By Jack Tai, CEO & Co-Founder of OneClass.
Despite economic uncertainty and a volatile market, the coronavirus pandemic has led to a surge in startups. More businesses are being launched than at any time in the past decade, and existing startups are showing a rapid acceleration.
What is driving this startup surge? For many companies, there has been an alignment of market forces, teams and innovation. Learn more about how startups are finding success during uncertain times.
Changing consumer needs have transformed the marketplace.
After the onset of the coronavirus pandemic, it wasn’t only masks and sanitizer that had spikes in demand. Many spending habits changed wildly, and the stay-at-home economy was heating up. As new market opportunities became clear, startups rapidly pivoted to meet these emerging consumer demands.
The startup surge is being driven by Covid-19-friendly industries and clusters of products and services. Digital solutions are a large part of this because consumers are using technology for work, fitness, learning and socialization.
The Zoom boom is a clear example of how changing consumer habits have prioritized new tech solutions. Activity on the platform increased from 10 million daily participants in December 2019 to about 300 million daily participants in April 2020.
Startups are seizing new market opportunities.
As consumers looked for new solutions, market opportunities have opened up for businesses of all sizes to meet the new demand. However, startups have an advantage because they are nimble enough to move quickly in response to the changing market.
A fast-paced, rapid-response ethos has long been at the core of many early stage companies. As a result, these startups can frequently achieve tight timelines when bringing new products and services to the market.
In response to the crisis, many startups have released products and services that directly relate to health and safety. We’ve seen startups focusing on at-home Covid-19 tests, cleaning and disinfecting, pharmacy delivery, and more.
There have also been opportunities beyond direct healthcare needs. Much of the focus has been on digital services as the market for tech investing became red hot in 2020. In fact, three of the top 10 biggest tech IPOs happened this year, a striking contrast to the many companies that filed for bankruptcy protection. Even among Y-Combinator’s first group of entrepreneurs after the onset of Covid-19, there was a strong focus on the tools and services related to the pandemic.
Funding opportunities tend to favor well-developed startups, and Pitchbook reports that 69% of deal values in 2020 are late stage.
Entrepreneurship is up during the current global crisis.
In addition to the market factors that are beneficial for startups, there is also a human advantage. Entrepreneurs and startup teams are positioned to lead during the crisis. “All entrepreneurship starts with problems,” said Patrick J. Murphy of the University of Alabama. “And when there is an economic downturn, a pandemic, natural disaster or another kind of system-level problematic situation or disruption, you can expect the entrepreneurial sector to rebound against it.”
The entrepreneurial drive has been an economic force, and the wave is gaining momentum. In Q3 2020, there were about 1.5 million new business applications. That’s a 77% increase from Q2 and more than double any quarterly report from 2004 to 2017.
In addition to business leadership, small companies are frequently more successful at inspiring consumer trust during difficult times. Many entrepreneurs have been forthright with customers about what they’re doing to meet customer needs during the crisis.
For example, when grocery stores were sold out of flour and demand was skyrocketing, King Arthur knew it had to scale up production while also managing customer perceptions. “We needed them to be patient and to understand that we were doing everything we could to get them flour,” said co-CEO Karen Colberg. Transparent communication ultimately leads to stronger growth.
Education technology is strongly positioned.
From kindergarten through college, the shift to remote learning has upended education. In turn, households around the world were looking for better solutions. Families are struggling to keep younger students on track with their education, and older students are rethinking the high cost of college when it doesn’t include an in-person experience.
There is a clear need for new solutions to support the needs of online learners, and CB Insights reports that the majority of edtech investments in 2020 have supported early stage startups. This indicates that fresh ideas are coming to the table to solve the needs of students and teachers while improving online learning.
At OneClass, we launched a new solution this fall to provide an affordable way to earn college credits online. After the Covid-19 shutdowns, an outcry of college students told us that students didn’t want to be paying full-price tuition to fund a campus they can’t access, and 94% said that their online classes haven’t been worth the tuition.
To meet the new needs of college students, our team pivoted to develop online classes that are priced about 80% lower than a traditional college but provide high-quality digital learning tools and transferable credits.
As we look toward the future of education, students will continue to be using online learning tools. Even as in-person learning returns, the new tools developed by edtech startups will continue to add more flexibility and improve access in education.