It all comes down to one word: “FUCK”. When sneaker startup and brand Pompeii sent an email after the state of alarm, it called it an open-heart letter. “We are living this like a movie, one of fear.” A film in which the coronavirus infects thousands of people and forces us all to stay at home. Shops, bars are closed. Everything. And with it, is for consumption.
In a week, everything has changed. In the case of Pompeii, the company has gone from a 40% growth with 4 stores open, two more under construction and 50 people in the team to have to do a temporary employment regulation file (ERTE) 100% of the workforce. “It is the best measure we can take so that Pompeii continues to exist in 3 or 4 months,” he told Hipertextual. Jaime Garrastazu, one of the founding partners of the company. Other companies like Cabify have had to take the same action to survive.
For the Pompeii team, this situation has been like going from day to night. “We have been working since we finished university and 5-year job has been destroyed in a month. Unbelievable. “However, Garrastazu is aware that these are not times to be selfish and that the most important thing is the health of people while startups like yours endure the downpour. Above all, because a lot of people have lost their jobs and if people are struggling to pay their rent and purchase, How can they treat themselves? “It is a dilemma because on the one hand, as humans, we fully understand what the people’s priorities are, but, on the other hand, as a company, we see the need for consumption to be reactivated because if we and 80% of the consumers do not fall retailers in Spain “.
Less than four months ago, the company had closed the year with nearly 5 million euros of turnover. As Garrastazu pointed out, consumption affects consumption and, with them, the entire sector, including the largest. Among them is Inditex, which exceeded 19,000 million euros last year. The large company announced that they would not do an ERTE on employees until April 15. They lengthen the wait, but the coronavirus will hit even the great benchmark in fashion. Meanwhile, the company and Amancio Ortega announced a change of direction to allocate part of the manufacture of sanitary material, as well as the donation of protective masks.
Other companies are donating to hospitals and contributing to the war against COVID-19, while parades and events are being canceled. But of course, we are talking about big brands and designers like Giorgio Armani and Carolina Herrera. For the others, the effects of the pandemic came within a few days. “The fashion sector is atomized into small SMEs like us, who contribute to employment and need help to endure the downpour, “explained Jaime Garrastazu.
They open the tap
The Spanish Government has approved several measures since the state of alarm came into effect to stop the coronavirus outbreak. In addition to facilitating ERTEs and allowing workers to access unemployment without restrictions, the first tranche of the 100,000 million guarantee line for companies that have been victims of the ravages of COVID-19. The objective is to take charge of 80% of loans, wages or company invoices.
In this regard, the union has begun to publish its opinions. The Barcelona Tech City association asked that, so that SMEs-startups can also benefit from these grants, eligibility criteria according to their sector are applied. In a statement, Miguel Vicente, president of the association, stressed:
Startups are companies focused on rapid growth and, therefore, they are very capital intensive and with differentiated financial characteristics. That is why we are concerned that the liquidity lines of SMEs will not reach startups if different criteria are not considered. “
This type of action, which is expected to increase until contagion stops, quarantine is lifted, is part of what the founder of Pompeii called a awareness by the state due to the economic crisis that is coming. “There are many sectors affected, retail, airlines, hotels, tourism… We are all in a similar situation and what we need is to protect the economic chain from the beginning to the end, from the owner to the workers. “
However, both economic measures and startups hang in the balance of time. How long will this crisis last? Can we recover? These are the questions that economists try to answer based on studies and predictions. Because companies like Pompeii could survive a couple of months in this situation, but surely half a year would be too much. “The more it lengthens, the less we will be able to endure, the more people will be out of work and there will be less incentive for consumption.”
At Hipertextual we have spoken with Pompeii about a startup in the fashion sector, but they are one more name in a long list of small and medium-sized companies that are suffering the consequences of this crisis. Pompeii highlights that with the statement and the interview with this medium they wanted to be the speaker for startups in this situation. “It’s a scream of ‘how screwed up all this is’ rather than help. We don’t have to help ourselves, what we have to do is hold on,” Garrastazu concluded.
Analysis of a sage
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Steve Blank, an entrepreneur in Silicon Valley and author of The Four Steps to the Epiphany, is aware that troubled times are coming. At a time when social isolation has had a social impact on the organization of fairs, conferences and all kinds of travel, large companies are promoting telework but the worst part will be taken by SMEs.
In an article published in Venture Beat, the expert explained that these types of businesses have less cash reserves and a smaller margin of error to handle a crisis as sudden as the current one. “The ripple and feedback effect from all of these closings will have a big impact on our economy, as every industry that is affected leaves people out of work, and laid-off workers don’t buy products or services.”
On the other hand, he recalled that an economic situation has never been reached before that some compare with the from 1929 due to a pandemic. “I hope I am very wrong, but the social and economic impacts of this virus are likely to be profound and change the way we shop, travel, and work for years.”
One of the keys, as we mentioned previously, is in the duration of the quarantine. In the case of a few months, some companies may freeze your variable expenses, such as hiring and travel. However, Blank continued, if the effects had a longer impact on the economy, they would have to renegotiate certain fixed expenses like renting offices. But it is also possible that many have to reconsider your business model. A strategy that he describes as “lifeboat, to calculate the minimum that the company needs to stay alive.”
However, one of the biggest challenges for the survival of startups will be access to capitalAs many investors are also wondering how the pandemic will affect their business. And they may leave behind many rounds of investment and support for small businesses. In summary, the entrepreneur asked entrepreneurs to prepare for a long cold winter. But it also launched a message of hope.
No winter always lasts, and in the meantime, smart entrepreneurs and venture capitalists will be sowing the seeds for the next generation of startups. “