How is COVID-19 affecting early-stage businesses?

Alex Reynolds

These are not normal times. With the global spread of Covid-19, businesses large and small have had to adapt while continuing to reposition themselves as digital enterprises.

We have taken this opportunity to explore this phenomenon with a view to better understanding what its longer-term impact may be. Our research focussed specifically on B2B, enterprise-focussed early-stage businesses – how have these firms adapted to our current moment?

Our main findings show that B2B startups are:

– Increasing product development resourcing across the board;

– Remaining positive with respect to employment growth;

– Seeing their contracting slowing;

– Temporarily winding up their investment and fundraising activities;

– Remaining optimistic in the long term.

Businesses that have invested time and funds in digitising their customer journeys and internal processes over recent years have found adaptation smoother. 

In the midst of nationwide lockdowns, larger companies have had to adjust in mere weeks – in some cases days.  The urgency of adapting to new circumstances has meant that many daily activities which together make up “business as usual” have been suspended. Instead teams and operations have been reoriented towards operational efficiency and “firefighting”.

Of course, there is variety in the approaches taken by these companies. Our research shows that corporates that have transitioned to the cloud, or simply proven themselves to be adept with digital technology, have been able to continue engaging with wider startup ecosystems despite the changes dictated by the crisis. In continuing to provide services for their customers, these companies have shown themselves to be particularly resilient.

Indeed, corporate companies have continued to engage with the L Marks startup community, drawing heavily on their digital service offerings. Lengthy conversations between our alumni and corporates have accelerated given business shifts due to Covid-19. As such, commercial contracts have been signed more quickly than is usually the case. Corporate that have pursued contracts with young businesses including our alumni will most certainly be in a better position to move forward.

Our research has equally shown that our B2B alumni have seen an increase in inbound sales leads. While these leads are the beginning of a longer sales journey, they nevertheless suggest that the current climate has spurred greater interest in digital solutions, with companies ramping up their transition to the cloud.

The success of businesses during this period will be determined by their agility and ability to adapt smoothly. 

When businesses suffer shocks, belts tighten and investment falls. Demonstrating their agility, the vast majority of our alumni interviewees told us that they have continued to pursue product development roadmaps while, crucially, adapting these to meet current circumstances. Many of our alumni have channeled additional resources into the development of new solutions to meet their clients needs today. They have similarly tailored existing solutions to satisfy clients’ new priorities.

It is worth noting, however, that not all of our interviewees have chosen to invest in development work. A number of our alumni have made relatively subtle changes to their branding and product-market fit, but that’s not to say such changes haven’t made a significant impact. Having previously provided security footage analytics, one company is now providing proximity detection services in shops. Others have combined elements of their existing solutions to produce propositions which better serve the present moment.

“A long wake up call for those that never move.” 

That is how one of our alumni views the short-term of the current crisis. We couldn’t agree more. Many agree that Covid-19 will similarly have a positive impact in the medium-term and the long-term. Our research indicates that even now, when several countries are still struggling to control the virus, there is a general optimism that companies will recover in the medium-term. Yet, there can be no doubt that companies will have to change. For example, it will be important to dismantle cultural and technological barriers. With these changes, young businesses will see an upturn in demand from large corporates looking to increase their own digital capabilities.

In a previous article I noted a discrepancy between firms’ understanding that they are facing seismic challenges and ongoing “passive hostility” to change. The interviews and surveys behind the current analysis neither confirm nor refute a recent shift in attitudes. That said, the fact that many of our alumni interviewees continue to adapt to meet changing market needs, reshaping and refining propositions, suggests that their corporate clients are similarly adapting to meet new challenges head on.