Startups Hit Hard By Coronavirus Shutdowns

April 3, 2020

Earlier this year, we looked at how the fitness startup ClassPass grew into a $1 billion company thanks to an innovative business model that allows members to easily find exercise classes in their area. Flash forward just a few months later, however, and ClassPass finds itself in a completely different position due to widespread shutdowns caused by coronavirus containment. As gyms and fitness centers closed across the world in March, ClassPass watched as 95 percent of its revenue disappeared within 10 days. The company quickly froze hiring, drastically cut spending, and started developing a streaming video service for at-home workouts. 

Of course, ClassPass isn’t the only startup that’s suffering during the COVID-19 crisis. A San Francisco-based travel company called WanderJaunt laid off more than 50 employees last week as hotel bookings largely stopped. Another startup called Wonderschool saw demand for its daycare and preschool-seeking services drop by half, leading it to lay off most of its staff. All told, more than 50 startups have cut or furloughed more than 6,000 employees in an event that one financial analyst dubbed “the great unwinding.” Established tech startups are feeling the pain as well, with Airbnb cancelling $800 million worth of marketing and the apparel company Everlane cutting hundreds of workers.

“The coronavirus outbreak is economically akin to a major hurricane occurring in every state around the country for weeks on end,” said Daniel Zhao, an economist at the employment website Glassdoor. While few companies are built to survive such harsh conditions, startups are especially vulnerable due to the high amount of risk that they carry in even the calmest times. Still, startups in fields such as food delivery, remote working, and online education have seen an increase in sales since people started staying home. These companies are decidedly in the minority, however, and experts predict that many startups will not be able to weather this storm. “There’s no doubt that this will be a time of weeding out of start-ups that can’t survive,” said venture capital investor Mike Jones. 

Questions:

  1. How has the coronavirus outbreak affected operations at ClassPass? Do you think that the company can recover?
  2. Why are startups especially vulnerable during times of economic crisis? 

Source: Erin Griffith, “Start-Ups Are Pummeled in the ‘Great Unwinding,’” The New York Times, April 1, 2020.

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