Business, Varshika Prasanna
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Bifurcation of Startups

While some startups have expanded and grown during the COVID-19 pandemic, others are still struggling to survive. Why is this bifurcation emerging?

By Varshika Prasanna

The COVID-19 pandemic had a profound impact on startups. However, this impact has not been the same across industries. Some startups have accelerated while the others face key structural changes ahead. There is a clear bifurcation emerging- certain businesses have enjoyed growth and expansion during the pandemic while the ones at the bottom face disruption and possible derailment.  

Industries that are accelerating include cloud-based technologies, ecommerce, media & gaming, health tech, video conferencing. In most cases, the pandemic has played right into companies’ business plans. Prior to the COVID-19 pandemic, startups in these industries saw growth in revenue, strong balance sheets and loyal customers. The pandemic has been a catalyst that has accelerated emerging digital trends. For example, after the expansion of public cloud, it will prove difficult to reverse course. Cloud computing is the on-demand availability of computer system resources, especially data storage and computing power. Snowflake, a cloud based data warehousing company founded in 2012, gained popularity over the last couple of years as it offered integrated solutions for data storage and computing, thereby changing the way businesses store and access data, and in the process makes the business’ operations smoother by offering flexibility, data recovery and little to no maintenance. In September 2020, Snowflake went public in the biggest software IPO ever, and more than doubled its share price within the first day of trading due to strong demand. 

Similarly, HealthTech with respect to vaccines, treatment and testing has also been successfully growing. Verge Genomics is working on streamlining the medical trial process by using artificial intelligence to determine which drugs will have a higher likelihood of success. Their methods significantly reduce R&D costs and help decide which drugs to advance to the FDA approval process. Verge Genomics has also joined other big pharma companies in the fight against COVID-19; they aim to assist big pharma companies with developing a coronavirus drug and start clinical trials within six months.

The industries that have grossly benefitted from the pandemic have seen a move towards the digital space. However, videoconferencing apps such as Zoom present an interesting conundrum. 

While Zoom was an elegant solution to the remote working environment that the pandemic has forced upon the people, it is unclear whether Zoom’s growth is sustainable. Zoom’s revenue grew by 355 per cent between August of 2019 and July of 2020. Analysts predict a further 454 per cent growth in revenue between August 2020 and July 2021. Their main growth strategy has been consumer driven, building a product that can sell itself, and building a brand. While at first glance the numbers look unrealistic, it’s important to note that Zoom has permanently changed interactions in the workplace by making virtual collaborations easier. It’s entirely possible that the future of the workplace will include Zoom, videoconferencing, and virtual collaborations in a post COVID world. 

Industries that have been negatively impacted by COVID-19 include restaurants, physical retail, live events, travel & hospitality & transportation. Most startups in these industries have been cutting costs to strengthen their balance sheet and preparing for a possible shut-down. Some startups, however, are using their resources to transform their business into one that will be viable in a post COVID world.

The fate of most restaurant startups have left in the hands of local regulations. Nevertheless, there is still opportunity for creativity and innovation. Restaurant-based startup OneDine creates a frictionless dining experience offering table-side ordering and payment at a fraction of the cost of competitors and up to 20 times the speed. To survive in the pandemic, OneDine has adopted a contactless mobile-based solution for customers at home or on premise by allowing them to browse, order, and pay from their own mobile device, on their own time. COVID-19 has certainly made a dent on profitability of the hospitality industry by prioritizing safety, disrupting the efficiency-focused labour model. OneDine’s labor-saving technologies significantly increase operational efficiencies and allow servers to focus on creating the personalized dining experience that customers have come to expect. Even with elegant solutions like OneDine, restaurant sales only pick up when local regulations support it. For example, OneDine’s sales have been the highest in states where steps are being taken to revive the economy. 

Physical retail startups have experienced uncertainty for several years before the pandemic hit. Retailers who wish to survive must think about new and improved in person selling models aided by technology to create a personalized experience.  The US toy market is a great example of this. 

Camp, a toy store that sells not just toys but also family experiences was founded in the midst of a shift in consumer behaviour towards online retailers. Camp hoped to revive the physical retail experience for parents wanting to buy toys for their children. Camp is redefining the toy retail experience by offering its customers a creative ever-evolving space to hang out with the entire family through activities like free activity books, cooking clubs and themed camps. However, even creative physical retail stores are susceptible to local regulations. The pandemic has made it difficult for Camp to open in person services, yet they are trying to keep the spirit of their store alive by offering virtual activities where children can meet and mingle. 

Overall, startups that have thrived well during the pandemic have seen a sustained movement towards a digital world where technologies like Artificial Intelligence and Machine Learning is integrated with business operations, and the pandemic has been a catalyst for this advancement. Startups in more traditional industries that have been deeply impacted by COVID need to find creative ways to make themselves viable post the pandemic, which includes appealing to consumers and increasing their operational efficiency. □


Work Cited

  1. Image source
  2. Chandna, A. (2020, July 22). Covid-19’s Impact On Startups: Assessing The First Few Months. Retrieved from https://www.forbes.com/sites/asheemchandna/2020/07/22/greylock-covid-19-impact-on-start-ups-assessing-the-first-few-months/?sh=4b9814b21c8f
  3. Holman, J. (2019, June 13). This Manhattan Toy Store Wants to Babysit Your Kids. Retrieved from https://www.bloombergquint.com/onweb/nyc-toy-store-camp-sells-books-clothes-and-babysits-your-kids
  4. Monica, P. R. (2020, September 17). Snowflake shares more than double. It’s the biggest software IPO ever. Retrieved from https://edition.cnn.com/2020/09/16/investing/snowflake-ipo/index.html
  5. Neukirchner, L. (2020, August 05). The Latest Data on COVID and Restaurants. Retrieved from https://onedine.com/2020/08/04/the-latest-data-on-covid-and-restaurants/
  6. Snowflake’s Cloud Data Platform: A Global Platform for All Your Data. (n.d.). Retrieved from https://www.snowflake.com/cloud-data-platform/
  7. Thomas, M. (2020, November 05). 29 Healthcare Technology Startups and Companies on the Forefront of Modern Medicine. Retrieved from https://builtin.com/healthcare-technology/healthcare-technology-companies

1 Comment

  1. Some very cogent arguments presented in this article. I think the crux of the matter is that start-ups that have physical dependencies are amongst the worst hit at this time. Others like Zoom and Snowflake which supply purely virtual services are the top gainers. Your summarization of the growth of Zoom even beyond the pandemic is spot on – COVID has created an entirely new lifestyle which is likely to persist.

    What’s your perspective on other apps like Houseparty which haven’t been able to cement their position despite strong gains during the early half of the pandemic? And how do you see the start-up atmosphere with regard to the availability of credit and investment?

    Like

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