This study is the first to examine the impact of COVID-19 on entrepreneurial firms. These ambitious high-growth or scaling businesses are critical to the country's economy. The ongoing study is being led by Prof Francis Greene and Dr Alessandro Rosiello.

Entrepreneurial firms represent just 6% of UK firms but generate about 50% of all new jobs and provide much of the country's export and productivity growth.1 If they do not survive the COVID-19 pandemic, this will have very damaging consequences for our future economic prosperity.

In the first half of April 2020, we surveyed 565 scaling firms to learn how their business performance has changed due to COVID-19.2 The headline findings show that:

68% of firms have cashflow concerns
59% are seeing a significant fall in business turnover
51% are experiencing supply chain issues
47% of exporters have declining revenues
37% of entrepreneurs are experiencing higher stress levels
6% expect to close their business

Dramatic Declines in Financial Performance

The 2008 financial crisis demonstrated entrepreneurial firms are resilient.3 Still, we anticipated that the coronavirus pandemic would have an immediate negative financial impact on many of these firms. We predicted most would experience declining turnover. However, some would be unaffected, and some would actually grow. The figures below show that around 60% of firms experienced a decline in turnover. What surprised us is the depth of the decline: the average fall in turnover was 58%.

Business Turnover

  • 32.8% of firms saw business turnover stay the same
  • 58.9% of firms saw business turnover decrease (by an average of 58.3%)
  • 8.3% of firms saw business turnover increase (by an average of 37.8%)

COVID-19 has equally affected Business-to-Business and Business-to-Consumer companies. About two-thirds of B2B and B2C firms saw a reduction in their turnover levels between 2019 and April 2020.

This falling turnover affected entrepreneurs' satisfaction with their cashflow. Only about a quarter of them expressed dissatisfaction with their cashflow situation before COVID-19. Subsequent to the outbreak, 68% of them were dissatisfied.

There is a very real risk that the UK scaleup sector is about to be (or is already being) decimated—causing untold damage to the future of the national economy and wiping out the next Deliveroo or Revolut before they even have a chance to grow.

Disruptions in Markets

Entrepreneurial firms are much more likely to export than the average SME. Around half of the UK businesses we surveyed export. Their most common markets are the European Union and North America.

Nearly half of exporters experienced a decline in their revenues from exports and exporting revenues have fallen by about a quarter during the COVID-19 pandemic.

Export Revenues

  • 36.4% of firms saw export revenues stay the same
  • 47.1% of firms saw export revenues decrease (by an average of 23.6%)
  • 11.3% of firms saw business turnover increase (by an average of 17.7%)

Still, some exporters have seen an increase in exports, while others have stayed the same (see above). However, this hides the lag effects of COVID-19. The economic impacts of the pandemic on exporting firms are likely to increase over time. Supply chain disruption is a good indicator of the challenges to come. Around half of the exporting firms we surveyed had experienced delays, obstruction and even a complete halt to their supply chain (Figure 1).

Figure 1: Firms' Experience of Supply Chain Impacts

No Impact25.2%

Limited Impact23.8%

Disrupted Supply Chain38.1%

Halted Supply Chain12.9%

Essentially my business will be brought down not by a lack of customers, but by the supply chain shutting down, rendering us able to manufacture product at the point of our peak sales window.

How Have Firms Responded?

The following chart shows the main strategic actions firms have taken so far in response to worsening cashflow position. Two results stand out. First, four out of ten businesses have stopped strategic investments. Given the crucial role these scaling firms will have in injecting the entrepreneurial dynamism necessary to repair the UK economy after COVID-19, this lack of investment could have significant consequences.

Figure 2: Strategic Actions of Firms

    Cancelled business orders
  • Stopped or slowed operations
  • Sought to delay payments
  • Reduced or laid off staff
  • Stopped new strategic investments

Second, firms have also taken action to change their staffing levels. Firms are twice as likely to shed freelancers, contractors, and agency workers than permanent staff. While 90% of businesses plan to keep their core employees, around one third have furloughed staff. Others have cut hours, pay, or asked staff to take unpaid leave during the crisis.

What Do Entrepreneurs Think of the UK Government's Response?

In March 2020, the UK government introduced an unprecedented £330 billion business support package, which equated to 15% of the country's GDP.5. However, the devil is often in the detail. Gaps in provision are likely to exist which some businesses will fall through, either because they are unaware of available support or feel it is inappropriate for their needs.

Table 1 shows that there was some support for the UK government's job retention scheme, which provides employers with cash grants to furlough employees worth up to 80% of wages, capped at £2,500 each month per worker. However, many expressed concerns about the scheme and around one third of firms said it was not likely to benefit them.

Table 1: Impact of Coronavirus Job Retention Scheme

Detail %
It will mean that we are able to retain staff 34.8
It will have no impact on my business 29.3
Welcome the Scheme but worried about how it will work in practice 22.7
Too early to say 12.9
It is already too late to support my business 0.4
As a new business that needed capital to grow, I've reinvested all profit from this year. This means that I have not made a profit and so am entitled to no help from the government at all. If I had used loans to support my business I could've taken a wage and then the government would have helped me now.

Figure 3 shows many businesses are keen to take advantage of other sources of government support. However, around one in five firms feel that this support package was not going to meet their needs.

Figure 3: Uptake of Main UK Government Schemes

    Delaying self-assessment income tax
  • Employee sick pay
  • None of these schemes help
  • Small Business Grant Scheme
  • Coronavirus Business Interruption Loans
  • HMRC Time to Pay Scheme
  • Deferring of VAT payment
Adding debt to the business right now is not a real solution to the loss of income, so why bother when there are so many strings attached to the loans.
Government support is helpful but my business fits just outside of a number of the schemes (office slightly too big for rates relief) which is very frustrating, a sliding scale would be much fairer.

These results point to two recommendations for government:

  1. Continue to work with businesses to improve the effectiveness of the business support package while the UK is still in lockdown
  2. The economic effects of COVID-19 will only become more fully apparent once the lockdown is over. Many firms will have little or no revenues. The government should identify ways it can support firms as they attempt to build up their sales. Otherwise, there will be a dramatic increase in business closures and job losses.

What Are the Business Costs of COVID-19?

More than half of the firms we surveyed anticipate that their business will shrink. However, despite the dramatic decline in financial performance, many entrepreneurs are upbeat about their survival prospects. Less than one in ten (6%) of them think that they will have to close their business. 15% expect they will continue to grow while a quarter will stay the same.

Although we're seeing short-term disruption and loss of revenues, I remain optimistic in the longer term.

However, this optimism needs to come with an understanding of the financial and emotional costs for the entrepreneur struggling to survive the economic tsunami caused by the pandemic.

Around 40% of entrepreneurs have used personal savings or retained earnings to keep their business afloat during the financial crisis.

We also asked entrepreneurs about their levels of stress before COVID-19 and their current levels of stress using a scale where 0 equals not stressed, and 10 is extremely stressed.

The baseline reflects the fact that entrepreneurship is intrinsically stressful as entrepreneurs seek to juggle competing and difficult tasks, often with limited information and resources. Before the outbreak, the average score was 5.7.

However, since COVID-19, the average rose to 7.8, an increase of 37%. This points to the wider—often uncosted—challenges entrepreneurs face in running a business in a time of crisis.

Selling more in the light of reduced supply is the only choice open to us, increasing the risk on the company substantially. Supply chains have to be reinforced and sales pipelines need triage instead of maximising. New behaviour, new process, new risks—hence the stress.
Running a business is extremely stressful and takes a toll on your family and relationships.

What Are the Ways Forward?

This report presents the headline figures from the survey. As we analyse the results going forward, we will look for patterns such as how prior growth impacts on performance and whether exporters have different performance profiles to other entrepreneurial firms. We will share these findings with the firms in our study.

We will also use this report as a launch pad to influence the governments of each of the four nations of the UK to better understand and support what is a key group in the country's economy.

Finally, although the early impacts of COVID-19 are dramatic, the full toll will only likely become apparent during summer 2020 and beyond. We therefore intend to follow up with our entrepreneurial firms.

I believe that the actual impact of COVID-19 is not yet visible and will only become clear over the summer—which means that I think you should probably plan to repeat this survey.

1 Greene, F.J. (2020) Entrepreneurship: Theory and Practice, Macmillan: London.
2 We sent out an internet survey between 1–15 April to 776 high-growth-potential firms.
3 NESTA (2011). Vital growth: The importance of high-growth businesses to the recovery. London: NESTA.
4 All quotes are taken from the comments of entrepreneurs who took part in the survey. We would like to thank them for their assistance and the work of our research assistants, Dr Owais Golra and Matjaz Vidmar.
5 Coronavirus - Business support to launch from today, UK Government Website, 23 March 2020.