COVID-19 – Enabling Entrepreneurship?
The ongoing COVID-19 pandemic has had profound impacts on the business environment, not just the direct health impacts, but also the social and regulatory changes that have arisen in response. There is little doubt that these impacts have been mostly negative.
Existing business research typically addresses such influence in terms of failure, resilience and crisis management, reflecting the dominate “agent-centric” view of entrepreneurship in which environmental and contextual factors are treated as moderating forces on the more fundamental force exerted by economic agents such as entrepreneurs, managers and consumers.
With the negative impacts of COVID-19 resonating across the media and public consciousness, it is easy to see how this agent-centric view has led so many to fixate on the disruptions and risks that come with an externally imposed crisis. However, by looking at COVID-19 through an External Enabler framework, this research explores ways that this crisis may benefit some types of entrepreneurships.
Rather than the traditional ‘discovery view’ of venture creation, in which an entrepreneur discovers and capitalises on the opportunities they find in the marketplace, the External Enabler framework considers the aspects of a circumstance that might benefit the ‘creation’ of a new venture opportunity. This framework is therefore used to analyse the enabling effects of technological breakthroughs, regulatory reform, economic/sociocultural trends and changes to the natural environment.
The varied impacts of COVID-19
Applying the External Enabler framework to COVID-19, we see that while the overall impact of the pandemic has been tremendously negative, its impacts have varied greatly between nations, industry sectors and demographics. For example, while the direct health impacts of the virus have been felt most keenly by the elderly, the economic and social impacts of lockdowns have had a greater impact on younger generations.
Similarly, differences have been observed in the pandemic’s economic impact on different industries, with manufacturing and hospitality sectors decimated while e-commerce and digital service providers have seen rapid growth. There have been significant increases in demand for products that facilitate a more socially distant society, from home delivery, personal gym and office equipment to camping and outdoor supplies. We have also seen an increased demand for goods to substitute those made hard to acquire through logistical disruption or government regulation, such as bidets to replace toilet paper, and the rise of funeral and wedding video services to facilitate connection with absent family and friends.
These differences are the result of an interplay between enabling factors of the pandemic, and factors within the impacted firms. For example, while demand expansion and substitution triggered by the pandemic may benefit the firms capable of producing these goods, they may harm others as consumers reduce demand for the substituted product. These enabling effects are often more complex than just shifting consumer demands however, for instance the efficiency and lower barriers to entry provided by “dark kitchens” (delivery restaurants based out of commercial and home kitchens that do not service dine-in patrons) result in new venture opportunities for entrepreneurs that would not otherwise be involved in the food service industry.
Which firms will benefit from the pandemic?
The External Enabler framework highlights two key strategic characteristics of any enabling factor that determine which firms will be able to capitalise of its effects. The first is opacity – how easy or difficult it is to envision a positive impact from the factor before it is demonstrated. The second is agency-intensity – or how much effort or resources would be required for an entrepreneur to benefit from that factor.
The agency-intensity characteristic explains many of the examples already discussed: a catering company that already has access to a commercial kitchen will find it easier to capitalise on the opportunities presented by “dark kitchens” than a firm that would need to acquire such infrastructure.
However, the opacity characteristic highlights an interesting paradox in entrepreneurial responses to COVID-19. Namely the relative lack of differences between countries where the onset of the pandemic was sudden and unexpected (such as China or the USA) vs those that had more time to prepare (such as Australia and New Zealand). It may be that despite the advanced warning received by entrepreneurs in these countries, it is difficult for them to perceive ways to positively react to these changes until they are directly experiencing its effects, or until a working positive response has been demonstrated in markets already further along the curve.
Similar findings have been observed in Chinese markets following the announcement of high-speed rail services: the announcement does not trigger an increase in start-up activity, this occurred only once traffic had commenced, and the facilitating effects of the increase in commuters directly experienced. This may suggest that many innovative responses to COVID-19 related opportunities are yet to be created, due to difficulties firms have in seeing how they might apply their strengths to realising the venture opportunities the pandemic has facilitated.
Recommendations
By considering COVID-19 as a range of enabling characteristics, the External Enabler framework allows us to better consider the potential positive effects that this disruptive change might have on entrepreneurship. When considering venture creation in the wake of COVID-19, entrepreneurs should consider the scope of enabling factors present in their target market, as well as their capacity to react to these factors.
Critically, the External Enabler framework suggest that many venture opportunities enabled by COVID-19 are not realised due to their opacity, or the difficulty firms have in envisioning what opportunities are actually being enabled. As an example, we have seen that the move to delivery services has empowered resource efficiency in hospitality, as firms no longer must focus on the in-person customer experience. However similar innovations to “dark kitchens” have not been adopted in other similarly impacted industries.
We have also seen how many firms have preserved otherwise wasted resources, with distilleries producing hand sanitiser and fashion retailers producing face masks from existing supplies rendered surplus by changing demand. However, while many other industries have seen similar wasted inventory, few have been able to turn this idle capital to productive use. While this in many cases is the result how difficult these innovations would be to implement across many firms, the External Enabler framework invites us to consider an alternative; that many entrepreneurs are yet to fully realise the opportunities for venture creation that COVID-19 has enabled.
Lead Researcher
More information
The research article is also available on eprints.