Are early-stage startups "dead-by-default" when Coronavirus is causing significant harm to the world’s economy?
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?
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Maybe big investments and institutional investors may hold back for a bit, and I think we will see a shift towards "customer-funded" startups, profitable and sustainable in a shorter period of time.
Yes, investors are holding on to their money, so that they can buy stuff (stock, businesses, and other assets) much cheaper when the market hits an all-time low. Some investors, who had a cash flow from restaurant or event businesses will hold on to money to “live through this time.”
Customer-funded startups are really rare and between, and it is hard to make it work when the company is creating a new market (transformative innovation) because they usually don’t see revenue for the first 1-3 years since they need to educate the customer about the problem.
Do you think crowd-funded (like Kickstarter/Patreon/etc) still can work in this crisis?
Don't know, hard to tell, but I guess also for crowdsourcing it will be a harsh period. Especially B2C will suffer from my perspective.
But if you solve a pain big & urgent enough probably you will do fine anyway, I just think that people and businesses will have a rearranged priority list after this outbreak. This will affect the kind of startups that will develop during this time.
In a bad economy people need their problems solved more than ever. The challenge is, can you solve the problem, not can you raise money.
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 you’ve already been in touch and can have a video call with them.
If your startup was for events or restaurants then you might be out of luck (even so maybe you have a creative way to help them in this time) but otherwise I would consider this time an opportunity for IndieHackers.
The startups that are in biggest trouble are those who rely on venture funding to keep the lights on. A lot of those will probably close in the next year as investors tighten their purses. But an IndieHacker can rely directly on customers for revenue.
It's a great time to be capital efficient and listening to customers.
I think it’s actually a great time to “be capital efficient and listening to customers” always! Not just in times of crisis. That’s just a smart and best thing to do 🙂
If someone is going after problems that don't exist or are too trivial they may face some issues. Startups that focus on real problems or problems that need solutions right now, they may thrive even in this environment.
Yes! This downturn brings the whole set of problems on its own. And it is expected that Corona will reappear yearly now, so a product, service or solution to mitigate that in the next years can be successful.
I think if you were dead-by-default before, it's just more obvious now. If you had very limited runway, were relying on tenuous investments, were targeting a market that could only barely support you, any number of things that were obscured in a roaring economy, that is all brought into stark detail by the recent crashes.
But what goes down must come up! If you have the runway to get through to the other side of this, business will start back up again, people will need services again, money will change hands again. In much the same way that it makes sense to continue to invest money when the markets are down (your dollar buys more, and when the market goes back up, so does your investment), it makes sense to continue to invest your time.
I totally agree! Just like people invest in the market during the downturn, we should be investing in our businesses at this time.
Hey nice name! Ilona Codes...my youtube name is Unit Codes lol.
Anyhow, what I think is.. The success of one startup is always going to depend on demand rather than economy as a whole, and in these times, supplying/filling that void in demand(whether it's work-related spaces/workflows/e-management), no matter whatever you come up with. If your startup solves that, this (your startup) will have a faster growth rate in these circumstances, than anything else. Solve that gap whatever your startup was aiming for, don't forget the power of Timing!
If you can help ppl do any of the following, not only are you not dead by default but you can actually thrive:
Interestingly a lot of content factories have started offering free content during this outbreak to boost subscribers later on. Freemium biz models trying to win eyeballs now would actually boost their paid subscriber base later on when we start to recover economically in Q4.
I think that is True for existing early-stage startups and they "dead-by-default". But But our world never back to the stage before these days. So it will be just the focus shifting for new people needs.
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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.