Entrepreneurs have been hit hard by the crisis. Surveys show that since the start of the pandemic, globally, 70-80% of SMEs experienced a serious drop in revenues/sales, and over 40% stopped operations altogether in the first wave of the crisis. Firm creation also dropped significantly across many countries, for example, by 70% in Portugal in April compared to a year earlier, and by 54% in France.
As lockdowns return in many countries, these entrepreneurs are once again under huge pressure. This pressure is having a toll financially – but also mentally. A recent survey in New Zealand showed that more than half of small business team members are experiencing increased anxiety due to financial hardship and uncertainty. Earlier in the pandemic, 66% of SME owners in the Netherlands reported they risked burn-out within 6 months.
Yet a world seeking to bounce back from the COVID-19 crisis needs its entrepreneurial spirit more than ever. Our societies need our entrepreneurs to replace lost livelihoods. But we need them to do more than that: we need them to help us renew, not just replace our economy. All entrepreneurs have a role to play – whether rooted in tech or in local services or retail – in founding the new businesses of the future, in creating and adopting digital technologies and in developing and deploying more sustainable business models. And we need to boost their ranks through greater participation in entrepreneurship among women and young, and in left behind regions.
There are reasons to be optimistic. The crisis is offering new opportunities for SMEs. While a sudden drop in demand has disrupted some industries, others grew even faster. Fintech, CleanTech and Energy sectors have the highest employment growth. VC investment in some countries and sectors will break the 2019 record. In many countries, we have recently seen a surge in start-ups. In the US, new business registrations doubled between March and July. Japan’s start-up index rose by more than 50% this year, matching its previous high in 2006.
However, these green shoots of recovery are fragile. National, regional, and local authorities need to put the right policy measures in place to nurture, sustain and direct this entrepreneurial spirit if it is to take root and flourish. An effective response would include a number of features.
First, bold action to meet the financial needs of entrepreneurs unable to operate due to the pandemic. In recognition of this, most countries facing renewed restrictions have already extended emergency support programmes. However, in many cases these measures need to be adapted to take on board lessons learned from the early phases of the crisis. That includes improving targeting: in the initial response, in some countries funding flowed to businesses in sectors less affected by the containment measures while missing vulnerable businesses and groups like the self-employed. With clearer evidence now of the impacts on different sectors and groups, support can be more targeted – and more tailored – to the needs of different sectors and groups.
Second, forward thinking policies that look beyond the crisis and support the recovery. In some cases, an over-reliance on debt instruments without a clear exit strategy risks a large number of firms emerging from the crisis with an unsustainable burden or little capacity to invest for years to come. A pivot where possible to equity instruments rather adding to the burden of debt would help ease this pressure. Equity instruments could also be used to support firms with more ambitious plans to start-up, scale quickly, and lead the recovery with more innovative, more sustainable business models. Cross-border fund structures and investments would provide ability to operate at scale and help firms to make connections to ensure that new firms are born global, particularly tech companies that have survived and thrived during the crisis.
Third, deploying and aligning a broader package of support measures for entrepreneurs. That means putting in place the right training and networks for firms to transition to new business models – including enhanced use of digital tools such as e-commerce and teleworking. It should also include measures to rebuild the confidence and mental strength of entrepreneurs in struggling and failed ventures. We know businesses set up by re-starters grow faster than businesses set up by first timers in terms of turnover and jobs created, and “second chance entrepreneurs” offer one of the best opportunities for a quick recovery.
The time to act is now. Entrepreneurs are already on the march. It is time we rallied round them with the support they need. The prize is a quicker, more sustainable recovery – and the opportunity to work with them to shape a brighter future for us all.