Growth

Inside the Tech Meltdown That Wasn't

A few months ago, start-ups were supposed to be doomed. It's a different story now.

Five months ago, the young, scrappy startups were doomed. Following a 2019 that featured some disappointing IPOs, the arrival of a pandemic seemed destined to lay waste to scores of digital-first newcomers and growing tech companies and stunt the industry's long run of growth. “This is the great unwinding,” the head of one Silicon Valley advisory firm lamented in The New York Times back in April as layoffs hit, demand decreased, and limited spending rattled the economy.

And, as we all saw, a handful of industry stalwarts whose products and business models were not exactly pandemic proof experienced deep layoffs, scaled back, and even wound down their operations entirely. But a funny thing also happened: eCommerce jumped to historic levels. Businesses adapted. And the meltdown never came. “Things generally are substantially better than our worst fears 90 days ago,” remarked one investor at a Silicon Valley venture capital firm this week.

Most categories saw anywhere from 15-30% growth in consumers buying online while 75% of consumers reported a new behavior or brand switch.

Benefits & Business Models

It almost goes without saying that without the stimulus checks and robust unemployment benefits delivered to American households, the doomsday predictions would have been right. But that’s also true for all industries and few, if any, beyond healthcare and Clorox-adjacent conglomerates, have enjoyed the success that the tech ecosystem has seen over the past few months. 

Driven by social-distancing mandates that both brought more consumers online and kept them out of stores, start-ups shrewdly positioned themselves as alternatives to household names in countless categories. With remote work and remote learning and remote socializing came an emphasis on innovation, frictionlessness, personalized experiences, and consumer experimentation. (And sweatpants.) According to McKinsey, most categories saw anywhere from 15-30% growth in consumers buying online while 75% of consumers reported a new behavior or brand switch.

But more than just creating brand awareness, many digital-first outfits managed to distinguish themselves by adapting to the new reality of the marketplace, whether it was quickly shifting to production of masks or hand sanitizer or emphasizing cleanliness processes with transparency. And, given the opportunity to reassess their behaviors, consumers have increasingly sought out quality and value. As a result, nearly three out of four say they will incorporate new brands into their routines.

"Start-ups in the United States raised $34.3 billion in the second quarter, down slightly from $36 billion a year earlier."

The Big Picture

It's safe to say there have been questions about what happens to the companies benefitting from this nascent eCommerce boom once the pandemic ends and traditional retail reemerges. But futurists, tech investors, funders, and boosters don't appear to have gotten the memo. In spite of the dour expectations, ”Start-ups in the United States raised $34.3 billion in the second quarter, down slightly from $36 billion a year earlier,” according to the National Venture Capital Association. And every day produces new exciting possibilities.

In the meantime, for now, layoffs have slowed, job listings are reappearing, and spending is up in Start-Up Land. Elsewhere, in a metaphor for the ages, this week, The Wall Street Journal reported that the husks of old Sears and JC Penney locations in some malls may be repurposed as new Amazon fulfillment centers.