KBS Covid-19 Research Impact Papers, No. 2 Entrepreneurship And Covid .

IntroductionEntrepreneurship is important to the UK economy. Therewere 5.86 million small and medium-sized enterprises (SMEs)at the start of 20192, who provided employment to 16.6million people (60 per cent of all private sector employment)and generated 52 per cent of the 2.2 trillion turnovergenerated by the UK private sector. These businesses, oftenentrepreneur led, are particularly vulnerable to crises, becausethey typically have fewer resources than large businesses. Yetjob losses in SMEs often go unnoticed in the news as theyare much less attention-catching than job losses in largebusinesses – even though in the aggregate job losses in SMEare bound to be larger. Given the scale of the Covid-19pandemic, understanding the experience of entrepreneursin these difficult times as well as the outlook they have forwhat lies ahead in the short- and long-term are thereforecritical to sustain, and potentially support, this vital part of theUK economy.This report draws on data that we collected from 361UK entrepreneurs between May 6th and July 13th with thehelp of entrepreneur associations, chambers of commerce andby directly reaching out to SME owner-managers and theself-employed. The data collection period overlaps with thelockdown of the UK to contain the spread of the Coronavirus.The lockdown is still in place but has been gradually liftedover the last month (eg some schools reopened early June,some clothing retailers later that month while public housesre-opened in England on July 4th). The precise timings varyacross the UK nations and many schools, universities andbusinesses remain closed at the time of writing.Our study is part of an ongoing global research project ledby us at King’s College London and covering 31 countriesand will trace the impact of the Covid-19 on entrepreneursover time (for more information see ience-well-being). However, we e initial insights on how the pandemic impacted SMEsin the UK based on our sample of 361 UK entrepreneurs.We compared our sample to the UK population of SMEs andentrepreneurs using the Department for Business, Energyand Industrial Strategy (BEIS) Business Population Estimatesfor the UK and the Regions 2019 and for characteristicsof the individual entrepreneurs data from the GlobalEntrepreneurship Monitor. The full comparisons andsample description are available upon request. Businessesin our sample more often trade in the business service sectorcompared to the national average. Certain regions of theUK are also overrepresented (especially London, Scotland,and the South East) and others underrepresented (Midlands,Yorkshire and Humber, and the North West). Entrepreneursin our study are older, more educated, more likely to be menand white compared to nationally representative samplesof entrepreneurs. The businesses in our sample are larger thanaverage in terms of employees.4KING’S BUSINESS SCHOOL Entrepreneurship and Covid-19The report is structured as follows:Section 1 presents how the Covid-19 pandemic affectedentrepreneurs and SMEs.Section 2 considers how they reacted to the pandemic in theirbusiness and personally. This includes the use of governmentsupport by entrepreneurs and their social response(volunteering and charitable giving) during this pandemic.Section 3 offers a view of the long-term opportunities andchallenges that lie ahead for entrepreneurship in the UK.Section 4 considers gender differences in how the pandemicimpacted women and men entrepreneurs, in how they reactedand in their post-Crisis outlook.Section 5 considers differences between entrepreneurs basedin and outside of London.3Section 6 reflects on trends for the post-Covid economythat emerged from our analyses and how entrepreneurs maybe supported based on our findings.1. How entrepreneurs were affectedFigure 2Did you have to lay off staff due to theCovid-19 pandemic? (% of 308 employers)In this section we discuss how the Covid-19 pandemicimpacted entrepreneurs in our study.Although a minority of entrepreneurs is faring well, mostentrepreneurs were negatively affected by the pandemic,with payment delays from customers being one of the mostfrequently mentioned challenges, along with reduced tradingactivities. While some businesses had to lay off staff, mostof them had so far managed to retain their staff.Worryingly 61 per cent of the 361 entrepreneurs we surveyedsaid that the very existence of their business was threatenedby the Covid-19 pandemic (Figure 1). This means that in oursample alone the jobs of 214 entrepreneurs and their 2,114employees are at risk. Entrepreneurs ‘fear that work will dryup’ and are, for instance, worried about the lack of demand‘clients have cancelled work’, ‘no business coming in’ and thecollapse of funding from investors.Figure 1Is the existence of your business threatenedby the COVID-19 pandemic?(% of 361 entrepreneurs)No: 39.1%Yes: 60.9%Yes: 18.8%No: 81.2%Figure 3How many employees were furloughed?(% of 308 employers)no informati on0.321 to 50 employees2.311 to 20 employees2.91 to 10 employees37.3noneFortunately, for most entrepreneurs the threat of job loss hasnot yet materialized. Most employers (81 per cent) did not layoff staff yet but 19 per cent had already done so (Figure 2).A larger share of employers (43 per cent) in our sample hadfurloughed staff (Figure 3). Some businesses had furloughednearly all of their staff. These numbers align with the fact thatthe Coronavirus Job Retention Scheme was the most utilizedgovernment support scheme in our sample (see Section 2).57.10102030405060KING’S BUSINESS SCHOOL Entrepreneurship and Covid-19 5

changedincreased16cannot purchase necessarysupplies/materialsWe consider how proactive entrepreneurs were in changingtheir business in response to the pandemic, and whether theyencountered new opportunities for their businesses.33soon unable to pay myemployees54problems paying for theupkeep of my business57further or other problemsMost entrepreneurs reported that trading decreased(61 per cent) or they had to stop trading entirely (9 per cent,Figure 4). For instance, entrepreneurs described workas ‘being paused’, clients delaying purchasing decisionsor recounted instances of many clients just stoppingor cancelling work and loosing big contracts. Notably,for a minority of entrepreneurs (10 per cent) tradingincreased (Figure 4). We unpack the reason for thisincrease in Section 2 where we detail the opportunities thatentrepreneurs saw in the pandemic.While a minority of entrepreneurs (28 per cent) reported thattheir business was not impacted by the pandemic, the majorityencountered problems. As Figure 5 shows, the most commonchallenge was obtaining payment from their customers(mentioned by 109 or 30 per cent of entrepreneurs in oursample) following by problems to pay for the running costsof the business (mentioned by 57 entrepreneurs or 16 per cent,Figure 2). Approximately 15 per cent of entrepreneurs thoughtthey would soon be unable to pay their employees.103customers don t pay orwith long delays109Although businesses navigate the pandemic in different ways,there is evidence that a proactive stance is beneficial. Researchshows that businesses that weathered the 2008 financial crisiswell, were proactive in making changes to their plans and theway they worked.4 Most entrepreneurs sought to adapt to theCovid-19 pandemic by changing their plans (73 per cent or 262entrepreneurs). Of these most (63 per cent) had changedtheir plans or developed alternative plans by mid-March andover 80 per cent had done so by the end of March 2020 (seeFigure 6).Figure 6020406080 100 120In their elaborations of other problems that they encountered,entrepreneurs noted challenges for their workforce ‘employeesare struggling with childcare/home schooling while tryingto continue working full-time’, ‘wellbeing of staff as a resultof working remotely, absence of meaningful face-to-facecontact due to same’ or ‘R&D pace is slowed. Team moraleis suffering.’There were also challenges related to the unpredictabilityand uncertainty about demand: ‘work dropped off drasticallyat the start of lockdown but for the last two weeks I have toomuch work and I am trying to do it all in case work drops offagain.’ ‘The costs of running the business during Covid havean impact on the cash flow that might have an effect in thefuture. Especially if we have a second wave we might notbe able to survive’ and ‘UK business support helps with shortterm but actually makes long term planning more difficult,because you don’t want to make decisive cutbacks whilstsupport is there.’When did you start changing your plans or developalternative plans? (% of 262 entrepreneurs whochanged plans)1001111880In line with the changes of plans to their business, nearly halfof entrepreneurs in our sample, agreed that, in the short term,there were new business opportunities for them during thepandemic (Figure 7, left hand side). 164 entrepreneurs sharedspecific examples with us that described the nature of thesebusiness opportunities. These examples fell broadly into fourcategories (Figure 7, right hand side).First, entrepreneurs reported new customers or morecustomers. For instance, one saw a 300 per cent growthover the lockdown, others noted that they expanded theirproduct/services to new types of customers. Second,entrepreneurs reported that they developed new productsor services in response to the pandemic and lockdown. Manyaccelerated the development of different digital products/services or helped their clients to develop digital offerings.Others reported that they developed new services to supporttheir business clients to deal with the crisis. Several examplesof new products and services also related to the NHS, healthservices, and Covid-19 directly.Less frequent than new customers or products/serviceswere mentions of opportunities related to more fundamentalchanges to their business. In terms of changes to businessdelivery, the third category of opportunities, entrepreneursnoted new ways of distributing products/services (eg onlinedelivery, online support, new platforms), new ways of working(remotely), new ways of producing and procuring (eg dueto disruption of supply chains, relocation of manufacturingto the UK but also international expansion enabled by onlineservices). The fourth type of opportunities, related to arepositioning of the business either in terms of significantchanges to products/services, tapping into new markets, anddeveloping new revenue streams, or a combination of thesethree elements.704560504030122061before January0KING’S BUSINESS SCHOOL Entrepreneurship and Covid-194901062Mid-late May1019.7can no longer pay myemployees2.1. Impact on the businessEarly-mid May308Mid-late April40can no longer pay mysuppliersEarly-mid April50Mid-late March60In this section, we discuss how entrepreneurs reacted to thepandemic. We examine how the pandemic impacted theirbusiness, the use of government support, the impact on theentrepreneurs themselves, and entrepreneurs’ contributionto society.Early-mid March70Main problems in the business (multipleanswers, 260 entrepreneurs who encounteredproblems in the business)FebruaryImpact on trading(% of 360 entrepreneurs)202. How entrepreneurs reactedFigure 5JanuaryFigure 4KING’S BUSINESS SCHOOL Entrepreneurship and Covid-19 7

Figure 7Figure 9Short-term: new business opportunities?(%, base 361 entrepreneurs)Short-term opportunities(qualitative answers, frequencies)Government support applied for (%, 361 enterpreneurs)706050To furlough employees (Coronavirus Job Retention Scheme)6153Gover nment guar anteed loan or low inter est loans40Yes: 46.8%No: 53.2%3020100new/morecustomersFigure 8Expand into online trading/delivery?(%, base 361 entrepreneurs)Yes:9.4%Alreadyexisted:45.2%8No: 45.4%KING’S BUSINESS SCHOOL Entrepreneurship and Covid-1932%Government cash grant for businesses in specific sectors10We also enquired explicitly about the expansion of onlinetrade as this had received much attention in the media. Fewof the entrepreneurs in our sample newly engaged with onlinetrading or delivery (Figure 8). In fact, many seemed wellprepared, with 45 per cent of entrepreneurs already havingonline capabilities prior to the pandemic and 9 per centbuilding these capabilities because of it.40%newproducts/servicesOther deferred tax payments('Time to Pay' arrangements with HMRC, VAT relief)177%Deferral of income tax8%Universal credit for the self-employed2.2 Use of government supportOver a quarter of entrepreneurs (27 per cent) said that theydid not apply for any of the government support schemes (seebottom of Figure 9). It is worth mentioning that some youngstart-up businesses stated that they were falling through thecracks: ‘I was told that within my first year of trading andwithout two-years-plus established income tracking I wasineligible for support’; ‘I do not qualify for this as the companywas officially incorporated late.’21%Self-Employed Income Support Schemechanges tobusinessbusiness repositioningdeliveryThe UK government put in place measures to supportentrepreneurs through the pandemic. The most popularof these was the Coronavirus Job Retention Schemeto furlough employees with 40 per cent of the entrepreneursin our sample applying for it (Figure 9, 45 per cententrepreneurs with employees, see Figure 10), followedby government backed loans and cash grants (eg availablethrough local councils or specific types of businesses throughInnovate UK). Businesses also made use of deferred taxand rate payments. For some government support provideda lifeline, as one entrepreneur put it ‘95 per cent trading fall off– without gvmt help would have had to make staff redundant– huge refund requests depleted cash reserves’.25%2%I did not apply for government support27%0%Figure 1010%20%30%40%50%2.3. Impact on entrepreneursCoronavirus Job Retention Scheme(%, base 308 entrepreneurs with employees)Yes45%No55%KING’S BUSINESS SCHOOL Entrepreneurship and Covid-19 The pandemic impacted entrepreneurs’ mental wellbeingnegatively. Moreover, it changed their personal situationby increasing their responsibilities for childcare and forcingmany to work from home.First, in terms of the mental wellbeing, we asked entrepreneursquestions about their happiness (experienced satisfaction withlife overall) and their level of stress (Figure 11 and 12). Lifesatisfaction is scaled from 0 per cent (lowest) to 100 per cent(highest). We see that entrepreneurs’ life satisfaction wasat 65 per cent, thus over the mid-point of this scale suggestingthat entrepreneurs are generally satisfied. However, whenwe compare their life satisfaction to representative samplesof UK entrepreneurs (and employees) prior to the pandemic5and the UK population6, we see a substantive drop against anyof the three comparison groups.9

Figure 11Figure 12Entrepreneurs’ life satisfaction in comparision(0–100% completely satisfied)50Entrepreneurs duringpandemic60708090Figure 1301020Entrepreneurs (n 361)UK employees (prepandemic 2006)yes I cannot work at allThey were giving back through their business: 44 per centof entrepreneurs volunteered their business’ services/products for good causes, to help other businesses, charities,or public workers in the past month. And half of those who did(49.7 per cent) did so due to the pandemic.0.864.771.4Men entrepreneurs(n 272)18.516.1UK other during pandemic17.173.3Women U.S. populationUK population (2019)76.9Men U.S. populationyes, now only workingfrom home.38.6some change, now I workmore from home.The picture is similar for how stressful entrepreneurs perceivetheir life currently (perceived stress). We asked questionson how frequently one feels overwhelmed, out of control andgenerally nervous, irritable, and upset over the past month.Perceived stress is scaled from 0 (lowest) to 40 (highest).At an aggregate level, higher scores predict poorer mentaland physical health, an early warning indicator of disease.Scores between 14 and 26 indicate moderate levels of stressand the perceived stress level experienced by entrepreneursin our sample fall in that range. Few UK comparison scores areavailable. A comparison with a large UK online sample of nonentrepreneurs during the pandemic (UK other Figure 12)7suggests that UK entrepreneurs are similarly stressed.Comparing these scores to those we would typically expectto see in the population in non-pandemic times8 (Figure 12)reveals that entrepreneurs suffer from more stress, especiallythe women entrepreneurs in our sample.no, already worked fromhome before27.813.7no, working at business’premises10.012.1The lower mental wellbeing also reflects how the business andthe entrepreneur are intertwined and especially the personalfinancial consequences. For instance, entrepreneurs in oursurvey noted: ‘we are living off the saving we have beenbuilding for retirement – this will mean I will have to work formany years more to replace them’ and ‘I have reduced incomeand am living off reserves intended for facing Brexit issues.’Second, the pandemic impacted entrepreneurs personallyin terms of childcare and change to their place of work.Just over a fifth of entrepreneurs (22.7 per cent of 361entrepreneurs) had to start caring for their children at homebecause schools and nurseries closed. Some noted that theirmain problem in the business was in fact ‘restricted hours dueto kids being off school.’(There were few gender differenceswhich we discuss in Section 4.)1020304050Figure 14Entrepreneurs’ social responseVolunteered your business’ services or productsfor good causes? (%, 360 entrepreneurs)44Gave money to charity or good causes?(%, 358 entrepreneurs)67Volunteered personally for charities, the NHS, orothers not close to you? (%, 358 entrepreneurs)Over a third (38.6 per cent) of entrepreneurs started to worksolely from home, while others intensified working from home(22.8 per cent; Figure 13) during the pandemic. However, overa third of entrepreneurs (37.8 per cent) saw no change in theirplace of work, either because they kept working on theirbusiness premises or because they were already working fromhome. While some entrepreneurs noted the positives ‘doing allof my meetings on Zoom saving loads of travelling time’, othersalso saw ‘reduced productivity due to working from home.’KING’S BUSINESS SCHOOL Entrepreneurship and Covid-19Entrepreneurs were also giving back personally eitherby giving money to charity or by volunteering time to workfor good causes. Entrepreneurs engaged in both, thoughmore gave money than time (about two thirds/67 per centvs. about one third/31 per cent, Figure 14). This is perhapsnot surprising

4 KING'S BUSINESS SCHOOL Entrepreneurship and Covid-19 KING'S BUSINESS SCHOOL Entrepreneurship and Covid-19 5 Introduction Entrepreneurship is important to the UK economy. There were 5.86 million small and medium-sized enterprises (SMEs) at the start of 20192, who provided employment to 16.6 million people (60 per cent of all private sector employment)