For most of us, the Covid-19 outbreak has radically changed the way we conduct our daily affairs. With national stay-at-home restrictions limiting in-person contact and a national recession jeopardizing many of our personal finances, the situation still remains challenging a year after the virus first hit our shores. What's more, widespread disruptions to trade and the forbidding economic climate has also upended the UK's business landscape, with our small to medium-sized enterprises (SMEs) estimated to have lost more than £69 billion throughout 2020. However, as the pandemic continues to shake up the market, new opportunities for growth are emerging despite everything. So, following the mantra 'never let a crisis go to waste', some entrepreneurial characters are rising through the ranks to provide innovative solutions to challenges posed by the virus.
As Iain Wright from the Institute of Chartered Accountants in England and Wales told The Times, 'Every downturn in economic history is accompanied by a rise of entrepreneurship'. From massive tech companies like Airbnb and Uber being formed during global financial slumps to previous pandemics accelerating healthcare technology, entrepreneurs are among the first to deliver innovative and creative responses when crises are upon us. According to the numbers, Covid-19 is proving to be no different.
So, to address this spike of entrepreneurship in the U.K., in this article, we're going to explore how the coronavirus pandemic has opened up new business opportunities, before giving examples of some SMEs that have appeared to thrive in this current crisis. But before we seek to understand the current situation, let's take a look at when else entrepreneurship has soared in a time of crisis.
The history of crises and entrepreneurship
You may be surprised to find out that, throughout history, some of the biggest companies that we know today as household names have been forged in times of unprecedented crisis. From manufacturing giants to tech titans, in times where most businesses are hanging on for dear life, some are able to turn lemons into lemonade by tapping into emerging markets.
So, here's a rundown of some well-known businesses that shot to success in times of economic adversity.
Tiffany & Co
During the Panic of 1837 (a financial crisis in the U.S.), as unemployment levels and business closure rates were soaring, a young entrepreneur named Charles Lewis Tiffany opened a small goods store in New York City. After almost a century of steady growth, the company opened its flagship store on Fifth Avenue. Now estimated to be worth around 4.4 billion US dollars, Tiffany & Co has clearly come a long way since its humble beginnings in the early 19th century.
Best known for manufacturing and distributing well-known automobile brands like Cadillac and Chevrolet, General Motors is a Detroit-based business that, for much of the 20th century, was the largest motor-vehicle manufacturer in the world. G.M. was founded at the tail end of the Panic of 1907, a global financial crisis caused by the bankruptcy of two brokerage firms in the U.S. During this time of economic uncertainty, its founder, William C. Durant, expanded their empire by buying up struggling manufacturers. Despite facing tough competition in the current day, at its peak, General Motors made up at least 50% of the US market share, and it's still among the top three car manufacturers in the US.
Originally named Micro-Soft, the multinational tech company was founded just a month after the 1970 recession ended. Starting out by producing software for the world's first personal computer, by 1978, Microsoft had already amassed sales of over $1 million, (which is the equivalent of £3.2 million in today's money). Now boasting a net worth of over $1,826 billion, Microsoft is a shining example of a successful tech start-up with a modest origin story.
In 2007, while the global economy was experiencing it's most significant dip since the 1930s, two entrepreneurs and unemployed roommates from San Francisco spotted a golden opportunity. Offering it's users low-cost short-term accommodation in a time where many people were strapped for cash, Airbnb tapped into a growing market, and, after some initial hurdles, the company finally started turning a real profit in 2009. Now boasting over 5.6 million listings in over 220 countries, Airbnb is a clear example of how opportune thinking can reap generous rewards.
Why might this be?
But why have so many long-lasting companies been founded in times of crisis? According to Dane Stranger, a fellow at the Bipartisan Policy Center, it's because they are required to scrape and scrimp in order to be successful. If a business is formed amidst challenging circumstances where there is a lack of demand and a scarcity of financing options, it's likely the enterprise will only grow in size and stability as time progresses. Also, during economic recessions, new budget-friendly business opportunities arise when more costly alternatives are no longer an affordable option for much of the public.
However, with the Covid-19 pandemic restricting most forms of in-person contact (in addition to creating a formidable economic climate), how does the entrepreneurialism in the current crisis compare to what we've witnessed in crises throughout history?
Entrepreneurial growth throughout Covid-19
According to Small Business, 2020 saw a record number of companies created in the UK, with 84,759 more businesses being set up throughout the year compared to 2019. This represents a 12.3% growth year on year, which surprisingly marks the highest growth on record. What's more, during the first official lockdown in March to July 2020, Royal Mail found that 315,000 new companies were established in the UK. This was an increase of 7% compared to the same period the previous year, indicating how businesses were still finding time to bloom despite the comprehensive stay-at-home orders.
In terms of where this start-up growth was taking place, out of all the new companies forged during the first lockdown, 80% of them operate within the Greater London Area. However, outside the capital and in other urban centres like Leicester, Worcester, and Manchester, a marked growth in new business creation was also recorded. Worcester was also the area which saw the most significant annual increase in business incorporations, with the WR9 postcode witnessing a growth of over 820% in March, compared to the same period in 2019.
With regards to different industries, according to SHL, the sectors which experienced the highest amount of growth throughout this period was e-commerce, which rose by 88%, and clothing, which was up by 55%. Additionally, retailers of medical goods also saw a growth of 176%, predominantly due to the surge in demand for personal protective equipment (PPE).
Start-ups that have found success
So, amongst the sea of statistics, here are examples of three newly found start-ups that benefited from the unique circumstances of life within the Covid-19 pandemic.
Local e Sourced
Founded at the end of March 2020, Local e Sourced supports Herefordshire's independent local businesses by allowing them to promote and sell their products on a single platform. Promoting the idea 'Buy British, But Local,' the start-up aims to challenge larger overseas-based businesses with big carbon footprints by encouraging consumers to shop local. While other online food delivery services in the area exist, none of its competitors specifically focus on promoting local supplies in Herefordshire. Therefore, by introducing customers to local brands in their area, creating a unique shopping experience, and supporting more ethical forms of consumption, the newbie company appears to tap into an emerging and growing market.
Originally planning to launch in the summer, the business was rolled out earlier in the year to accommodate the growing demand for home deliveries. Local e Sourced continued to trade throughout the pandemic, and, due to the support it offered to both other businesses and consumers, the company has continued to thrive throughout 2020 right into 2021. According to data from Funding Options, since its inception in March, the online retailer has sold over 6,000 products from almost 100 local suppliers. Additionally, in terms of exposure, the site now boasts over 4 million views, which is broken down to an average of 350 visits per day, so it's clear this Herefordshire start-up is doing something right.
Set up by twin brothers Alessio and Riccardo, Heroes is a UK-based fintech that was launched in June of last year. The business acquires, operates, and scales small-to-medium-sized 'Fulfilment by Amazon' (FBA) brands, which simply refers to a 'hands-free' method of selling on Amazon where sellers store their items inside the tech giant's warehouses. The start-up focuses on supporting high performing companies who operate in niche sectors like homeware, kitchenware, and DIY. Similarly to Local e Sourced, Heroes helps products from smaller suppliers reach consumer audiences, but instead of providing brands with a platform, the company enables brands to leverage Amazon's fulfilment infrastructure.
In November 2020, after one of the largest seed rounds seen across Europe, they received $65 million (approx £49 million) from Fuel Ventures and 390 Capital Partners. According to the founders, this finance will predominantly be used to grow the brand, the team, and to fund further acquisitions. So, with Heroes' sights set on becoming Europe's largest operator of Amazon FBA brands within the next few years, it's clear they have all the tools necessary to cause some severe disruption to the expanding FBA market.
Another company that has risen to success in the wake of the novel coronavirus, is the pocket face mask company Hidden Smile. Set up in June 2020 by Oxfordshire-based entrepreneur Neill Cotton, Hidden Smile responded to an obvious need in the market in a time where the government was requiring all UK citizens to wear a face mask when using public transport or visiting shops.
All of the masks Hidden Smile sells are made from 100% soft cotton, with a plain or print design on the exterior and a white side on the interior. In between these layers of cotton, the masks contain hidden 'pockets' which in turn contain folded-paper medical face masks, to ensure the mask provides the user with an extra layer of protection.
With the use of face masks still deemed mandatory in public spaces within the UK, Hidden Smile has been able to tap into the rapidly growing PPE market. And with the use of face masks not expected to decrease any time soon, it's likely that opportunistic businesses like Hidden Smile will continue to grow throughout 2021.
Why are new businesses finding success?
Widespread job losses
With 2020 witnessing a lot of high-profile businesses like Debenhams, Topshop, Harveys and Victoria's Secret going into liquidation, as well as many other companies scaling down their operations, the nation's unemployment rate inevitably soared. According to data from the Office for National Statistics (ONS), the UK's unemployment rate increased to 5% towards the end of 2020, indicating there are around 1.72 million people across the country without a stable form of employment.
However, in the face of these widespread losses, over 1.3 million people signed up to the government's Coronavirus Job Retention Scheme since it was rolled out in March, and this enabled vast portions of the workforce to throw their time and energy into creating new business ventures. By relieving employees from their 9-5 working week, many people who had been sitting on business ideas for a while were finally given the opportunity to test out their own ideas. This is showcased in the additional 59,359 new businesses that were created throughout June and August 2020, just after the furlough scheme was extended for the first time.
Government funding initiatives
The Coronavirus Job Retention Scheme
As we've just addressed, the Coronavirus Job Retention Scheme was able to financially support individuals who weren't able to work full-time hours at their typical workplace due to the business being required to shut or suffering from dwindling sales. By providing swathes of the population with a monetary safety net, lots of entrepreneurial characters were able to take more significant risks and invest more of their time to get their start-up idea off the ground. As Matt Smith from the Center of Entrepreneurs comments, 'The furlough scheme has given levels of flexibility and security to businesses that we have not seen before', and this increased financial security is likely why more start-ups have emerged in 2020 than they have throughout previous economic crises.
The Future Fund
Developed by the British government and delivered by the British Business Bank, the Future Fund was a support mechanism aimed at helping innovative start-ups who have seen their income affected as a result of the coronavirus. This government fund allowed eligible companies to borrow anywhere from £125,000 to £5 million in the form of convertible loans - if these sums were able to be matched by private investors. While this scheme came to an end on the 31st of January, it's been recorded to provide U.K. business with over £550 million in financial support in total.
Unlike how the furlough scheme helped people to build their own company from scratch, the Future Fund enabled start-up owners to facilitate the growth of their new business by protecting them from the economic damage caused by the pandemic.
Coronavirus Business Interruption Loan Scheme (CBILS)
Often abbreviated to 'CBILS', the Coronavirus Business Interruption Loan Scheme is a measure that focuses on providing small and medium-sized businesses with government-backed finance up to the tune of £5 million. CBILS and other government-backed loan schemes like the Bounce Back Loan Scheme (BBL), and the Coronavirus Large Business Interruption Loan Scheme (CLBILS), helps enterprises across the U.K. to receive loans with very reasonable interest rates.
Initially only being open to businesses who suffered substantial losses as a result of Covid-19, in August, the eligibility criteria was amended, and smaller businesses who accumulated smaller losses were also considered. This helped make the loan scheme more accessible to fast-growth micro-businesses and start-ups who had their revenues compromised as a result of the coronavirus pandemic.
After a series of deadline extensions, CBILS is officially due to come to a close on the 31st of March 2021. So, if you want to find out if your business is eligible, or if you would like to see what types of loans are available, or if you'd simply like to apply to the scheme, MarketFinance can help you find out more about this government-backed funding option.
New markets to tap into
Another reason so many start-ups rose to success throughout the coronavirus, is because of the wealth of new demand in specific industries the pandemic created. While most sectors witnessed an overall decline in demand as social distancing measures were enforced, as our behaviours changed, new market opportunities were created. So, while Covid-19 was the nail in the coffin for many SMEs, for those businesses who responded to these emerging consumer needs quickly enough, lucrative opportunities were made available.
Here are just a few ways new demands were created as a result of the coronavirus:
Massive digital growth
Obviously, one of the most significant changes that has taken place in society as a result of Covid-19, is our increased reliance on digital technologies. As national restrictions limit our ability to interact face to face, most of us have turned to conducting our daily affairs online. While this shift has been taking place at a slower pace throughout recent years, the impact of the pandemic has rapidly accelerated this trend.
So, as consumers turn digital, new business opportunities are created. According to a recent study by Royal Mail, just under 16,000 new e-commerce businesses were established during the first national lockdown, which shows a 7% increase compared to the same period the year before. Also, aside from online retail opportunities, delivery services, digital communication software, and streaming platforms have also seen a marked increase in demand as a result of Covid-19.
Disruption to supply chains
During the first U.K. lockdown in March and April, as stockpiling for resources took place nationwide, a series of flaws in the supply lines of goods and services were revealed. This came to light when supermarkets and grocery stores up and down the country struggled to stock shelves in the first few months of the pandemic. In response to these shortcomings, smaller platforms like Local e Sourced have stepped in to meet the demand from everyday shoppers while also providing delivery options for consumers who are looking to avoid in-person shopping.
Shifting ethical considerations
Aside from new demands that have emerged out of necessity, Covid-19 has also accelerated some consumer trends that have been garnering interest for a while- long before the pandemic. For instance, the demand for sustainable and environmentally conscious products appeared to grow amidst the pandemic. In research that was conducted by Capgemeni in July 2020, out of the 7,500 adults surveyed, over 79% of consumers were prepared to change their buying habits based on the social and environmental impact of their purchases. What's more, 53% of consumers also revealed they had recently switched to smaller or lesser-known brands who adopted more sustainable practices, demonstrating how ready the market is for smaller-scale ethically conscious disruptors.
In addition to this trend, the coronavirus has also increased people's desire to shop locally. In a study conducted in July 2020 by YouGov, 62% of respondents admitted to shopping on their local high-streets for non-essential goods when restrictions began to gradually lift. This is compared to only 19% of people who reported stopping to shop in shopping centres. Furthermore, 70% of those who admitted to shopping locally said they planned on continuing to do so in the future, which indicates that this trend isn't dissipating any time soon.
The reality for most businesses throughout COVID-19
While we've explored the various ways in which COVID-19 has benefited new start-up ventures, it's essential not to ignore the reality for most new businesses throughout this time. Even before 2020, according to data from Startup Genome, 90% of start-ups failed at some point in their journey, with 34% closing within their first two years and only 50% making it into their fifth year. Also, even among successful start-ups, only 40% of them actually turn a profit within their first few years of trading.
So, due to the challenges imposed by the coronavirus outbreak, and the subsequent national restrictions, it's even harder for many new enterprises to get their foot in the door. While these unique set of circumstances have propelled many start-ups to success, according to data from Plexal and Beauhurst, in September 2020, the number of start-ups filing for administration in the U.K. was at the highest level for ten years.
So, despite Covid-19 providing fertile ground for select start-ups that tap into new and emerging markets, for the majority of new SMEs across the U.K., the business landscape for 2021 doesn't look quite as promising.