A combination of economic uncertainty, rising unemployment, changing consumer behaviour and national and regional “lock-downs” have exacerbated existing pressures often experienced by start-ups, including lack of funding. With thin balance sheets, cash flow challenges and (often) debt, many start-ups simply have less capital and resources to fall back on in time of crisis. There are, inevitably, risks of business failure.
The availability of government support packages, furlough schemes, business loans or tax leniency arrangements will influence decision-making about the workforce. But the economic climate and global pandemic are unfortunately causing job losses across all sectors of the economy. Managing redundancies or cost-savings measures lawfully and with sensitivity is important; most companies wish to treat employees with dignity at what can be a very difficult time.
This crisis is different from previous economic crises as it is caused by a biological entity. Covid-19 has fractured business and social interactions as people grapple with a threat to their health and, in some cases, fear of return to the workplace. Many companies, irrespective of size, recognise the particular importance of “people” issues, as they digest government guidance on covid-secure workplaces and assess the health and safety risks of an outbreak at a place of work. Companies are under a statutory duty to ensure, so far as reasonably practicable, a safe place of work. What this means in the current climate is evolving on a daily basis as the government changes its tier system.
Of course, the impact of Covid-19 on start-ups differs dramatically depending on the sector in which they operate. Whilst many start-ups embrace technology, digital tools, data analysis and artificial intelligence, this is not, in itself, enough to future-proof all start-ups. The pandemic has hit technology companies differently depending on which sector they serve. The impact of Covid-19 on start-ups mirrors in many ways, the impact trends and patterns observed in more established technology companies. Some start-ups which integrate artificial intelligence (AI), machine learning and big data, have experienced growth, particularly where they operate in sectors which have thrived during the pandemic, such as healthcare and digital education. But there is greater demand for technological solutions across many sectors, in particular data analytics and cloud-storage companies.
Vulnerabilities emerge in those technology companies operating in travel or transport sectors with quarantine rules restricting international travel and fears of ride-sharing impacting digital platforms serving the gig economy. We anticipate a similar sector impact for start-ups and venture capital companies focusing on digital healthcare, online education, collaboration tools, and online groceries, which are more likely to experience growth in lockdown, whilst others serving sectors such as travel, mobility and recruitment are more likely to see revenue suffer. Those start-ups not engaged in digital services may be more likely to face challenges from a business and operational perspective, for example a drop in demand and/or problems in supply chain. Brexit may also impact many businesses across the UK.
Some investors may adopt a more cautious approach to funding but the global pandemic has accelerated digital trends partly as a result of lockdowns and the increase in remote working.
Future-proof your start-ups.
The pandemic has provided opportunities for some start-ups. The sudden shift to remote working and focus on digital solutions required caught some long-established businesses off guard. Start-ups may benefit from certain advantages over more established businesses, especially if they are digitally savvy and already embracing a culture of remote working. Many start-ups have a sophisticated digital strategy or offering. For this reason, we anticipate that many capital-backed start-ups will thrive in the new normal.
The informal, less hierarchical culture of many start-ups and the increased likelihood of homeworking can serve some start-ups well; they are less likely to be exposed to bricks and mortar costs, more likely to be adept at embracing remote working and familiar with digital tools which will help build business resilience. Those which are nimble and agile may explore new business models and embrace opportunities to restructure and incentivise staff.
At Ignition, we are experienced in supporting start-ups with clear, pragmatic and relevant advice. We recognise the importance of entrepreneurs. Start-ups drive innovations and create employment.
The global pandemic has driven many companies to reassess their business models, business plans and strategic risks. We can support you as you assess your operational and financial resilience, and develop contingency plans around the workforce to ensure sustainability.
We can provide advice on updating employment law policies and practices to ensure they are fit for purpose in this new normal. We are happy to support you with all people-related issues including sensitive terminations of employment, advice on TUPE transfers, reward and remuneration, new incentive arrangements, implementing cost-savings measures and taking on new talent.
This Covid-19 employment piece was written by Senior Employment Consultant Jemima Coleman.