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Uphill Climb: Startups operate amid coronavirus

Young companies have much more to think about, and develop, during COVID-19 days

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The first few years of a business are never stress-free. But throw a global pandemic into the mix and the challenges – and yes, opportunities – start stacking up for entrepreneurs.

For Compat.io LLC founder and CEO Tim Baynes, the COVID-19 crisis has pushed him to invest every waking hour into his business over the past month. The result: He’s in the midst of hiring nine employees to help accelerate the launch of a new social commerce platform. His 2-year-old company’s core software, which went to market in January, enables retailers to better optimize e-commerce sales. He said that’s more important now than ever.

“For a retailer that has a brick-and-mortar store that was relying on foot traffic, … we can help them be a lot more effective selling online,” he said. “We see what we’re doing as being critical to help companies survive.”

Baynes launched Compat.io’s Expert Recommendation System software after securing $1.25 million from investors last year. He had begun a second round of funding targeting $1.5 million last month, the same day the stock market took a historic dive.

“Our timing was impeccable,” he said, laughing. “We got a pretty good pipeline built up and then this thing hit.”

Baynes isn’t the only local entrepreneur who is finding ways to solve problems created by the COVID-19 crisis.

ModBox LLC co-founder Justin Cardoza said while the pandemic has delayed the launch of his product, a smart charging case for drones, he’s researching ways to support health care workers fighting the virus through the existing technology he’s created.

“We’ve been looking at the medical processes to see if there is a smart case or a smart product that we could help make those processes easier, faster and more reliable,” he said.

He said he and his wife, company co-founder Chelsea, are still in the research phase for a product.

Although he’s invested countless hours in the company’s core smart case for drones, Cardoza said the business isn’t profitable yet, so he doesn’t think the Paycheck Protection Program, part of the $2.2 trillion federal coronavirus relief aid, is a fit. But he’s working with financial advisers to see if ModBox would qualify for a U.S. Small Business Administration Economic Injury Disaster Loan. It provides up to $2 million, over a 30-year loan with a maximum interest rate of 3.75%, and a $10,000 cash advance.

“Anything would help us to pay our expenses. We were hoping to be profitable at this point,” Cardoza said. “We can’t wait to be full time with ModBox.”

At Compat.io, Baynes said he’s applied for the Paycheck Protection Program to cover payroll expenses for his stateside team to keep operations going.

With seven clients already signed on for his XRS software, which integrates with e-commerce platforms Shopify, Magento and WooCommerce, Baynes now has sights set on his own e-commerce platform. He’s targeting retailers from Kansas City to Fayetteville, Arkansas, in the coming weeks for the social-based software that will connect local businesses with local customers.

“I don’t want to come out of this pandemic and have Amazon be twice as big and bad as they were a year ago,” he said. “We’re doing it in a way that engages the local community to buy from a local retailer and have that delivered locally. One of my goals has always been to build tools to empower local retailers.”

At 37 North Expeditions LLC, the COVID-19 crisis has thrown a wrench into long-term plans.

“This absolutely halted some big, ambitious plans we had for 2020,” said co-owner Danny Collins. “This is going to hit about 50% of our peak months.”

He founded the outdoor tour guide company in early 2018 with his wife, Cristina Bustamante. The first year they hit $21,000 in revenue, and last year generated roughly $60,000.

“This year we were looking close to tripling it again,” he said. “Before this happened, we had already hit 50% of sales from last year. It couldn’t be worse timing for us.”

Collins estimated at least 16 trips, which originate from Springfield or Bentonville, Arkansas, have been canceled or postponed already. And the company’s first international trip – scheduled for the fall in Ecuador – has been moved to February 2021.

Both Collins and Bustamante work full-time jobs elsewhere, and while most of the company’s dozen independent contractors are out of work for now, Collins said he’s thankful 37 North Expeditions isn’t their main source of income. He said trips are tentatively scheduled to pick back up next month.

In the meantime, Collins has shifted the business online, providing tips for families to enjoy the outdoors and exercise during stay-at-home orders.

“We’re seeing a culture that is changing to appreciate the outdoors even more than before,” Collins said. “We are excited to be there when people are ready to get outside again.”

Chrystal Irons, director of the Small Business and Development Center at Missouri State University, said inquiries to her team on starting a business have gone way down in the past month. But support for existing businesses has shot up.

“They are really focused around what disaster relief options are available to them,” she said. “Immediately, they were focused on ways to save some of their cash flow. How do we choose what we pay? We’ve also been getting a lot of unemployment questions.”

Irons said as long as a business was established by Feb. 15, it is eligible for SBA disaster loans. But the Paycheck Protection Program may not be an option.

“If they are really new, they may not have as many employees and thus their payroll is not very large,” she said. “If that’s the figure you are using to arrive at your loan amount, they may not get as much relief there.”

Irons said guidance on support changed frequently over the past month, especially when it would be available and who qualifies. She said the SBDC team provided 350 counseling hours in the week of March 24 alone. About 50 hours a week is an average.

Lance Coffman, who works with Irons at the SBDC, encouraged businesses to apply for as much support as possible. He also said businesses that have an active SBA loan will automatically have their payments covered in the next few months through coronavirus relief measures.

“Immediate cash is the biggest need for most businesses,” he said. “The smaller the company, the more affected they are by that.”

Irons said some of her clients had received funds from the Paycheck Protection Program as of April 13, but none had received funding from the SBA’s disaster loan program. She had hoped funding would be available faster, but said it was a big undertaking to adapt the program to fit the COVID-19 crisis.

“Their program traditionally has been to support a few counties or, at most, a few states in a disaster,” she said. “Now we’re saying literally overnight, ‘Hey, turn this program on and support the entire United States.’”

For Cardoza at ModBox, he said the crisis has affected another business he owns, as travel plans through Digital Panda LLC are on hold.

“I was in Los Angeles at Universal Studios when this hit. We were just starting the new season of ‘American Ninja Warrior,’” he said. “And I’d just gotten a contract to do drone work for a new series for Netflix. … That’s postponed.”

But he’s not dwelling on his losses. The change has unexpectedly given him more time to focus on ModBox, with plans now for a summer launch. He said entrepreneurs have an opportunity to thrive in crises.

“We can look at this and go, ‘What a setback.’ Or we can look at this and go, ‘What can we do with this? How can we help and make a difference and grow our company all at the same time?’” he said. “How can we pivot?’”

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