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COVID-19: protecting startups will take extraordinary measures

MaRS spoke with University of Toronto professor Joshua Gans on how Canadians can help small businesses

COVID-19: protecting startups will take extraordinary measures

Small businesses are essential to the Canadian economy. According to the Business Development Bank of Canada (BDC), 98 percent of all businesses in the country have fewer than 100 employees, and those organizations employ about 70 percent of the private sector’s workers. Consider also scaling startups, a group that makes up only five percent of Canada’s enterprises, but is nevertheless responsible for creating more than half of the country’s new jobs.

“We should not let small businesses — startups, restaurants, and so on — disappear, because this crisis is not their fault,” says professor Joshua Gans, chair of technical innovation and entrepreneurship at the University of Toronto’s Rotman School of Management. “The next few months are going to suck, but we all need to help these members of the community.”

We recently spoke with Gans about how banks and landlords must provide small businesses financial relief; the importance of startups moving away from a “cash-flow” mentality; and why now, more than ever, scientists and healthcare workers need our support.

 

The COVID-19 pandemic has paralyzed the Canadian economy. Can you recall a similar emergency?

No, there’s no historical precedent for this. However, there is a silver lining: normally, economists have difficulty figuring out why a given economy is failing; or why people choose to spend or not. With this economic downturn, we know exactly why it’s happening. There’s no need to speculate why, a retail store, for example, is struggling to pay rent. In fact, we’ve created these controls and restrictions, and therefore have a duty to mitigate them.

 

Is there an ethical responsibility for the private sector to step up in aid?

In this situation, I think banks and landlords should exercise lenience and sensitivity when it comes to payments and interest. Large corporations like banks have all the money and resources to weather this storm. And to landlords, I would ask this: when will you ever find a better customer than a busy restaurant? If one of your tenants goes bankrupt, who’s ever going to want to do business with you in the future? Let’s consider this a holiday for small businesses — once they return, they can start again. It’s crucial we all think long-term. We’re hitting the Pause button, not the Eject button.

 

What specifically can startups do to come out of this crisis on both feet?

I have full confidence that larger startups will be able overcome this. Pre-revenue startups, though, are in a trickier situation. Here, senior leaders really need to hunker down, strategize and plan for a longer runway, that is, how long a company can survive if income and revenue stay constant. If startups have investors that understand the crisis at-hand, that understand how we are all being negatively affected, this shouldn’t be a problem. It just requires all parties to temporarily move away from a cash-flow mentality. Cash flow is not required right now.

 

Just the other day, Goldman Sachs and Morgan Stanley declared that COVID-19 has triggered a global recession. Are you worried?

Just like this virus, we have to take recessions seriously. Still, this recession will not be like that of the 2000s. As I said, we know the cause of it, and we’re expecting this outbreak to be over in a few months. By then, people won’t be afraid to go back to the lab and office; to go back to restaurants again. Our day-to-day lives will resume. And so, will the economy.

 

Have you noticed any distress from your academic colleagues?

Oh, we’re all fine in my department. I was already teaching my class virtually, anyway. It’s the scientists and healthcare providers that are saving lives — everyone else can go home. These brilliant people need the funding and moral support. It’s well-known that crises can actually bolster discovery. The world’s been dealt a bad hand and the innovation community is doing its best to make something out of it.

Every day, MaRS-supported health startups are helping people the world over live longer and healthier lives. Learn more about them.