Here's how COVID-19 has affected Houston startups — and what they need to know moving forward
guest column
The effect of COVID-19 on Houston's economy has been unprecedented. While evidence on this impact is only beginning to emerge, it is clear that the economic damage has been particularly severe for startups and small and growing businesses in emerging markets.
Given the importance of startups and small businesses to economic growth and job creation, the survival of these businesses must be a critical part of the global recovery. For example, there are many companies that have seen this pandemic as an opportunity and started providing COVID-19-related services.
Startups are facing financial challenges on multiple fronts
According to a study from Houston Exponential's:
- Thirty percent of startups reported a loss of revenue due to client uncertainty or delayed contracts. With almost 85 percent of startups identifying as B2B or B2C, many companies are seeing previously guaranteed revenues shrink as enterprise clients cut costs.
- Twenty-one percent of startups reported paying talent as their biggest talent/hiring challenge. The main concern isn't with finding qualified candidates, it's being able to pay for them. Founders stated that the talent exists, but they can't afford them, or candidates aren't willing to accept a lower salary for equity.
- Nineteen percent of startups reported a 10 to 20 percent decrease in fundraising valuations. This statistic only includes startups that were raising before and during COVID-19. And 71 percent reported no change in valuations.
- Fourteen percent of startups reported moving to remote work as their biggest operational challenge. This includes both internal challenges as well as working with clients and prospective customers remotely.
How startups have been using funding amid COVID-19
Post $1 million in funding, the hiring focus shifts to product development.
- Companies that have raised less than $1 million are looking to drive growth, find sources of revenue and improve their top-line metrics through biz dev, marketing, and sales.
- Companies that have raised more than $1 million are focusing more on building out and improving their product by hiring engineers and product managers
Note: The median seed round for Houston startups over the past 3 years was $1.9 million and the median angel deal was $610,000, according to Pitchbook.
Tips for surviving the pandemic
The Small Business Continuity Checklist is a diagnostic tool to navigate times of disruption, covering two key areas of management — financial and strategic.
Financial Management Tasks
- Address future cash shortages, for example, what expenses could be reduced, such as travel and marketing, which operations can be temporarily paused.
- Consider steps to increase cash coming into the business such as focusing more on product lines/ services that continue to sell well.
- Explore what grants, subsidies, or loans are available and the eligibility requirements. For example, The Cannon's CERT Program. Here's a list of resources for Houston startups and SMBs.
- Recycle, re-purpose, or dispose of old or slow-moving stock or inventory. Explore the possibility of sales under special conditions, in order to reduce the projected losses on inventories. Review purchasing policies to prevent overspending on stock/inventory.
Strategic Management Tasks
- Since user retention is crucial for your future growth, you can provide free subscriptions, contactless delivery, and waive fees to address a larger user base and enhance customer experience. For example, many online learning sites are providing free access to their live and video classes. Similarly, in the healthcare and fitness space, companies can provide for free virtual classes and shift to providing online consultations. Cure.Fit, fitness startup has provided free access to their live classes for 90 days. All hyperlocal delivery companies have rolled out 'contactless delivery' to minimize any contact between the customer and the delivery executive. They have also urged customers to adopt 'digital payments' to again minimize any human contact.
- Nowadays, most startups and SMBs rely on different kinds of software, web apps, and/or mobile apps. Furthermore, many businesses are dependent on such digital platforms. If you are developing any digital solution then you should consider outsourcing some part of development/design work to app development in Houston to reduce the cost. You can find more local options from sites like Clutch or Upcity.
- Ensure productivity while working remotely. While fostering collaboration has long been a defined way of working in most modern businesses, proximity is a variable that has always been taken for granted. Don't just limit to video conferencing, also invest in project management tools, time tracking tools, communication tools etc.
- Build trust, support staff, and understand emotional concerns and the importance of personal well being.
Startups are the engines of progress. Small businesses are the backbone of America. Stay safe. Stay healthy. And keep persevering. No matter how severe and disruptive this crisis is, one thing is for sure, the war on this pandemic will be won.
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Colin Simpson is project manager at BlueKite Apps, which recently started its software development services in Houston.
Apple doubles down on Houston with new production facility, training center Photo courtesy Apple.