Beanstalk, a children’s video site in Denver, was preparing to launch at the end of March. That would be exciting enough for any entrepreneur. But founder Amy Klein Molk found herself in an even more exhilarating situation. She was participating in the fast-paced business accelerator Techstars to turn her idea into a high-growth, venture-backed business.
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As the coronavirus began spreading in Colorado, sessions went virtual and she stopped schlepping from her home in the Highlands to the Techstars office in Boulder. Playgrounds were getting roped off. Schools were closing. She made a decision: Launch earlier and waive the membership fees.
“Originally we were planning to launch as a paid service, but given what was going on in the world, it really didn’t feel right to launch and ask people to pay,” said Molk, whose business aims to keep young children physically active while watching how-to videos. “We are really a company that is founded on helping people and doing the right thing. And so for us, that was really supporting families in any way we could. So we made the choice to launch for free in response to COVID.”
Now for the hard part.
As Colorado reopens, the businesses that survived the rough few months of the statewide stay-at-home order now must figure out how to recover. Some kept going thanks to federal small business grants and low-interest loans. Others were aided by financial support from philanthropic organizations.
Coronavirus-related closures were costly to many businesses, whether they are venture-backed startups or mom and pop retailers. And local business organizations are stepping up to help both types by sharing resources and offering mentors.
But many startups face a different recovery process because they aren’t eligible for federal help since they have investors or access to capital. They’ve had to adjust their businesses models and rethink their cash flow.
Beanstalk originally planned to attract 100 or so new customers per week with a free trial before payments kick in. Instead, the service waived the fee and 7,000 people signed up in three weeks. The service is still free today. But a business that doesn’t make money can’t survive, Molk realizes.
“There was never the plan for having it go this long. We were thinking maybe a week trial or 30 days at the very most, and now we’re into over 30 days,” she said. “I think it’s realistic to say that we’ll continue to be free through May so obviously that’s been extended a lot longer than our initial business plan called for.”
Molk has support from Techstars and fellow entrepreneurs, as well as her new customers. While she’s working on attracting venture capital, she’s also considering discounted plans or different payment options to make the service accessible to more parents and allow Beanstalk to become a viable business. The company continues to experiment and play around with features and plans as children return to school — or not. At least Beanstalk’s potential audience is larger now, she added. Her 4-year-old son now uses Zoom video to talk to cousins around the world.
“Now more than ever, people are super open to connecting online and I think that’s something that’s not going to go away,” Molk said. “We never were in the business to replace human interaction. That’s obviously the most important thing for kids. But this also offers an opportunity for kids to be connected.”
Small business survival resources
There’s still venture money out there for startups. And investors are apparently looking for their next investment. Techstars Boulder, which moved its big pitch night online, found that more investors signed up for the online event and tuned in this year compared to the usual one-night event at the Boulder Theater.
“I have some hypotheses,” said Natty Zola, managing director for Techstars Boulder. “What’s cool about the virtual Demo Day is it’s more accessible. Usually we would do the Demo Day on one night in Boulder and if you happen to either not be in Boulder or have other plans, you couldn’t attend it. Investors and the community (this time) also have access to the pitches for three weeks, so they can just sign up and watch it anytime on their own.”
Cory Finney, a partner at the rural business focused Greater Colorado Venture Fund, said he’s still talking to companies all the time. But venture capital isn’t the best option for small businesses. Venture investors look for returns that are many times the amount they put into a company and many businesses aren’t looking for that sort of growth.
“Know your audience is my first piece of advice because I don’t want to see companies spending a bunch of time chasing down the wrong type of capital,” Finney said.
He advised looking into debt resources, regional loan funds and local community banks. But his top recommendation? Increase sales, he said.
“If you can do anything to just be increasing sales and doubling down on your customers, maybe your customers will become your next investor,” he said.
The starting life of small businesses has always been a roller coaster. That long-time stat about how one in five new businesses fail in the first year? Still true, according to the Bureau of Labor Statistics.
And the strain of operating in the time of coronavirus has already had a statistical impact on the startup world. For the first time in years, Colorado saw a decline in the number of new businesses starting up with new business filings down 5.6% in the first quarter of 2020 compared to a year ago, according to the Secretary of State’s office.
A variety of organizations and public entities have stepped up to offer some aid to local businesses, including $7,500 grants from the city of Denver, or NextFifty Initiative’s grant to cover up to 17% of a company’s operating budget.
Large companies have also jumped in as well, including Facebook, which is awarding $250,000 in grants to small businesses in the Denver area. Lamar-based Prowers Aggregate donated $100,000 to its regional economic development agency, Southeast Colorado Enterprise Development, to offer aid to local businesses affected by COVID. And Denver-based real estate developer Confluent Development looked for ways beyond rent deferrals to help its small business tenants.
“We have purchased gift certificates from Snooze to help them as a tenant, but also to say thank you to those construction workers on our sites,” said Marshall Burton, Confluent’s CEO.
The federal COVID-19 emergency loan programs should help, if the businesses have limited resources — read: no venture capital — and certify that they would have to cut staffing because of the coronavirus. The $650 billion Paycheck Protection Program provided $7.4 billion in forgivable loans to 41,635 small businesses in Colorado in round one and, so far, approved another $3.06 billion to 46,157 small businesses in Colorado in round two, according to the U.S. Small Business Administration, which is overseeing the program.
A second type of COVID-19-related small businesses loan, the Economic Injury Disaster Loans, provided $197 million to 958 Colorado small businesses, as of April 24, according to the SBA.
But those loans were unavailable to venture-backed Good Buy Gear, which went into defense mode to conserve cash as statewide coronavirus closures began in March. The Arvada company, an online market for used or discounted baby and kids gear, made the tough decision to lay off 25% of its staff, with everyone else taking a pay cut.
“We had maybe only six months of runway and now we have 12, depending on how we do, so that we could survive,” said Kristin Langenfeld, Good Buy’s CEO and cofounder who is hopeful that the business will do well in a recession.
Instead of flying around the country to visit with potential investors, Langenfeld and her cofounder Jessica Crothers are now in the warehouse filling orders. The business already had curbside pickup before the coronavirus — “because most of our customers have sleeping babies in the car,” she said — and now she’s seeing business picking up, likely because customers are decluttering at home or looking for discounted kids’ merchandise. Companies like hers often do well in a recession, she said. But she needs to survive.
“The advice I got early on from one of our board members was no one’s gonna fault you for being too prepared and having made those cuts to have too much cash. Especially for startups. You fail because you run out of time or money,” she said. “Making those cuts was super tough, but it was the right thing to do … There’s great help for the people that we let go and who are on unemployment and doing really well.”
Mixing venture startups and Main Street
The differences between mom and pop small businesses and venture-backed startups may not be too far apart.
Over at the Telluride Venture Fund, investments in startups were put on hold because of the uncertainty of the coronavirus impact. And its existing portfolio of companies was primarily technology oriented and able to manage during the disruptions, said Bonnie Watson, the capital and transaction adviser for the fund, which is part of nonprofit Telluride Foundation. So, the organization turned its attention to helping its small business neighbors.
“We opened up the Telluride Regional Relaunch Project where we offer one-on-one free counseling services to small businesses, to help them pivot their business model or find financing or gap funding, whatever it may be,” Watson said.
A weekly call open to southwest Colorado businesses to share strategies or discuss things like the SBA loans has been duplicated by other regions around the state. It’s helped local businesses share survival strategies, such as Moxie Salon in Telluride, which sold Moxie Boxes packed with products. Or Barrelosophy in Grand Junction, which moved workouts online to keep their members fit, but also keep them as paying members.
“They didn’t see as much membership drop off,” Watson said. “That’s a big issue that we’re seeing right now in coworking spaces, gyms, and any kind of membership model. People are either canceling memberships or pausing them which is really deadly for the company, or people are not paying for the service anymore. So this barre studio specifically offered online content and they were able to save a lot of revenue.”
Watson also runs the Telluride Regional Loan Fund, a $2 million fund available to local businesses that need capital. It’s been able to provide some financial respite, but she cautioned that many small businesses don’t need a loan and should look at other alternatives first.
“More often than not, small businesses don’t have to take out a loan, because the reality of this is a small business might make it through COVID, but a small business may not survive a bad loan,” she said.
Meanwhile, Energize Colorado, a statewide effort that launched May 1, has attracted about 225 former CEOs, entrepreneurs and small business owners statewide who have volunteered their time to mentor all sorts of companies.
Led by Wendy Lea, the nonprofit wants to become that hub for startups and Main Street businesses that need advice on anything from federal loans, pivot strategies and, soon, funding. Notable entrepreneurs and investors like Brad Feld from The Foundry Group, Erik Mitisek, who cofounded Denver Startup Week, and Marc Nager, managing director at Telluride Venture Accelerator, are among the volunteers.
“We’re trying to mix it up,” said Lea, an entrepreneur who has bootstrapped her own business and run others, including customer service site Get Satisfaction. “Imagine how powerful it will be for a mentor that’s typically mentored venture-backed startups to mentor a small business. And imagine how powerful a small business counselor will be to mentor a startup. I think that’s cool. I think that cross-pollination will build interdependency across these segments that we’ve never had.”
The organization found mentors specifically in manufacturing, urban and rural Colorado, nonprofits, women and minority ownership and entrepreneurship. Any Colorado business can go online and select the “Find a Mentor” button and have a 15- to 30-minute phone call to make sure it’s a good fit.
“We want to actually help them navigate to the right resources to get through these many stages of the crisis — the first just being, let’s get them stable, let’s get them some relief,” Lea said. “The next phase we’re very focused on: let’s help them reopen.”
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