Skip to main content

How EMEA start-ups are dealing with COVID-19

The COVID-19 crisis poses great challenges for start-ups’ usual operating model, which is driven by radical innovation.

Prior to the crisis, many industries in the EMEA region were facing difficulties due to global competition and were under pressure to innovate. However, the growing start-up scene in the region was taken as a sign that these industries could  keep pace with competitors from the US and Asia. Instead, the current crisis has caused the European start-up ecosystem to face existential challenges because start-ups’ operating and business models are dependent on growth and financing, which are scarce these days. Start-ups generally have limited access to financial resources, such as substantial savings and credit lines, which more established companies can use if necessary. Thus, this crisis poses great challenges for start-ups’ usual operating model, which is driven by radical innovation.

Over 120 start-ups were surveyed and around 50 in-depth interviews held to shed light on the effects of the crisis on the start-up ecosystem.

Important findings of the study are:

1. The COVID-19 crisis is hitting European start-ups from two sides: 1) lower consumer demand and business partners halting operations and 2) a lack of liquidity, i.e., less working capital and fewer external funding sources.

2. As the impact of the crisis varies greatly, there is no single way to guide all start-ups. This situation calls for tailormade action plans that depend on crisis-related market changes and cash reserves.

3. 
The proactive measures taken by many start-ups during the crisis provide valuable insights for both peers and larger companies and can boost innovation and create new champions.

About the author(s)

Karel Dörner is a senior partner in McKinsey’s Munich office; Massimo Mazza is a senior partner in McKinsey’s New York office; Max Flötotto is a partner in McKinsey’s Munich office; Tobias Henz is an engagement manager in McKinsey’s Munich office and Michael Müller-Peltzer is a Senior Associate in McKinsey’s Munich office.