The Impact of COVID-19 on the Startup Community

It’s not an exaggeration to say that the past year has been fraught with turbulence. Political tensions, social unrest, and, of course, the COVID-19 pandemic have all generated a great deal of uncertainty throughout communities, including their economies. Even the Ann Arbor region, which is consistently ranked among the best places in which to live and work in the county, has not been immune to these stressors, nor has its entrepreneurial ecosystem.

As a nonprofit research institution, EntryPoint is dedicated to promoting entrepreneurship in communities like Ann Arbor. During this time, our organization has seen the COVID-19 pandemic, in particular, force both businesses and consumers alike to radically shift their day-to-day operations.

EntryPoint has done a variety of studies that analyze the impact COVID-19 has had on the startup and small business community. Our findings indicate that, although all companies have faced immense challenges, the impact of COVID-19 has been less severe for tech startups as a whole than for more traditional, brick and mortar small businesses.

How Washtenaw County Startups Adapted During COVID-19

Largely, startup companies in Washtenaw County felt at least somewhat prepared to face this unexpected shift in operations. The transition to working remotely was relatively smooth overall. As a result, high-growth, high-tech companies in Washtenaw County have experienced less loss of revenue than other types of businesses and, in some cases, have experienced greater gains.

In late May 2020, 36 of the 55 high-growth, high-tech startup companies in Washtenaw County provided information regarding the impact of the COVID-19 pandemic on their startup.

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  86% of startup companies feel they have been impacted by COVID-19 and 61% of these startups were viewed as “non-essential.” However, 28% of these businesses are still hiring – mirroring average hiring rates prior to the start of the pandemic.

• 94% of all high-growth, high-tech startup companies surveyed in Washtenaw County felt they were at least somewhat prepared to operate during shelter-in-place. None of these startups felt completely unprepared (compared to 37% of all businesses in the county). As a result, only 28% of startups lost more than half of their revenue since February (compared to 61% of all businesses in the county), while 31% have seen their revenue stay the same or increase.

• Of the startup companies that applied for a loan (whether from the SBA or another source), only 3% have been denied. Startup companies were also more likely to be approved for Paycheck Protection Program Loans and almost twice as likely to be approved for Economic Injury Disaster Loans than their non-tech small business counterparts.

You can read more of this analysis in EntryPoint’s 2020 Ann Arbor Entrepreneurial Ecosystem Report, which was released on August 17, 2020.

How Michigan Startups Pivoted in 2020: A Q&A with Tech Founders

AdAdapted:  Molly McFarland, Founder & CRO

AdAdapted is an Ann Arbor-based startup that pulls data on what millions of shoppers add to their digital grocery lists in real-time. These lists are like looking into a crystal ball for what will be bought in-store within a week. Founder & CEO Molly McFarland discusses business anxieties and the new challenges of remote work.

What about the culture or makeup of the high-tech, high-growth community do you feel is making it more resilient to the negative impacts of the pandemic?

High-tech, high-growth companies are used to uncertainty and those in a position to do so, including AdAdapted, are using it to their advantage. In early spring, it felt like everyone was in the same boat. There were so many questions that weren’t easily answered and that translated into a palpable anxiety: How fast does the virus spread? Will my family be OK? Can the virus be contained? How will people work from home? How will our clients’ businesses be affected? How will that affect our business?

As days turned to weeks, the immediate threat seemed to subside (at least a little). The virus could be controlled, with specific precautions. Teams could work safely and effectively from home. Our primary clients (brands that sell through grocery stores) were making more money than ever before. Patterns started to emerge, and it became clear the huge behavioral and market shifts were opening new opportunities–big opportunities that big companies (that couldn’t easily shift focus) wouldn’t have exclusivity over.

Tech startups—which thrive on finding and seizing new opportunities—have an advantage. Not only are we fast, nimble, and designed to adapt quickly to a changing landscape, but culturally, we are unafraid of change or uncertainty. We’re even comfortable with the idea of failing, if as failing comes as the result of trying something new.

What were the biggest challenges your company faced when the pandemic hit?  AND What is an operational challenge related to the pandemic that your organization is preparing to face in the next 12-18 months?

There were, and are, a lot of challenges that come from “lack of data.” We have built a company by using data to identify market gaps and doing the work (research, testing, etc.) to validate the opportunities. When there is no data, because everything is “unprecedented,” the exercise is a lot harder.

We also worry about the effects on our team.

One of the best things about working at a startup is the energy. Informal work environments that are both laid back and intense, where colleagues can share a beer while pitching the next big idea or tackling challenges together. In fact, to that end, we have always headquartered at tech hubs with similar companies—shared workspaces designed to electrify and support residents.

But today’s work from home reality, coupled with our own rapid growth, means we have less visibility into the day-to-day life of each team member. We worry about them and the long-term toll of isolation, especially in the context of gut-wrenching current events. We worry about parents taking care of kids, employees that are the kids of elderly parents, and spouses who are navigating new challenges at home. We are doing our best to be aware and supportive—but it would be naive to think that everything is perfect.

In spite of all of these challenges, we feel lucky to have such amazing opportunities and a talented team to seize them. The road ahead for high-tech, high-growth companies like AdAdapted is obscured, and will undoubtedly be bumpy. Thankfully the entire ecosystem of a startup has trained us for the journey.

Alerje:  Javier Evelyn, Founder & CEO

Alerje is a Detroit-based startup that is building a more convenient food allergy management platform aimed at improving the overall quality of life for those affected by life threatening food allergies. Founder & CEO Javier Evelyn discusses how their business operations have adapted during the pandemic.

What about the culture or makeup of the high-tech, high-growth community do you feel is making it more resilient to the negative impacts of the pandemic?

Startups are designed to adapt because they are tackling some of the world’s toughest problems. Their entrepreneurial DNA allows them to persist against the odds.

How have you structured your company to ensure that you were at least somewhat prepared for this unexpected global pandemic?

We’ve run a pretty lean organization, which has allowed us to weather the storm. [Staying afloat] is also more feasible in the Midwest [than compared to other startup regions in the U.S.].

What were the biggest challenges your company faced when the pandemic hit?

In March, during the beginning of the pandemic, I had to temporarily furlough our team. However, within a month of being awarded a federal PPP loan, we won a pitch competition from Nationwide Insurance. We also were back on track with fundraising, so we were able to bring the team back full-time. In addition, I made the decision to fast track the development of our upcoming digital assets to provide an earlier stream of revenue as well as further bolster to our IP portfolio. Lastly, we made the decision to remain as lean as possible to hit our upcoming key milestones throughout the remainder of 2020.

SkySpecs:  Danny Ellis, Founder & CEO

Ann Arbor startup SkySpecs is a wind industry innovator that is a fully automated drone inspector company of wind turbines. Founder & CEO Danny Ellis details how their business navigated communications and operational challenges.

What about the culture or makeup of the high-tech, high-growth community do you feel is making it more resilient to the negative impacts of the pandemic?

The high-tech community is more resilient to the negative impacts of the pandemic because it is inherently more connected to the tech ecosystem and all the tools that enable remote work. Our team transitioned to remote work extremely fast. We didn’t see a dip in productivity, customer engagement, or execution on projects. We had to adapt to schedules, meeting procedures, collaboration techniques, and expectations, but our daily work still existed in the same digital format that it did before the pandemic. We’ve heard from  companies that aren’t high-tech that this transition was far more challenging and sometimes impossible due to the processes and systems they have been relying on that are not “in the cloud.”

How has your company modified your operations to function more effectively at this time? (ex. online tools you’ve started using, flexible schedules that are working for your team, nanny-sharing, reimbursing for childcare costs, etc.)

Our team has modified our operations by being deliberate about giving our employees freedom to work when and how they find it most convenient. Everyone is undergoing different forms of challenges and stress, so giving them this freedom allows them to adapt in their own ways. We’ve been far more deliberate on employee health and happiness, culture, communication, and growth planning than we were before the pandemic. We’ve helped set up home offices and added more digital tools to keep people connected. Eliminating non-essential travel has also forced us to alter how we engage with customers, which is an added challenge when the customers are trying to figure out their own new work life.

What is an operational challenge related to the pandemic that your organization is preparing to face in the next 12-18 months?

Over the next 12 – 18 months our team still plans on working largely remote, and we are uncertain when we will be returning to an office (our new office is still under major construction, so we don’t even have an option at this point). We are able to run the business fairly well remotely, so we do not see a need to rush it and potentially expose our employees. We also plan to continue restricting travel. The only people traveling are our pilots, and they only drive unless there is absolutely no other way to get to their destination. We have to plan on continuing growth without conferences or customer visits, which is still an unknown even though it’s going well right now.

What were the biggest challenges your company faced when the pandemic hit? 

The biggest challenges we faced when the pandemic hit was communication and helping our employees sift through the facts to understand the real ramifications that this situation was going to have on everyone’s lives. There were definitely periods of uncertainty, both with how business was going to continue and with how we were going to handle our personal lives.

In the beginning, there was a lot of confusion and expectations that it would only be a few short weeks. Our leadership team was on calls multiple times a day to figure out what the facts were, what we could communicate to the team, and what the plan was going to be moving forward. We had never been through such a rapid change, which is crazy coming from a startup where everything is fast-paced and changing all the time.

Voxel51:  Kristina Oberly, Head of People

Ann Arbor-based startup Voxel51 builds computer vision tools for data curation, visualization, and experimentation. Kristina Oberly is the Head of People and discusses how their culture shifted during the pandemic.

What about the culture or makeup of the high-tech, high-growth community do you feel is making it more resilient to the negative impacts of the pandemic?

Rooted in the culture of tech is flexibility and innovation, which both require having an open mind. When the pandemic hit, it was clear there were going to be some big changes in the way we work, and large, established companies were in a panic that they were going to have to change “the way they’ve always done it.” However, for tech companies, there isn’t “a way we’ve always done it.” We are less tied to traditions and norms, making us more agile amidst a pandemic that turned everything upside down (we were already a little sideways).

How have you structured your company to ensure that you were at least somewhat prepared for this unexpected global pandemic?

Our team has always tried to maintain a flat structure with transparency, flexibility, and autonomy. Not that we were in any way prepared for a pandemic, but this structure made it much easier to transition to fully-remote work with more fluid schedules to accommodate the “new normal” we are facing. We trust our employees, so we are able to make decisions about their safety without worrying about getting the job done.

Other than being more technology-based, do you think there is anything inherent in the tech community that has made this shift easier for founders of startups than other small businesses?

In the world of startups, anything can happen. No one was prepared for a global pandemic and the impact it has had, but due to the high-risk and ever-evolving nature of tech, startup leaders learn quickly to expect the unexpected. Being agile is critical as a startup, and startup leaders know they can’t afford to get comfortable.