MCO impact on Entrepreneurship – Digital Transformation lead to sustainable growth
During MCO, many people will lose their jobs, businesses will close and there may be a dramatic change in the economy. Entire industries may fail, some will recover but many won’t.
The Recessionary Period
It will be painful. Many people will lose their jobs, businesses will close and there may be a dramatic change in the economy. Entire industries may fail, some will recover but many won’t.
Competition and closures
Many companies with weak financials and product-market fit will close. Most startups fall into this category. A recent survey by the Malaysian Global Innovation and Creativity Centre (MaGIC) shows that 40% of startups can’t survive beyond 2 months and only 2.9% can survive beyond 12 months. These are dire figures but goes to show that we have too many startups with weak fundamentals. This means there will be less competition so while it is bad for those that have to shutter, it will be good for survivors as it gives them a better chance to build stronger companies.
Availability of Talent
As more startups close, their employees and even founders will be looking for jobs or be available to join the management teams of the survivors. This is good because over the last few years talent has been one of our biggest problems. Many of them will also have startup experience and this is great for the survivors.
While existing funds still have money to invest they are going to be more selective and their mandates or criteria will change. We are already seeing more and more venture capitalists talking about looking for companies with a path to profitability. This is common. It happened after the dot com bust, the GFC and now this crisis. So generally over the next couple of years only the stronger companies with better fundamentals and solid revenue models will get funding. I predict however, that investors will return to their market growth at all costs model in the future as they always do, but the next three years will be about fundamentals.
So while funding is still available it will be harder to get.
In a recession, companies and consumers will be a lot more careful about spending. High levels of unemployment means consumers have less money to spend so they will be selective with their spending. Companies will want to preserve cash to ensure sustainability and maintaining profitability so they will only spend on necessaries. However, they will spend on technology that improves productivity, reduces costs and increases their bottom line.
So while access to markets will be tougher, companies that offer solutions and products that their market needs will still be able to grow. There will always be opportunities so companies have to adapt and be creative in capturing these opportunities.
The market will change and in some ways it may be a dramatic change. The demand for some products will disappear but new demands will appear. For example, more things will be done online as people have learnt to use online tools during the Movement Control Order. E-commerce will flourish even more, retail sales will drop, more people may be working from home and this may lead to less office space requirements and much more.
In every industry or sector there will be changes and entrepreneurs have to study their own markets to determine what these changes are and prepare for and adapt to these changes.