Beginning a start-up company presents challenges, even in normal circumstances, but in 2020, and now in 2021, start-ups across the globe are suffering financially due to the effects of the Covid-19 pandemic.
Within the UAE, many small businesses have already folded, have been put on hold or are struggling to cling on to the remnants of their livelihood in the hope of riding out the storm. This has left many business owners in financial deficit, which may take years to recover from and many individuals are out of work. But the biggest question for most desperate business owners is, ‘what’s next?’
Key Covid Challenges
Start-ups, even outside the corona pandemic, require careful planning, skillful management and innovation on a budget. The pandemic has unfortunately limited the funding that can be provided in certain industry areas, meaning that business owners are having to pull together with extremely limited money. Many applications for funding have been denied as there simply isn’t enough funding to go around as our global economy is under so much stress. Coming out of the pandemic with a successful business after such budget cuts is bound to be a massive challenge.
The planning and roadmap that’s crucial to any start-up to keep the figures on track has been left uncertain. Beginning a start-up company during these unprecedented times means that large parts of any business plan are in-comprehensive and left with question mark areas. Globally the advice changes on a monthly basis. Different services are opening and closing and for those businesses that function with an overseas aspect, they are left unable to travel or import goods that are essential to their success. Not only can the lack of planning delay your business turnover, but it could also mean that obtaining funding has become more difficult. Investors are being especially careful with where their hard-earned cash goes and may not feel comfortable supporting a business plan with gaps.
In normal circumstances, certain business areas are already saturated, and it takes a real stand out start-up to make the cut and get through their first few years while making profit. Covid-19 has actually made this fight for survival even more treacherous. With many employees losing their jobs, more and more people are looking to start up their own businesses in order to feed their families. Creating an innovative business with standalone benefits in this climate is increasingly difficult. This means that many more will fail in the first year than those that are successful.
Growth rate is also a major concern for any new business. On average, start-up companies need to make their first profit in year 3 in order to continue to grow. Around 20% of all start-ups will fail before this time and a further 47% in year 3 if that profit target isn’t met. However, a full year after the initial lock down, some start-ups have now had business fees to pay for 4 years without yet reaching a profit. This will have long term effects on overall business roadmaps and may mean that employment opportunities are limited.
The transactions made in face-to-face retail businesses have also decreased by 67% year on year since 2019. While most consumers have moved to the online market, we are still left with companies that don’t have an online facility. These are left floundering without a clear future. There’s also decreased business due to shielding and isolating parties – consumers are worried about coming into contact with other individuals outside their household, so choose not to venture out.
All of these aspects are causing some major concerns for businesses and are particularly dangerous in the start-up field as the future of business appears dead before it’s begun.
There are some solutions already in place for these issues, but whether these fixes will be enough to save the future of the UAE business market, remains to be seen.
Adaptation of business processes and practices has been a game changer for many start-ups. Those that presented business proposals for funding based on a retail function or food outlet have had to adapt their whole business to be able to bring in money outside of the original business plan and survive on the funding provided. Online solutions for orders have seen a massive increase – even on top of the steadily increasing market.
However, those that have survived this shift in goals and target market and are still clinging on to a viable money-maker, may actually find that their new business model will be more successful going forward than the original, as the mindset of the consumer has also shifted.
In the interim, cutting down or re-negotiating unnecessary costs such as vehicles and office equipment can really make a difference to start-up costs. With the ‘new normal’ in business solutions, office spaces also aren’t a necessity. Homeworking has seen a giant increase since March 2020 and factoring this into start-up business plans can really sway investors as it’s saving on valuable funds for the same end result.
Relief packages have also been offered by many governments to support freelancers and start-up businesses. However, it’s clear that no one foresaw the length of time and amount of damage that the virus would do. As a result, many governments have now backtracked on promises, leaving finance relief at an absolute minimum.
Omar Christidis – the CEO of Beirut based events company, Arabnet states:
“With the increasing importance of start-ups to the future economy of MENA, it’s critical for government leaders, ecosystem stakeholders, and investors to support start-ups through these difficult times.”
The Abu Dhabi government, under the instruction of HH Sheikh Mohamed bin Zayed Al Nahyan has announced that funding will be provided specifically for start-up businesses. This is taking place under 16 new initiatives to help them cope with the aftermath of corona virus. The Ghadan 21 scheme has already excluded start-ups from having to pay electricity connection fees and certain taxes up until the end of 2020 and will continue to review the fees throughout 2021 depending on the global climate.
Also included in these initiatives, the Sharjah Entrepreneurship Center (Sheraa) have offered a further $1 million and Saudi’s Social Development Program have provided a $3.2 billion specifically targeted at entrepreneurs with start-up businesses to help keep award winning start-ups afloat after the pandemic.
What does the Future Look Like?
MENA’s future economy will rely on the success and effectiveness of many start-up companies across different fields. While cyber security and online services have seen a boost over the past year due to homeworking and online shopping, start-ups in the travel and leisure industry have taken a nosedive. It’s these industries that will provide much of the world’s wealth in the future as tourism inevitably takes a boom.
Much like funding has been required for the industries of supposed higher importance during the pandemic, funding will need to be provided going forward for those small start-ups to get back on their feet.
Start-ups make up a large portion of the UAE culture and business community and without this support, we’ll notice a definite decline as larger, pre-established businesses thrive. Looking to the near future, it’s predicted that we’ll see a decline in smaller businesses, thinning the market in certain areas. However, long term, this may open up opportunities for niche and stand-out ideas, generating a fresh start and more opportunities for originality as the market won’t be as saturated.