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How does COVID-19 impact the entrepreneurial ecosystem? These are the 6 key points

April 15, 2020

11 min read

The opinions expressed by collaborators are personal.

In addition to the health emergency declared a pandemic by the WHO , Covid-19 brought us an economic recession and according to INEGI data, Mexico is heading for the longest recession recorded in the last 90 years. Undoubtedly, all this situation that currently keeps us in quarantine is holding back many investments that would be made this year in the country, hiring stopped, and in the worst case scenario, unemployment is increasing. All this set of conditions directly impacts the creation and development of companies in the short and medium term, affecting the efficiency of the entrepreneurial ecosystem .

How does COVID-19 impact the entrepreneurial ecosystem? These are the 6 key pointsHow does COVID-19 impact the entrepreneurial ecosystem? These are the 6 key points

s are currently at a stage where both operational and financial decision-making become relevant. Many talk about preparing the business for the post-coronavirus impact and others about the steps that must be taken to survive the pandemic.

It is important to note that some business lines are growing impressively in these adverse conditions, so I invite you not only to stay with the negative but also pay attention to the positive.

At the Latin American level, the Covid-19 has quickly and strongly impacted most of the industries, although as I mentioned there are some in which the effect is being positive since they have registered sales growth, but they are the minority. If you are one of those who are finding it positive, the crisis is because you surely have an e-commerce company, make home deliveries, offer online education or SaaS ( Software as a Service ) tools to work from home. However, most companies are going through uncertain times, difficult decisions and new challenges. In some cases, they are accelerating digital transformation processes for their products or services.

Lately, I have had virtual meetings with investors, entrepreneurs, academics, mentors and experts on economic issues. For this reason, it seems important to me to share with you the six key points that are impacting the entrepreneurship ecosystem. Some are positive and some negative, but my intention is that you consider them to face current conditions.

1. Changes in the markets

Coovid-19 has transformed markets worldwide because the measures taken to prevent contagion have changed the way in which products and services are consumed. You may have had to close the curtain on your business if you are not considered essential in your city. While to some who were prepared for e-commerce, home delivery or a digital product are increasing sales, to others it represents a total brake on the flow of income.

The problem is that if your income stream stopped, you are looking to cut non-essential expenses as recommended by specialists and you are trying to save as much as possible. This at the macroeconomic level represents a decrease in consumption affecting the economic cycle since there will be less money in circulation. That's why e-commerce has emerged as an opportunity in the wake of the coronavirus outbreak as online shopping increases protection against the disease, according to research from El Universal .

Talking with various entrepreneurs last week, we concluded that the best way to cope during and after the coronavirus contingency is to diversify your company's sources of income, and as a “B2B” consumer of your suppliers, you have to negotiate new payment schemes so as not to slow down the supply chain and further damage the ecosystem. Take a moment to think about your distribution channels and your product portfolio. Is there a way to go digital? Can you offer something new? Not everything is the product itself, you can also improve your quality of service by giving away home deliveries, facilitating payments with various options, offering guarantees, etc. It is the best time to offer discounts and promotions that encourage the circular flow of the economy.

2. Public policies

There are various proposals on the components of entrepreneurship ecosystems, from those based on organizations such as the World Economic Forum and the Global ship Monitor to those proposed by academics and investors as one very famous by the academic of Daniel Isenberg of Babson College . No matter what the framework for analyzing the entrepreneurship ecosystem is, everyone agrees that the government has an important role in creating incentives and regulations that promote the creation and development of companies. Many of the regulations have to do with procedures to open and operate companies, others have to do with the working conditions of your workers, others with interest rates and others with the payment of taxes.

In some countries such as France, Spain, Germany, Italy and the United States, fiscal measures and incentives are being implemented such as extensions, suspensions and deferrals for the payment of taxes, granting of credits to companies and even checks to families. In Mexico, various measures have been proposed, mainly aimed at the extension or cancellation of the payment of taxes that individuals must carry out this April. However, the Tax Administration Service in the country has announced that there will be no extension, according to El Universal .

We will have to wait for a business support plan in the coming weeks or months. According to the BBC News World , in Germany a plan was approved that contemplates reducing the number of hours worked and will finance 60% of the net loss of wages, while in Italy aid will be given in the form of work permits to work from home if you have children and bonuses if you must hire someone to look after the children. Try to be patient, the economic impact will guide the government to create the necessary incentives to reduce unemployment and counteract the economic recession.

3. Changes in investments and financing

As we know, the Covid-19 outbreak started in China and has already spread throughout Asia and now it has been managed to control while in the West we are still at the peak of contagion. They are beginning to think about what to do next and how to recover, but one of the strongest indicators of the economic impact of the coronavirus is the decrease in investment. According to research by CB Insights , venture capital investment and financing for private companies is and will continue to fall.

I believe that anywhere in the world everyone should prioritize protect their investments and resist. Asking for a bridging loan to meet your obligations may be a good idea, but if you have investors they can also help you even more. Think that you or your investors would also lose more money if your company closes, then it is better to talk to them and rethink new schemes such as increasing their participation by injecting more capital or raising debt. If you don't have investors, banks have also opened refinancing options and extensions to the payment of principal and interest for up to six months, which if you take them can give you cash flow for your operation in the short term.

Last week I had the opportunity to listen to a talk by Fernando Lelo de Larrea, co-founder of the venture capital fund ALLVP . Sharing Fernando's opinion, the current situation does not necessarily imply that all investments are stopped, but rather that the companies in his portfolio will be given priority and the processes to carry out investment rounds will be more strict due to the risk involved before the uncertainty of the markets.

4. Culture and organization

Until before the coronavirus many organizations were skeptical of the productivity of work at home or home office . Today it is a reality, although for some forced, but that gives employees the option of working remotely and that will last for a long time until the coronavirus is contained and vaccines are developed. Startups have been more agile in implementing these flexible work schemes because they have more dynamic strategies to position themselves in the markets, but in larger companies and for many years it is costing them.

The problem is with the types of work that cannot be done from home or the employees without contracts that are informal and even live daily, with them we must stand in solidarity and create a culture of work and support. On the other hand, many companies stopped hiring almost immediately. If you have employees, find out how to support them and pay them responsibly as far as your corporate finances allow before firing someone. You must generate commitment, loyalty and trust among your people so that it is a positive work environment for your team and that they spend their time producing not thinking about whether they will be the next to be fired.

5. Support networks

Support between companies, governments and individuals is vital to get ahead of this crisis. Some sectors that have been more affected, such as services, are joining forces to improve their opportunities, such as restaurants that have joined forces with platforms such as Uber Eats, Rappi, Didi Food and Sin Delantal to increase their coverage for deliveries to address as they cannot offer a branch service. Despite this, some have had to cut personnel, but the creation of support networks between employees, businesses and the government has created new alternatives, such as the case of the San Pedro Restaurant Relief initiative of the Fundación Comunidar in Nuevo León, Mexico, which is raising donations through the Inixar crowdfunding platform .

I recommend that you seek to make alliances with businesses of the same type and with suppliers, together they can join forces to succeed together. Another example is the collaborative support network being carried out by the Mexican startups Urbvan, Luuna and Jüsto from the portfolio of the Mountain Nazca capital fund, to distribute supermarkets and mattresses.

Photo: screenshot

6. Human capital

I believe that the companies that manage to retain the largest number of jobs and coordinate new actions for digital transformation in the coming weeks will be more productive in the long term by generating a greater sense of belonging. Human capital remains key in any company and many are taking the opportunity to train their employees with online courses. Education in general, took a transformational leap in less than two weeks by largely migrating the courses that were previously taught in person to virtual modality. As a university professor I know that in the future the options of online programs will be increased as teachers were trained in a week in the use of tools and the delivery of online courses and also the commitment to continue preparing the future hand of work of companies like yours.

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