As the effects of the COVID-19 pandemic reverberate across the global health care system and economies, our first priority is to ensure the safety and health of our families, employees, and colleagues. Businesses of all sizes are balancing employee health and safety with new restrictions and a changing marketplace.
Startups and young companies face a unique set of challenges. America’s Cultivation Corridor checked in with a panel of business and entrepreneurial experts across Iowa to get their perspectives and advice for founders, technology developers, and startup management teams as they navigate in uncertain times.
- David Biedenbach, Regional Director, America’s SBDC Iowa at Iowa State University
- Nadilia Gomez, Executive Director, Iowa Agritech Accelerator
- Kevin Kimle, Director of the Agricultural Entrepreneurship Initiative at Iowa State University, Chair of Agricultural Entrepreneurship, and Senior Lecturer in the Department of Economics
- Mark White, Managing Partner, Prairie Crest Capital
What are some of the challenges that are unique to startups during these times?
David Biedenbach: Startups are typically challenged with market awareness of their product and services, securing consistent and reliable distribution, employee recruitment, general economic stability, and securing adequate financing. Given the impacts of the COVID-19 outbreak, these challenges will only be exacerbated. COVID-19 has created a major disruption in regional, national and international supply chain networks which impacts startups ability to source, produce, and distribute their product. Employers are working through temporary labor reduction/layoffs which could provide opportunities for startups to recruit, but could also make employees more risk-averse when looking at future employment opportunities, particularly for startups. Obviously, the stability of our economy is less known which could create retraction in spending and financing opportunities causing fewer opportunities for startups to secure adequate financing.
Nadilia Gomez: Physical and mental wellbeing of entrepreneurs and their teams is a critical challenge at this time. In addition, startups face numerous challenges depending on the specific circumstances they each face. They may be concerned about the impact on the supply of components they need to manufacture their product. They may be worried about being able to execute paid pilots to evaluate their products when their partners are having to redirect efforts to business-critical activities. Some may be wondering how they’ll deliver upon promised milestones if they can’t hire new employees or, perhaps even worse, if they have to reduce the number of employees they currently have. Cash flow may become an issue, clients may start dropping contracts, rounds will likely become smaller, and the uncertainty regarding how long all of it will last brings additional pressure.
Kevin Kimle: It’s challenging for most businesses for a host of reasons, but for startups the challenge is relevance. A startup is typically trying to gain relevance and credibility among prospective customers, partners, employees and investors. And a crisis will also typically take down a startup’s relevance for most of those audiences. The deal that was “that close” three weeks ago is now off the table. The term sheet that was being negotiated gets pulled. The rockstar employee that was ready to come on-board decides to stay with the more stable large company.
Mark White: A start up CEO, like their large company colleagues, has to develop policies and processes around their operation to insure employee and customer safety. Depending on their business model, these can range from the simple (remote working and customer interface) to difficult (for example product and service businesses). The problem is highlighted by the absence of tools and infrastructure that are in place to implement new processes. As usual, development of these processes require efforts of the founding team.
Startups are typically working with limited capital. What should their priorities be now and in coming months?
Biedenbach: I would advise startups to simply plan for a longer runway and have multiple contingency plans given various assumptions both on severity and duration of market circumstances. I would suggest that they reach out to their bank to determine how they may be able to work with you to extend loan terms. If they haven’t already, I’d also suggest reaching out to your insurance agent to determine what coverage you may have for business interruption/continuity when caused by a pandemic.
Gomez: It will depend on where each startup is on their entrepreneurial journey, but it is important to consider all options. There’s great wisdom in knowing when to pause, pivot, and even slow down. Options to consider include if possible: redirecting efforts towards creating products and services that address the critical problems associated with COVID-19; identifying a mutually beneficial partnership with another startup or small business that could reduce costs; and exploring opportunities to save cash and reduce burn rate.
Kimle: Make capital last longer where at all possible. Stretch capital further, shore up existing investor relationships, debate various ideas for extending the capital runway.
White: Priorities of founders will be mostly the same with some minor adjustments. As always, focus on the problem that is being solved, continually validate the value proposition and iterate/pivot, focus on building and retaining your team, be capital efficient, and most of all, focus on the solution for your customers. Whatever your solution, new value propositions are going to be in greater need. What will change is that there will be greater emphasis on being capital efficient, managing workflow through safety protocols in light of COVID-19, and creatively messaging the solution being offered in light of the social and economic structural changes that are likely over the long term.
What should companies be doing proactively to communicate with customers, vendors, investors and others?
Biedenbach: Make an effort to effectively communicate their circumstances, how it may impact each of their stakeholders, and what plans they are putting in place to address this.Uncertainty sometimes causes irrational decisions (stop buying, selling, investing), so the company wants to make sure their stakeholders are certain that the company has a good understanding of their circumstances and are comfortable there is a plan for addressing them.
Gomez: Do what works best for your startup, but don’t forget to exercise patience and compassion. Remember that shelter-in-place isn’t synonymous with free time to respond to email. From parenting duties to the health of family and friends, and lots of emails about COVID-19, we’re facing unprecedented times. Send an email, follow-up with a phone call, leave a message, and more importantly, be patient with yourself and others.
Kimle: Communicate in multiple forms and ways with stakeholders, suppliers, customers, and your team. If you feel like you are beginning to repeat yourself, then you may just be crossing the minimum threshold of necessary communication. As you do so, solicit multiple opinions in the decision-making process. Avoid myopia and seek out divergent ideas.
White: Give investors a periodic update – every two to three weeks – about your plans with customers, vendors, customer acquisition consequences, funnel impacts, runway, and, most importantly, the COVID-19 stressors or opportunities on your business model, product and operations. Be frank, even if it is bad news. Don’t just email, call them.
What resources are available to startups?
Biedenbach: Each business’s circumstances will be different, so I would suggest first checking the Iowa SBDC website to learn more about programs and then reach out to one of our 15 regional SBDC offices for help with the company’s business planning efforts, and determine whether and/or when to apply for these programs to fit their individual needs.
A number of programs have been launched in recent weeks at the state and federal level. Details of the federal CARES Act will be ironed out over the next few weeks. Iowa resources include:
- U.S. Small Business Administration Economic Injury Disaster Loans now available in Iowa.
- Iowa Small Business Relief Grant Program
- Targeted Small Business Sole Operator Relief Fund
- Iowa Unemployment Insurance Tax Extension
- IWD Changes in unemployment filing for COVID-19
- IWD Voluntary Shared Work Program
Gomez: Programs continue to monitor the situation closely and some have flexibility to extend, delay, or modify activities accordingly. The Iowa AgriTech Accelerator, for example, has extended the application deadline by a month and the program is being adapted to accommodate social distancing and travel restrictions. We continue to provide support, coaching, and mentoring to alumni and prospective startups, and continue connecting them with a global network of other startups, accelerators, and investors.
Kimle: Lean into your relationships with mentors, investors, and your team. Become a part of a startup community if you’re not already: there is tremendous perspective and support that can come from other entrepreneurs that are facing similar challenges.
White: First and foremost, most of the resources that are traditionally available to start ups – accelerators, advisors, investors, connectors, deal-makers – are still operating, though now online. There will be a stream of new platforms that will be developed in light of the Covid-19 events. Stay connected to those you know, and continue to connect people in your network. Resources will follow.
Times of crisis are when the new enterprises of the future are built. There are now a wealth of new problems the world is faced with. Consider your solutions and capabilities in light of how they solve these problems. This is not a time to despair for entrepreneurs, it is a time to deploy your solutions for sustainable societal good – and economic sustainability is as important as any environmental sustainability component of your investment offering.