As many established businesses and industries struggle in the wake of COVID-19, new business creation will be critical for our economic recovery, suggests one Otago academic.
COVID-19 has changed some of our needs and preferences, so the types of businesses which satisfy these needs may also change, says Dr Tadhg Ryan-Charleton, lecturer in Entrepreneurship and Strategic Management.
“New business creation is critical for addressing changed needs, replacing imports that have been disrupted and creating new jobs, all of which helps to get our Treasury moving again.”
At the same time, along many dimensions, the opportunities for entrepreneurship that now exist exceed anything we've seen in recent decades, Ryan-Charleton says.
“For example, new business founders have opportunities to hire more talent than at almost any time in recent memory. Outstanding leaders and star employees who, for decades, have contributed to their company's competitive advantage will be returning to the job market looking to add value to a new organisation.
“COVID-19 has also demonstrated how much can be accomplished without physical contact and some business owners are now questioning whether all of their former physical presences are actually needed.
“A key implication for entrepreneurs is that traditional barriers may now be less, such as the costs of securing and maintaining offices, storefronts and private warehouses. Moreover, entrepreneurs who do opt for a physical presence should see decreases in the cost of, and competition for, these resources over the coming year.”
Lockdown has also taught us new ways to do business and helped us to harness the real power of our technologies.
“Certain technologies that were fashionable within particular segments in particular industries are now widely accessible and people have become more comfortable with their use,” he says. “Evidence also suggests that many activities are more efficient and productive without physical contact. New businesses have a massive advantage in this regard because they can build business models that leverage these opportunities and sidestep many of the frictions faced by established businesses during the transition process.”
For some, this could mean that now is the right time to start a new business and consider the opportunities that New Zealand's economic recovery is offering.
“COVID-19 has challenged the illusion of consistency in our daily lives and financial security into the future, which have traditionally been barriers to people starting their own businesses. This lack of security has been illustrated starkly in hard-hit sectors like tourism, transport and hospitality.”
However, for new businesses to succeed, Ryan-Charleton says access to financial support will be critical. The government's rescue package – initially projected at $20 billion – must support new business creation in the form of widely accessible loans and new business grants.
“One roadblock early in the life of a new business, especially in New Zealand, is that it's very, very difficult to get access to capital. Private capital comes either from angel investors or, later on, maybe from venture capital firms. In addition to an injection of funds at a critical time, private capital can also bring mentorship and guidance for entrepreneurs. Yet, unlike other countries, opportunities to connect with private investors here are comparably scarce.
“COVID-19 has challenged the illusion of consistency in our daily lives and financial security into the future, which have traditionally been barriers to people starting their own businesses.”
“While New Zealand has thriving entrepreneurial ecosystems with really innovative ideas and excellent technical and commercial skills, in many cases New Zealand entrepreneurs must look overseas because the investment needed does not exist here.”
“One approach which has been discussed is to use immigration policy to attract foreign business investors. For various reasons, doing business in New Zealand is quite attractive at the moment. However, any efforts in this regard should focus on investors who can work with founders over the medium- to long-term, and who are open to aligning their approach and values with those of New Zealand and its entrepreneurs.”
COVID-19 has forced a dramatic rethink in how we do things, especially as we may be in this current climate for quite some time. This means there needs to be more thought about which businesses are viable going forward, Ryan-Charleton says.
“An unfortunate reality is that some businesses may not be able to stand on their own as COVID-19 evolves. It may not be beneficial for government to keep subsidising costs of these businesses and allowing them to hold onto human capital and other assets that they can no longer utilise.
“Sometimes existing businesses can shift their focus and change their operations, but other times it takes a more lean and flexible organisation to make the strides necessary to survive and thrive in a new environment with new challenges.”
Commerce Research Grant (University of Otago)