The answer is a resounding NO!
The world is going to need re-imagining on an unprecedented scale over the next few years. We have so many important problems to solve. Much of the re-imagining will be done by the next generation of creative and resilient founders.
We have seen amazing innovation in the world over the past 50 years, much of it driven by startups. In that period, one era stands out above all others. If we look at the dot com era of 1994-1999, four of the ten largest companies in the world today were founded during that period and a fifth (Apple) was essentially re-founded with the return of Steve Jobs. Hundreds of other important companies also started life during those five years. The dot com era was a Golden Age for innovation, and there is every reason to expect a similar wave of innovation over the next few years.
Why am I confident that the next few years will be the best time in a generation to start a new company? Because the raw ingredients required to build an amazing company exist in abundance: problems, talented people, capital.
The starting point for the founding of any great company is the problem that is being solved. Most great companies start by solving a specific problem. Google started life, helping people access the vast amount of information that had become available on the internet, and Amazon’s mission was to be earth’s biggest bookstore. In Square Peg’s portfolio, we have seen the same phenomena. Fiverr helps freelancers connect with small businesses that don’t have the resources or expertise to do specific projects themselves. Athena has a mission of making it easier and cheaper to get a home loan, FinAccel provides credit-starved consumers in Indonesia with the ability to access credit, and Climacell’s mission is to provide businesses and consumers with better weather forecasts.
There will be an explosion of problems that need solving over the next few years.
Let’s focus on the scale of some of these challenges for a moment.
In the United States, the unemployment rate increased from 3.5% in February (the lowest in 50 years) to 14.7% in April, which is the highest rate of unemployment in nearly a century. Hundreds of millions of people around the world will lose their jobs due to the pandemic and will need to find new jobs. Existing solutions for helping people find jobs aren’t designed for a problem of this magnitude.
Similarly, important challenges need solving in education. Over the past 20 years, we have been talking about opportunities in distance education, but most educational institutions have done very little to change their approach to teaching students. Suddenly in the space of a week or two, educational providers around the world had to transition from a classroom delivery method to a purely online delivery method. We know that post the crisis, the model won’t be a purely online model, but we also know that schools and universities aren’t going back to the old way of doing things. There will be extraordinary opportunities for talented entrepreneurs to re-imagine the future of education.
Talented founders will also be re-imagining the future of healthcare delivery, retail, logistics, live events, financial services, tourism, and so many other aspects of our society. Most critically, how the world has responded to the pandemic will create a renewed impetus to solve the other great challenge of our society: climate change.
The scale and pace of change in the world is completely unprecedented in our lifetime, and every aspect of business and society will be re-imagined in one form or another. The opportunity for talented and passionate founders to drive this change has never been greater.
Do you have a passion to be one of those founders?
While all founding stories are unique, what most great startups have in common is the problem finds them rather than a group of founders actively searching for a problem to solve. Don’t start with the premise “We want to start a business and what problem should we solve.” My advice is you should start a business because you have a deep passion for solving a specific problem that you have experienced or discovered.
When Jack Zhang and Max Li were running their coffee business as a side hustle, they became aware of the high fees charged by banks when they tried to import coffee cups. That insight led Jack and Max (together with Lucy, Ki-lok and Xijing) to start Airwallex, which went from an idea to a fabled unicorn in the global payments market in the space of three years.
Similarly, Ashik Ahmed was working for Steve Shelley’s business Aerocare in the early 2000’s and heard Steve constantly complain about the challenges of scheduling staff. Ashik set out to fix the problem for Steve. That product eventually became Deputy, which is today used by over a million employees and hundreds of thousands of businesses around the world.
A successful startup requires a talented group of passionate and aligned people to execute the vision of the founders. We often hear from founders that finding, attracting and retaining talent is the biggest barrier to success. Sadly, one of the byproducts of the Covid-19 crisis is there will be a lot of talented and dedicated people who will be actively looking for their next opportunity. The next few years are likely to provide startups with an incredible opportunity to bring great talent into their organisation. This won’t just be people who have lost their job due to the crisis, but there will be lots of other people who will be using isolation to ponder important issues in their lives. In many cases, they will be thinking about their career satisfaction and whether they might gain more meaning from joining a startup that is setting out to change the world. In just the past two months, many of our portfolio companies have had the opportunity to enlist the services of some amazingly talented people, to help strengthen their organisations.
The next element of building a great company is acquiring customers or users. In the last six weeks, we’ve has seen the equivalent of ten years of changed behaviour in a range of areas: people who previously hopped on a weekly flight without giving it a second thought now realise a zoom call can be 90% as effective and ten times more efficient; doctors and regulators who resisted Telehealth solutions for over a decade have embraced it overnight, and; educators have seamlessly transitioned to distance learning.
We are an adaptive species but can be resistant to change. This crisis is unique in that it has forced all of us to adapt at warp speed – creating a much greater openness by businesses and individuals to continue to look at better ways of doing things. There will be no better time to get people to embrace change than over the next few years. I expect customer acquisition is likely to be much more rapid over the next few years, compared to the previous few years.
It will also be cheaper to acquire customers which is critical for startups. Acquisition costs have skyrocketed over the last few years. Our portfolio companies across all geographies and verticals have told us that customer acquisition costs have fallen considerably since the start of the crisis. While costs aren’t likely to remain as low as they are right now, they will be comparatively more economical than they have been over the last few years.
Lastly, people might worry about starting a business due to the perception that there will be a lack of capital to fund their startup. It may be a bit harder to raise money in the next couple of years compared to the last few years but nowhere near as hard as post the dot com crash of the early 2000’s or during the GFC. This crisis has dramatically accelerated the shift to doing things online. This phenomenon is, of course, very evident to early-stage investors. As a result, the flow of capital into startups is likely to continue at a rapid rate.
It is also worth remembering that some incredible success stories like Atlassian and Envato built their business without raising any external capital. Every founder gets to choose how to build their business.
What are you waiting for?
Our advice is simple; if you think you have found an important problem that needs solving and have the passion and talent to solve that problem, then go for it. There are few things more rewarding than founding a startup that is changing the world. The next few years will be an extraordinary period to re-imagine a better world.
- Paul Bassat is a co-founder & partner in Square Peg Capital.