The COVID-19 Pandemic and Entrepreneurial Ecosystem: Challenges and Resilience Strategy of Startups

Abstract

The survival and growth of entrepreneurial startups, which play a pivotal role in the national innovation system, are threatened by the unprecedented exogenous shock of the COVID-19 pandemic. However, our understanding of “what, why, and how” they act against the crisis is still limited. This study (a) identifies specific policy initiatives to protect firms’ survival against the crisis, and (b) determines what counterstrategies firms are employing in their crisis management processes. Our quantitative analysis of policy initiatives against the COVID-19 economic crisis indicates that governments focus mainly on providing short-term financial supports such as interest/tax benefits, payment delays, and wage subsidies for small and medium-sized enterprises while startup-specific supports against the lack of investment and financial capital were insufficient. Another qualitative analysis of interviews with 16 actors in entrepreneurial ecosystems reveals that startups are leveraging the productive utilization of available resources through business model improvements, organizational restructuring, and external networks against the high illiquidity caused by the crisis. However, the firms’ inflexibility in reducing fixed costs and changing operational systems indicates their limited innovation potentials while they suffer from misfit and barriers in the use of public supports. Therefore, policy initiatives should focus on not only providing startup-specific supports to alleviate financial pressure but also involve long-term supports to ensure the rapid recovery of entrepreneurial ecosystems. Startups are also required to remain resilient in the entrepreneurial crisis management process by adopting bricolage responses.