Cities and Startups Are Poised for a 'Great Reboot'
The pandemic's impact on small business has been deep, but Inc.'s Arnobio Morelix predicts a startup renaissance is around the corner.
By Anna Meyer, Associate editor, Inc.@annavmeyer
Arnobio Morelix.
Photo: Getty Images; Unsplash. Illustration: Chloe Krammel
When the world's economies recover from the pandemic downturn, the forces driving the rebound will be distinctly different than those that spurred business growth in the pre-pandemic era.
So argues Arnobio Morelix, Inc.'s chief data scientist, in his forthcoming book Great Reboot. Morelix is also the chief innovation officer of San Fransisco-based Startup Genome, a policy advisory group that works with governments around the world to help expand their economies through entrepreneurship. The goal of his new book is to show business owners how to make the most of the opportunties ahead.
Morelix sat down with Inc. editor-in-chief Scott Omelianuk to talk about ways that entrepreneurs can prepare now for a promising future.
It's not much of a leap to imagine that, if you are cash rich, you can buckle down through this Covid crisis. But what are other things that have helped entrepreneurs and organizations survive?
The ones that have acted fast tend to do better. Companies that were very fast about cost cutting, for example, or very fast about switching the ways they deliver products and services and thinking through opportunities have been succeeding.
This is one of the reasons I disagree with the premise that all big businesses will do fine no matter what. I don't think size is the defining characteristic. Think about all the big companies that are struggling in a major way: JC Penney, Men's Wearhouse, and Neiman Marcus have formed a string of bankruptcies, 24 Hour Fitness has closed a lot of locations, and the airline industry is also having serious problems. I think it's not really about size, but about speed and adaptability--which means that startups will have the chance to fill gaps very soon.
The second thing that has helped is health and policy support. Meaning, a company in an area whose government had a coherent and straightforward Covid-19 policy is in a better place now than those that might not have been. Places like New Zealand and Australia had very strong public health policy responses, but then also for businesses. We can see in our research that businesses there didn't take as much of a revenue hit as they did in places that did not have the same level of policy support.
Even if cities or local governments didn't have a coherent Covid-19 response up until now, is there any Covid-19 planning they can do today to create a better environment for business?
Absolutely. The first order of business is providing funding mechanisms for supporting companies that are dying now through no fault of their own. We documented a lot of best practices at Startup Genome on this topic, and different alternatives for funding. There is a good chance your city has spent at least a decade creating a strong environment for entrepreneurs. When companies die out, this reverses the good work a region might have done in the recent past, so it pays for local and state governments to follow up here.
Parallel to that, governments should consider what they can do to preserve talent in the region. Programs like Germany's Kurzarbeit allow employees to work part-time (and employers to pay part-time wages) with the government covering up to two-thirds of lost employee earnings. Sweden's short-term leave subsidies are also a useful model here.
These are short- and medium-term initiatives that help regions preserve companies and talent. In the medium to long term, governments should consider creating startup-focused procurement programs and assisting in startup ecosystem support initiatives.
What do you think of the arguments that companies will gradually move entirely to remote work? And that the pandemic has shifted power away from cities?
I'm very anti the argument that "this is the end of cities, remote work is going to take over everything." I don't subscribe to that.
Yes, more people will go remote than they used to and our capabilities for working in different places will change. We'll have better tools. Right now we basically have Zoom and other distributed work tools. They are not quite the same as in-person interactions, but the tech will improve. There are a lot of companies working on more sophisticated technology--Facebook and their virtual reality initiatives, for example.
Our preferences will change too--people who never thought about working remotely are going to learn that they like it. It really opens up the opportunity for new locations that were not as attractive before. But power hasn't completely shifted from cities, in part, because tech hasn't shifted permanently from cities.
The impact of tech companies is pretty massive. Enrico Moretti at MIT estimates that for every high-tech job, you have five non-tech jobs created locally. Seven out of 10 of the largest companies in the world are in tech, and about 75 percent of value created by tech globally is concentrated in the top 10 cities. Amazon has committed to adding new hires to the Seattle area. It is yet to be seen how much of this will change post-pandemic, but I do not see the "end of cities" some describe.
We studied laid off tech workers at Startup Genome--programmers, designers, product managers--and we see that about one in four are considering remote work opportunities. This is a group that is highly capable of working remotely, at a very vulnerable point in their careers. Yet, only about one in four of them want to work remote full-time. To me, this is an indicator that we will see a geographic reshuffle of economic activity, but nothing as dramatic as the "end of cities" many observers are predicting.
And now you have a major shift in society overall. Covid is not going to be a passing crisis, and it will continue to advantage tech companies. This will set the tone for the next 10 years, just like the Great Recession did, just like the dot-com bubble did.
Why are big tech companies thriving while other big companies are failing, as you mentioned?
It comes down to two main things: digital aptitude and speed of action.
In many ways, we are living in two economies: a digital economy and an analog economy. In the middle of the year, I was looking through news articles and the top two headlines were along the lines of: first, we are living in the worst economic contraction in decades; and second, tech companies are smashing expectations and many of them are reaching record revenues.
I define digital aptitude as the capabilities companies have to navigate digital markets -- the talent, the internal technologies, the products that work well digitally (or as complements of digital products). Because of this accelerated shift to digital, any company with the capabilities to navigate digital markets will perform better.
Speed of action has to do with how fast your company can make decisions and execute on them. Because a lot of the ground is still shifting, being able to make changes fast--with cost cutting, investments, product releases--also helps company success.
This means that it is not necessary that you have to be big--a lot of smaller companies are thriving also, when they have both digital aptitude and speed of action. It is not also the case you have to be tech by default: Some companies from more traditional industries have been able to adapt to our increasingly digital transactions and are also doing well--Walmart with its new e-commerce options comes to mind.
What opportunities lie on the other side of this pandemic? What industries, in addition to tech--or maybe because of it--are expected to thrive?
Over half of Fortune 500 companies were created in a recession, an impressive number. And even if you look at the Great Recession, we had over 50 unicorns created during that time. So there's a ton of opportunity during periods of adversity. In the present moment, this specially helps digital businesses.
There are a lot of new, tech-enabled markets and products that will dominate our daily lives in the future. For example, we're seeing new technological implementations these days that probably would have taken years to roll out without the the pandemic, including touchless and cashier-less transactions at stores, automated toll booths (a technology that existed for years but has just now been completely implemented in the Bay Area, for example), small family restaurants and stores with digital interfaces for ordering. (Don't expect to be given reusable menus at your favorite neighborhood cafe any time soon.)
Tech and startups are not "guys in a garage" anymore. They are the major economic force shaping every industry. There is a lot of opportunity, and I think that also comes with increasing responsibility.
Morelix's book, The Great Reboot, is due out this winter. Sign up for more information at www.greatreboot.com.