COVID-19: Lessons From Past Crises Point To A Long And Hopeful Road For Entrepreneurs

Aileen Ionescu-Somers, PhD, is executive director of Global Entrepreneurship Monitor (GEM).

Entrepreneurship experts across the world hold the view that the COVID-19 crisis is like no other in terms of its expected overall economic impact and the fact that negative effects will persist far into the future.

We have never had the experience in a recession where whole sectors essential for functioning economies have shut down for such significant periods of time. Deficits are bigger than they have been since the 2^nd World War. The governmental support for businesses has been akin to an economic ventilator, and now, the challenge is how to gradually move off the dependency and into recovery mode. 

Global Entrepreneurship Monitor (GEM), the world’s most comprehensive study of entrepreneurship, took a virtual snapshot of the COVID-19 effects in multiple countries across the globe through a webinar series from April to June 2020. GEM researchers went back in time to consider the impact on entrepreneurship after other crises, such as the 2008 financial crisis, 9/11 and natural catastrophes such as earthquakes. Here are some of the key takeaways based on insights from researchers in the UK, Netherlands, Spain, Italy, Chile, Mexico, USA, Canada, Japan and Thailand.

Entrepreneurship will rise in the next year. The two questions for policymakers, governments and philanthropists are:

• How do we remove barriers in front of entrepreneurs, probably with targeted financial interventions such as grants and increased credit?

• During this time of uncertainty, how do we help people overcome their fear of failure, especially now, when we need entrepreneurs willing to pursue the next big ideas?

Here are three takeaways from our research:

1.  Necessity-based entrepreneurship will increase.

Necessity-based entrepreneurship – that is, entrepreneurship that is based largely on a “no-choice scenario” – increases greatly during recessions and particularly during the recovery phase. In other words, when there are no jobs on the market, the only choice can be to try and muster a way of making money by creating a small business in a traditional transactional mode. After the 2008 financial crisis, “opportunity” based entrepreneurship (such as the type of businesses that were prevalent in the USA pre-crisis) took a back seat while people struggled to make ends meet, especially in developing economies.  

My colleague Ulrike Guelich of GEM Thailand shared that following the tsunami of 2004 and the 2008 financial crisis, Thailand’s economy bounced back relatively quickly. However it was a long and painful road to recovery following the Tom Yam Kung crisis of 1997, which ultimately resulted in the financial collapse of the Thai baht.

Ulrike drew some parallels between the COVID-19 crisis and the Tom Yam Kung crisis. Both, for example, led to an extended period of business shutdowns. Thus, she expects that the pandemic will have similarly severe consequences on entrepreneurs in Thailand, potentially leading to significantly more necessity-based entrepreneurship.

2.  Opportunities exist.

Whilst recessions are painful, they also provide opportunities for entrepreneurs. Disney was created in 1929 during the great depression, Microsoft was started during the 1975 oil embargo and companies such as Uber, Air BNB, Groupon and others emerged from the chaos of the 2008 financial crisis, challenging and disrupting long standing business models along the way. 

In a wave of Schumpeter’s “creative destruction” wand, food delivery, educators and gym instructors have massively moved to providing more services online, thus probably permanently changing consumer perceptions and expectations of what they want from these services in the future.  Shopify, the Canadian multinational e-commerce company, has experienced incredible growth over the last several months as entrepreneurs have moved their business models online in response to consumer behavior during the pandemic. The company now has 1.3 million merchants and brands using its service, which is 200,000 more than when surveyed in late January, so immediately pre-crisis.

Policymakers can encourage entrepreneurs to cultivate “opportunity” based businesses with high added value to society. This government support will look different depending on each country’s context and where it is, relative to their respective responses to the pandemic. As an example, my colleague Mark Hart from the GEM UK Team noted four different practical ways to enable entrepreneurs in his research: allow new self-employed individuals complete a tax return so that they are potentially available for a payment under the Self-Employment Income Support Scheme in the UK; relax universal credit criteria so that self-employed people do not erode savings that could be put into business recovery;  extend grants to the self-employed so that they can absorb losses; and ensure that mortgage relief is available to all self-employed.

3.  Entrepreneurial spirit is alive and well.

As we journeyed the world, virtually, to understand the state of entrepreneurship, GEM researchers spoke about an important baseline characteristic of entrepreneurs: the ability to adapt and find opportunities.

Our colleagues from GEM Spain surveyed more than 4,000 Spanish entrepreneurs in April 2020 about the impact of COVID-19. GEM Spain researcher Isidro De Pablo highlighted a positive finding in that the entrepreneurs surveyed in Spain are actively discovering new market opportunities. The survey particularly notes opportunities around teleworking: Those companies that have continued operating by teleworking have a higher percentage of predicting the launch of new products and services (58%), as well as looking for new customers (57%).

Back in Asia, Ulrike showed how in Thailand, entrepreneurial activity increased in 2016 and that this growth could be attributed to the enabling impact of international trade agreements and the kick-off  of the ASEAN Economic Community. More businesses included an international focus in their rollout strategies. For example, former street vendors discovered entrepreneurial opportunities in selling goods and services across borders, demonstrating the flexibility, resilience and ability to adapt of Thai entrepreneurs.

One of the key characteristics of the entrepreneur is the willingness (and ability) to find ways of overcoming barriers. As we grapple with the uncertainties about what a “new business normal” looks like, we’re finding hope in this entrepreneurial characteristic. Its power cannot be underestimated. 

Join Aileen Ionescu-Somers and researchers from the Global Entrepreneurship Monitor on July 14^th for a webinar on how entrepreneurship research can impact policy. 

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