In normal times, over 19 million global users of fashion reselling marketplace Depop would be upgrading their wardrobes for the summer months. But since the coronavirus crisis upended the economy, the company, like many other startups, is navigating uncharted waters.
“This has been a very ‘business as unusual’ time for any company, regardless of what shape or size,” says Depop chief operating officer Dominic Rose. “There’s no one-size-fits-all solution.”
Depop is a global success story and it’s doing what many startups are having to do: adapt. Its response to the crisis has been to open a dedicated Covid-19 Help Centre and adopted contactless home collection and delivery services. Perhaps unexpectedly, Depop also discovered its app being used in novel ways. “Users are getting creative with their inventory,” says Rose. “What was considered a time consuming activity is now easier when we have more time on our hands to clean out our closet.”
Business owners are asking what they can do to survive the year. Many have taken the difficult decision to furlough staff, reassessing what is deemed ‘essential’ in a global pandemic. “Companies are realising their business models aren’t designed to deal with this,” says Stephen Oldroyd, head of strategy at WorkinStartups. Businesses put their sales staff on furlough because there’s nothing to sell the clients, and when focus goes from high growth to survival, new hiring for innovation is paused.”
Throughout March, the UK startup job portal WorkinStartups.com saw inventory jobs posted on the site decrease by around 40 per cent. For those fewer roles, the average number of applicants per role rose to around 40, more than double the usual amount. Suddenly, new hiring for the innovation or growth parts of startups paused, and that trend might continue, says Oldroyd.
But, while many are tightening their belts, some startups are continuing to expand. “Teams are still growing,” says Ray Gibson, founder at Funded.Club, a provider of recruiting services for startups. “In deep tech, health, AI and other areas with long build cycles, they will likely go to market post-crisis.”
Health apps are naturally better equipped to weather the storm, but that doesn’t mean that they didn’t need to adapt to new demand. Psious, a VR platform used by mental health professionals to treat anxiety related disorders, developed a remote app for patients to connect with their therapists in under 48 hours.
“We are in the middle of a life-changing event,” says Dr Ricardo Sáinz Fuertes, CMO at Psious. “As a company, we do what we’ve done as individuals: we had to adapt. Fortunately, technology makes these changes much easier.”
There’s some positive news for smaller startups, too. “Smaller companies may not be the most resilient for a long-term economic downturn, but for what this could end up being, they are,” says Henry Whorwood, head of research & consultancy at Beauhurst, a database for the UK’s fastest-growing companies. Whorwood points to how government furlough schemes and the ability to defer VAT payments until 2021 benefits smaller companies, not those with high overheads. “Small companies can stop for three months,” he continues.“It’s not ideal, but it’s much easier for them to do. A larger company can’t. They might have three month reserves, but it’s harder for them to go into hibernation mode.”
Data collected by Beauhurst found that between 23rd March and 23rd April 2019, 176 new investments into UK startups were closed, worth a total of £495 million. In the same period in 2020, there were 112 deals made worth £661 million, an increase of 34 per cent. The top four sectors were fintech, AI, digital security, and blockchain.
This is a double-edged sword, though. “I wouldn’t take the amount raised being higher as good news,” says Whorwood. “The companies getting investment are getting larger amounts, but that will make it harder for those who haven’t raised investment to do so.”
For those struggling for investment, what practical changes can startups make to safeguard themselves? Whorwood believes that preparing for the light at the end of the tunnel is possible if businesses follow the Depop route by adapting to the different business conditions. “Startups will be having an eye on when the government says recovery can start,” says Whorood. “Until then, for startups, it’s about closing any deals you can, bringing in as much revenue as possible and getting investments. Now, it’s about surviving to the other side.”
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