If you know any sources, please share them with the Ecosystem Survival Team.
Building a company without optimism is a bad idea. Losing optimism as a founder in a crisis is 10x as worse than a bad idea. Even in a crisis, startups that have the growth mindset will learn from the situation, adapt, maybe even pivot and grow as a company, as a team and as a person. But beware of false optimism. Hoping that the crisis will not hit hard or that the government will bail you out, is false optimism. Assuming that the crisis will be harder and longer than we all want it to be sets the frame for the right preparation and calculation. If the crisis will be softer then the team will do even better. So, don’t fall back into strategizing etc., adapt and execute. Fast!
Community events are vital for ecosystems! Please continue them online! But they should address the real problems startup have right now: liquidity, growth, communication, visibility, relevance. You could expose for example experienced founder and/or investors, who have been through economic downturns, so they can share their experiences.
Hackathons to fight the consequences of COVID-19 are fashionable now and they will spur the growth of a “Cov-Tech Cluster” – so for sure for some startups they are an opportunity. Also, they help to maintain a positive image of the startup scene in society. We have seen great examples like Hack the Crisis from Estonia or Tech4Covid19 in Portugal. However, the harsh truth is they do not keep struggling startups alive – they are rather time-consuming extra activities, which pull resources from saving real startups. I am glad that they take place, but not EVERY ecosystem needs to run one, and not every ecosystem builder must stop doing their job to organize a Corona hackathon.
Don’t be afraid to ask unpleasant questions
What are relevant topics for start-ups and entrepreneurs now? What do they need and what can ecosystems provide now?
Do new opportunities open due to the current situation?
How to evaluate, who should rather file for bankruptcy and who should continue to fight? How to evaluate, which companies should we target for an exit now?
I know these question are unpleasant, but they are becoming reality now.
It is clear already that strong ecosystems are more resilient in crisis, because they mobilize resources quickly and adapt to the needs of startups. The commitment and dedication of startup ecosystem builders, your commitment, is what makes the difference in the survival of startups hit by the crisis.
Thanks everyone for keeping startup communities running!
This post has been also published on startupsandplaces.com.