Post-Covid: The Boot-Start is Born.
The pandemic has been an almighty shock to the economic system. Many economies, already indebted, will be in it up to the eyeballs…
The pandemic has been an almighty shock to the economic system. Many economies, already indebted, will be in it up to the eyeballs post-lockdown. Therefore, the response must be at the micro-level. Businesses super-adapted to the new normal will be the ones to thrive.
They will not be anything like what has come before. For one thing, the funding market will change irrevocably. But a second reason relates to evolution. Businesses born out this economic mess will be fit and relevant. Instead of focusing on incremental change we’ll see new category defining companies.
After the 2008 crash new companies did emerge that survived against the odds. Uber and Airbnb redefined taxi services and room rental, respectively. They also creating the whole idea of the sharing economy. But the business models, enabled by technology, were hardly revolutionary. And the post-2008 wave of tech was funded in a similar way to the tech that came before the crash. Venture capital continued to be the funding method of choice for wannabe tech entrepreneurs.
However, we’re now in a world where liquidity is all. Businesses in a multitude of sectors have seen sales plummet and many previously solvent companies are facing existential crises. In the USA alone, according to a report today from Reuters, $500 billion of corporate debt is due to mature this year. In order to conserve cash some businesses will be forced to furlough plants as well as people. Discretionary spend on technology designed to improve productivity or supply chain will be seen to be so last year. Similarly, esoteric AI solutions designed to address pre-COVID challenges will be less ‘nice-to-have’ and more ‘they-can-keep’.
Venture capital won’t dry up. Many companies in lucrative sectors (remote working, healthcare, drug discovery) will secure rounds mid-crisis and beyond. But the start-up community will face a shake-up and shake-out. Access to seed capital will, inevitably, get much, much harder. Therefore, we’ll see the emergence of many more firms that are born ready-for-revenue and boot-strapped. The absolute number of start-ups will almost certainly decline but ‘boot-starts’ will become the new normal in ways that we’ve never seen before. And there’s an evolutionary elegance to this. The consequence is that founders will not think so much of “reference customers”. Rather customers will be the focus again — because customers will be the only source of funding from start-up.
So, what are the lessons for entrepreneurs in this new boot-start era?
1. Start and stay lean. Keep the founding team focused and committed and revenue-earning. Everyone should be absolutely and critically focused on the market and serving it and closing revenue should be the end-game. Services revenue in this new world is sweet too because such revenue can fund R&D.
2. The customer should be bought in to the vision. Bootstrapped companies love their customers in a totally different way. Customers are lifeblood and must be cherished. At the heart of the relationship is mutual value that must never be lost sight of.
3. Stay remote but be connected. The great thing is that leanness is now cool, and offices are white elephants. Embrace the home. Home is where business lives and can sell to the world.
4. Merge quickly. Critical mass can be built through vertical integration very quickly by bringing like-minds together whose only focus is on revenue. Merge, grow and build IP quickly with no-one diluting equity. The only equity is revenue.
5. Grow only if it enhances margin. Margin is the route to stability. Building reserves reduces fragility and maximises security. Draw upon the crowd to control growth: employees and customers together.
So, All Hail the Boot-start. It’s where the fundamentals of business live.