Entrepreneurship During A Pandemic: Why Right Now Could Be A Great Time To Start A Business
Personally, I don’t think there’s ever a “right time” to start a business.
If you look at the last big financial recession, a lot of powerful companies came out of the housing crisis of 2008, and a lot of powerful companies failed. And if you compare that to two or so years ago, when the economy was arguably the best it has ever been, there were companies that raised tons of money and went on to be very successful, and there were also companies that raised tons of money and completely bombed.
The world is constantly changing. So I don’t believe one economic moment in time is necessarily better or worse to start a business.
What matters more is whether your new business is solving pain points relevant to today.
What is the product you’re trying to sell and make? What is the service you’re looking to provide?
These are the questions I would ask myself if I were looking to launch a new venture right now:
- “What does my product or service offer customers and who is going to buy it?”
- “What’s the compelling story here for someone to want to buy this product or service – and why now?”
- “Why am I confident I can solve this specific problem, or deliver this specific service better than anyone else and stand out against the competition?”
- “Do I have the right team to succeed?”
This pandemic has also revealed businesses that might not be relevant in the future.
A lot of businesses never considered what they would do if the entire world had to stop for a week, or a month, let alone three months or more. On top of that, a lot of businesses also never considered a future where they would be forced to work remotely—many just assumed physical workplaces would always be a necessity.
This is why I think relevance, not timing, is a lot more important when it comes to starting a business. You have to spend more time focusing on the exact pain point you’re trying to solve, rather than trying to “time the market.” In fact, you could argue that if you started a business one year ago, when the market was performing spectacularly, you might be in a very difficult position right now. Maybe you were one of those businesses that didn’t plan for a “black swan” event like the coronavirus, and over-invested in your first physical location.
Right now you’d be thinking, “If only I had started my business a year later.”
If you are looking to start a business today, especially if you’re looking to raise money, here’s how I would encourage you to think about the process:
1. Build relationships with angels and VCs, and understand what metrics they’re looking for.
I am a big relationship guy, so I spend at least five hours per week talking to different people in the investment space, building, and maintaining relationships.
One of the big things you want to know, as a startup founder, is what investors want to see from you in order to feel confident investing in your company. Is it how much recurring revenue you have? Or is it the growth rate of your customers? Or is it the type of customers you have, and how low you’ve gotten your acquisition costs? Different investors look for different things, so understanding how to cater to the ones you want on board is crucial.
2. Have a long-term strategy for making it through the next 24+ months.
Deals are still happening in the investment world, but investors want to see that you have a very clear plan for navigating the current environment.
What investors want to know is:
- How do you plan on executing during COVID-19?
- Why would someone buy your product now – and who is that buyer?
- At what point do you plan to start generating revenue? If you’ll need to raise more money, how much more will you need to raise and when?
- What key metrics are you measuring, and are those strong indicators of business growth (or are they vanity metrics)?
Right now, investors are looking for other options as to where to put their money. The stock market is on fire, but is another shoe going to drop? Interest rates are so low that investing in bonds and things like that won’t yield a high return. So investors are open to investing in deals right now—they just need to be the right deals for them.
3. As the company grows, consider blending equity investments with debt financing.
Before I started Place Technology, I built a company called Talent Rover.
We used a mixture of equity, convertible debt (meaning debt that converts to equity), and non-convertible debt (meaning you pay off the loan over time and that’s it). The reason I recommend exploring all three is that each form of financing is more effective than the others at different stages of the company. Early-stage, you don’t want to use debt—especially if you’re pre-revenue—because you have no idea how you’re going to be able to repay the loan. But later-stage, when the company is on solid ground, debt financing can be a great way to avoid giving up more of the company—especially if you’re looking to exit the venture somewhere down the line.
The key is to have a strong balance sheet that supports your story.
The better your balance sheet for your situation, the easier it is to raise money and the more leverage you’ll have in all of your fundraising and financing conversations. Deciding what it means to have a strong balance sheet for your company, in your industry, and during the current economic climate is the bigger task.