The Coming Wave of COVID-19 Entrepreneurs
The COVID-19 crisis has sparked a lot of discussion about the importance of small businesses and entrepreneurship. The allocation of $350 billion by Congress to provide small business relief, the avalanche of expressions of concern as pictures of shuttered main street storefronts are circulated across all media, and thousands of community-led initiatives designed to support local entrepreneurs and small businesses only serve to validate the importance of small businesses and entrepreneurs in our economy. How the pandemic will affect us in the long-term is not yet known, but we can already see immediate impacts to our ecosystems.
The United States has experienced an unimaginable pivot in just a few short weeks. With unemployment consistently trending downward since the Great Recession, and experiencing a rate as low as 3.5% as recently as February, nearly anyone who wanted a work and earn a steady paycheck could almost certainly find an opportunity. Entrepreneurs could pursue a business opportunity with discretion, often keeping their day jobs and working on their startup on evenings and weekends in their proverbial garage.
Fast forward to today’s unprecedented scenario, and suddenly we’re experiencing record unemployment rates are estimated at more 13% and continue to climb, and the situation looks radically different. People who are struggling to find work are more likely to resort to entrepreneurship in an effort to generate quick income, and with today’s gig economy there are many ways for them to do so. Supporting entrepreneurs during difficult economic times is more important than ever before. “COVID-19 Entrepreneurs” seeking immediate economic relief will face different challenges than those pursuing a business opportunity, and will need different types of assistance and a deep understanding of their motivation.
During good economic times, entrepreneurs motivated by a perceived opportunity are the norm. They are in it because they want to solve a problem or because they want the autonomy of being their own boss. When push comes to shove, they’ve got a job and perhaps some money in the bank to get started with and a way to survive financially until the business gets to the point where it can sustain an owners' draw. The most critical constraint for these “opportunity entrepreneurs” is finding the time to work on their venture.
In contrast, “necessity entrepreneurs” typically start their business out of a lack of options in the labor market. They need to put food on the table and support their families, and if given a choice they would much prefer a less risky option. Their most critical constraints are a lack of access to startup funds, challenged by an immediate need for cash flow.
During the Great Recession, we saw growth in the representation of necessity entrepreneurs who sought support from community colleges, SBDCs, and business incubators. As the economy improved, opportunity entrepreneurs became more common, a trend that has been backed by reliable research.
Necessity entrepreneurs have often not thought of starting a business before it became essential, and often lack many of the skills entrepreneurs need in order to succeed. As we work to help them navigate their challenges, here are some things to consider to ensure you are providing the correct support:
- Increase the availability of e-commerce, digital marketing and business model generation courses. These skills will help entrepreneurs start quickly with minimal upfront costs.
- Encourage entrepreneurs to fully vet their idea before they start. An idea that does not fill a need or have a market will deplete resources and waste time. Fully explore their ideas with them, and ask a lot of questions. What seems like a good way to make a quick buck may actually be the opposite.
- Help entrepreneurs find a way to balance their cash flow to meet both personal and business needs. Without a supplemental source of income, entrepreneurs may not be able to reinvest in their businesses as much as they’d like to or need to.
- Address an entrepreneurs’ true motivation and make sure they understand what they are getting into. Keep a list of employment resources, like the local one-stop office that uses WIOA funding to provide training and help dislocated workers find jobs.
- Refresh your mentor roster. In this rapidly changing environment, having mentors on hand to help entrepreneurs make decisions in real-time will be invaluable.
The good news is that the disruption brought on by COVID-19 and social distancing practices may offer many innovative opportunities that are both new to the market and attractive to necessity and opportunity entrepreneurs. In a matter of weeks, we have gone from a country where many people were reluctant to embrace technology to a country where technology is routinely used for work, school, and social interaction. A brand new market ready to embrace digital products, new services, and virtual experiences like never before waits on the other side of this pandemic, opening up a world of opportunity for entrepreneurs from all walks of life. Providing guidance and support while they explore these opportunities could lead to a viable new business model. Will you be ready to support them?
Business Development Program Manager
Pima Community College