The Covid-19 pandemic has changed the environment for entrepreneurship. In many ways, entrepreneurship has become more challenging; in a few ways, and for a few people, it has become easier. For all of us among the broader society, it has become more important.
The famous Apple comeback commercial implored us to “Think Different.” That’s the essence of entrepreneurship. Entrepreneurs “think different” by seeing the world as it should be, and then working to make their vision a reality.
The pandemic has shown us the harsh reality of the world as it is. That new clarity may allow entrepreneurship to make more rapid progress towards how it should be.
In the Greymatter podcast episode that accompanies this essay, my Blitzscaling co-author Chris Yeh and I discuss how current events are affecting entrepreneurship, the key role entrepreneurs will play in changing the world for the better, and what broader society can do to help. You can listen to that podcast here.
Surfing the Covid-19 Tsunami
The current pandemic is reshaping our world with extreme speed. Many of these changes are negative: there are millions of hard-working decent people who, through no fault of their own, have lost their jobs, and those jobs might not be coming back for months, if at all. All around the world governments are responding to support those people, as they should.
The role of the private sector should be to complement these government efforts by creating new jobs and businesses that have been enabled by the changes that have occurred.
Much of this effort falls to established companies. Necessity has been the mother of a great deal of invention; every incumbent is pursuing digital transformation right now, whether they like it or not.
But fixing the damage inflicted by Covid-19 will also depend a great deal on entrepreneurship. We’re going to need what Endeavor calls “high-impact entrepreneurship” to create new products, services and jobs in countries and regions around the world. Established companies are just that–established. They’re not tuned to invent new things and new ways of doing business.
Consider virtual reality (VR) travel. Perhaps people sick of quarantine will seek out VR tours of Bora Bora or the Himalayas. Will the legacy travel agencies be the best at rolling out these new services? Or will entrepreneurs be the pioneers who build lasting businesses?
We’ll also need entrepreneurs to re-invent existing businesses, by doing things like shifting physical therapy from in-person to videoconferencing.
The tsunami of Covid-19 transformation is upon us. The questions to ask yourself are, “Did you already start building your boat? Did you start rowing in the right direction?” Because if you haven’t, you better start. If you don’t, the tsunami is going to crash over you.
What Government Should Do Now
The traditional take on how government can support entrepreneurship can be summed up as “less is more.” Government is asked to stay out of the way of the free market. And there is some truth to this – not because there is something inherently anti-entrepreneurial about government intervention, but because many regulations act as impedances to the free flow of capital and talent. In her classic book, Regional Advantage, one of the factors that Professor AnnaLee Saxenian argued allowed Silicon Valley to overtake and surpass Boston’s Route 128 technology ecosystem was the fact that Massachusetts law enforced non-compete agreements, and California law did not. As a result, human capital flowed more freely in Silicon Valley, allowing greater cross-fertilization of ideas and faster growth.
But in fact, the government often plays a major positive role in encouraging entrepreneurship. Where would internet entrepreneurship be if government funding didn’t create the technological foundation of the internet through DARPA? Even basic policies, like making it easier for entrepreneurs to obtain health insurance can have a big impact. Imagine if we created an entrepreneurial health plan that would allow more people to take the risk of starting a company.
Given the massive scale of the pandemic’s negative impact on the entire economy, it may very well be time for an “Entrepreneurial New Deal” modeled on the more successful elements of the FDR’s New Deal during the Great Depression. We can think of this as an upgrade to our country’s economic “operating system.” An economic OS upgrade can provide the wealth creation to pay for improving critical services like healthcare and education.
First, we could stimulate the economy with digital infrastructure projects. Some of these are already underway, like the effort to provide rural broadband service, but the need for social distancing has increased the urgency of these projects.
Next, the government could begin preparing for the next pandemic, which would have the dual benefits of boosting the economy and reducing future risks. Right now, the vast majority of our personal protective equipment (PPE), drugs, and vaccines are manufactured overseas; we should have at least some onshore infrastructure so we could quickly scale it during a crisis. The government can be both a key customer of this industry, as well as a facilitator of funding.
The government shouldn’t try to “pick winners” by investing in individual companies. A better method is to provide matching capital to professional investors, so that the private half of the public/private partnership is bearing at least half of the risk. While those investors might still make mistakes, they will suffer the consequences of those mistakes as well, while sharing the upside with the taxpayer.
Finally, the stimulus should target helping the industries and people most badly hurt by the pandemic. Programs that encourage the creation of SaaS startups might create value, but they won’t help, say, the restaurant industry. Far too often, the Silicon Valley attitude is that anyone whose industry is economically displaced should just learn to code. Coal mining is on the decline? Teach them to code. Autonomous vehicles will put truck drivers out of work? Teach them to code. Restaurants can’t allow indoor dining? Teach them to code. This one-size-fits-all magical thinking is unhelpful and rage-inducing. Why not provide a stimulus to help re-factor the food industry, whether to outdoor dining or new delivery models? I’m sure most consumers are getting tired of their own cooking and would welcome alternatives.
What Entrepreneurs Should Do Now
I’ve had the good fortune/misfortune to have lived through several downturns. The key lesson I learned was that entrepreneurs have to continue playing offense and defense, even during challenging times. The defensive game is fairly intuitive–conserve your cash, reduce your expenses, and get to profitability; we don’t need to go into the well-covered details.
On the other hand, when the world seems to be melting down around you, very few people think to play offense. Yet that is precisely when you can gain a competitive advantage. Crises tend to surface opportunities, and entrepreneurs are well-positioned to take advantage.
Your established competitors tend to be slower to adapt, allowing you to recognize when the demand for new products – or new ways to deliver – them emerge. But you still need to move quickly, especially if you’re also competing with other startups. In that case, your ability to adapt can translate into an advantage in raising capital, generating revenue, or shipping product.
During the Dot Com bust, I was an executive at PayPal. One of the keys to our success was that we didn’t slow down the business. We knew that we were hemorrhaging cash by providing free credit card processing. On top of that, we had a fraud problem and we were spending millions of dollars on signup bonuses. As I once said to Peter Thiel, if we stood on the roof of our office and threw stacks of hundred dollar bills into the streets, we still wouldn’t be losing money as quickly as our so-called core business.
The natural instinct would be to slow down and play defense. We refused. A payments business needs to achieve critical mass to succeed; below that volume, they’re dead no matter what.
Paradoxically, in the startup world, dying sooner is generally better than dying later because you realize the need to pivot sooner. In many ways, a slow death is worse than a fast death.
But we didn’t just keep shoveling money into a fireplace. We found ways to improve our economics without slowing down, like tuning the signup bonuses to align them with our key success factors, like transacting on eBay, and making it free to accept payments via PayPal balances (which didn’t force us to pay credit card interchange fees) while charging for credit card processing (like the rest of the world did).
The best way to play offense and defense is to design a business that thrives in both bull and bear markets. This was part of the way we designed LinkedIn. During bull markets, companies need to hire a lot of people, so LinkedIn is valuable. During bear markets, companies don’t hire as many people, so they’re much more selective about their hires, so LinkedIn is valuable. Either way, LinkedIn is the right service for you.
Of course, not all bear markets are created equal. Some are V-shaped, with quick recovery (2008), some are U-shaped with a more gradual recovery (2000), and one of the worries about the present crisis is that we might see an L-shaped recovery with a long period of low or negligible growth (Japan’s “Lost Decade” from 1991-2001).
I didn’t know then, and I don’t know now which it’s going to be. Instead, the key is to presume volatility and monitor the signals of shifting demand. At LinkedIn, we monitored these shifts in demand by tracking the performance of our individual products. This allowed us to double down on the signs of early traction in new markets to achieve growth, even during the volatile, uncertain environment of a downturn. Then, because things were constantly changing, we had to remain ready to pivot.
This kind of monitoring isn’t limited to tracking metrics in a dashboard; you should also leverage your network intelligence by talking with the smart people in your network, including your customers, to pick up early signs of warning or encouragement.
Growing From The Crisis
The Covid-19 pandemic has changed the environment for entrepreneurship, but it hasn’t changed the fundamentals of entrepreneurship. The world always needs new products and services, but the shock of Covid-19 means that our current need is urgent and massive, which means that so is our need for entrepreneurs and entrepreneurship. If governments can create an encouraging environment, and entrepreneurs keep playing offense as well as defense, we will be able to upgrade our economic “operating system” and grow from this crisis.