HSG Startups and the coronavirus crisis
Startup@HSG at the University of St. Gallen is the first contact point for young entrepreneurs, soon to be founders, and everyone interested in entrepreneurship. Since 2017, the University of St.Gallen has been awarding a Spin-off label under the supervision of the Center for Entrepreneurship. Startups awarded by the Spin-off label (official HSG startups) build a strong community and allows one to track business developments within this broad sample group. From June until August, we started a questionnaire about how the HSG startups coped with the current coronavirus crisis. The below-shown findings are based on a representative survey among these HSG Spin-Offs.
About the HSG startups
Spin-offs operate globally with a strong focus on the European area, followed by the USA.
Almost all Startups examined in this survey have their headquarters in Switzerland, Germany, or Austria. Their focus on core operations lies in the DACH region. However, with branches and, subsidiaries they are active on an international level (see images).
Despite the crisis, HSG startups perform comparatively well: In comparison to 2018, the share of startups with an annual revenue higher than CHF 500.000 has been growing by a total of 6% to 41%.
The effects on the startups
Only 12% of startups have not been affected by the current crisis. Among the majority of affected startups, the reaction and respective outcomes differ significantly. Two out of three ventures had to record decreases in revenue, in some cases to an extent threatening their existence. The other cluster of startups emerges from the crisis as winners. They have been managing to identify and leveraging opportunities as well as developing new branches of business. Furthermore, they are a vital element in contributing to crisis response on a societal level. Especially in technologically terms, HSG startups contribute significantly to progress in the fight against the coronavirus, for example, the “GesundZusammen” initiative from the HSG Founder of the Year Julian Teicken.
Similar to the economy as a whole, startups see themselves as highly affected by the coronavirus crisis.
The coronavirus crisis has affected all areas of life and business. Like almost all types of companies, startups are strongly affected by the short, medium, and long-term effects of the current crisis. Unlike most of the large players, startups have limited access to external financing in the form of short-term bridging loans and have only limited cash reserves internally. This means they very much depend on their investors and detailed and well-planned liquidity planning. Not only is the limitation of external financing access a challenge but also the changes in customer behavior and the correlating breakdown of demand to which the startups must adopt. Also, new legal restrictions limit entrepreneurial freedom and, as well as the entire economy itself has been affected by the crisis, shortcomings in supply chain management are a real challenge.
The majority of startups have been affected - predominantly negative. Only 12 % of startups have not been affected by the crisis at all. The most mentioned effect, 60% of the participating startups said so, was a decrease in sales volume. In addition to the breakdown of revenues, current and potential investors showed reluctance to invest large volumes of additional funding into startups. Especially finding new investors became very challenging. To a certain extent, existing investors have demonstrated commitment to supporting their startups. It has been shown that lead investors are more committed than non-lead investors. 37% of the participating startups asked their investors actively for support. In total, 10% of investors re-invested in prior investments, 7% of the participating startups lost at least one of their current investors. However, almost three-fourths is currently not running up for funding rounds.
Meeting emerging challenges
The key to meet these emerging challenges is for companies to be innovative and agile and use their network for help. In comparison to most large established companies, startups show a high level of intrinsic agility and an affinity for innovation. This enables them to adjust relatively quickly to environmental changes. Whereas established companies in many cases try to overcome the crisis by sitting out, startups show a higher degree of proactivity and active opportunity exploration. Agility, lean organizational structures, and openness to innovation are key to quickly adjust the current business model to overcome emerging challenges. 27% of startups adapted their business model.
The flexibility of the business model helps startups to take advantage of new opportunities.
A large percentage of startups could identify new opportunities during the time of the crisis. Changes in perceived business opportunities are strongly linked to partial flexibility with regard to business model details and internal agility. Our survey showed that startups especially during the current crisis attach great importance to the identification and utilization of new opportunities. 43% identified new sustaining business opportunities during the crisis. 47% identified new opportunities, which, however, will not outlast the crisis. Startups showed a high level of activity in proactive crisis management. Concepts for overcoming the crisis came mainly from the founders or employees, which shows a high level of commitment among all members of the Startup, especially in challenging times. Therefore, startups show strong action orientation: 80 % of the upcoming ideas have been implemented which is highly effective as 85 % of these ideas are helping the startup to manage the crisis. Based on the overall crisis strategy, measures differ among startups. Trends for both expansion and restriction focused approaches have been mentioned. However, remote work has been the most common measure to adapt to the crisis, followed by the introduction of short-time work which has been applied by over 40% of the participating startups. More than one-quarter of the startups also adopted their business model. Even all the different measures have been applied, there are differences in the outcome for the startups. Some startups have been hit extraordinarily hard by the repercussions (f.e. startups with tourism & travel industry focus). But also, some succeeded in maintaining sufficient cash flow, and others could leverage their resources to even capture additional opportunities and safeguard growth. Overall, only 7% of the startups had to dismiss employees, but 20% of the startups were recruiting new employees. In total, 49 employees were recruited by the participating HSG startups during the period in which the survey took place.