The Journal Gazette
Sunday, October 25, 2020 1:00 am

Startups standing up to pandemic

Cheap loans, low rent can be of great help, some analysts report

KELLI KENNEDY | Associated Press

FORT LAUDERDALE, Fla. – First there was taco night, then barbecue sandwiches, followed by meats by the pound – all splashy marketing events to generate buzz leading up to Proof BBQ's grand opening in the Cleveland suburbs. And then came the coronavirus.

Michael Griffin already had success with a popular pizza joint in the area and was following it up with Proof BBQ, which was slated to open in March, just as most restaurants and much of the nation were shutting down amid the pandemic.

“You're going, going, going 100 miles an hour. You're testing out sauces and you're testing out the meat,” Griffin said. “We just lost all that buzz we had from that February-March push.”

The odds of success with a new business are always precarious – few expect to turn a profit in the first year or two. Add the challenges of a devastated economy and constantly changing rules for operating in a pandemic, and survival is even tougher. Across the U.S., it's estimated that hundreds of thousands of small businesses have closed.

Despite that, some new businesses like Griffin's are forging ahead with openings or expansions in 2020, finding ways to make it work amid unprecedented uncertainty.

Griffin pivoted to takeout, creating a condensed menu, and expanded Proof's outdoor patio. They limped along for a few months, but as cases spiked in July and the city's bars were put on a 10 p.m. curfew, he closed up shop. Proof reopened last month to a steady crowd after eight weeks of being shuttered, serving takeout pizza on one side and barbecue on the other.

Despite the challenges, some analysts say the pandemic has created a climate for businesses to flourish if they can distinguish themselves. Interest rates for loans are lower, along with leases. There's less competition to borrow startup capital and, more than ever, there's a cachet to being the shiny new thing on the block during a humdrum period when people are stuck at home.

“For all the small business that aren't open, if you can open, that just makes you more powerful,” said Marshal Cohen, a retail analyst for trend group NPD.

And prospective entrepreneurs are still at least thinking about starting businesses, according to U.S. Census Bureau data. The number of applications for business tax identification numbers was down more than a third at the end of March compared with year-earlier levels; in the week that ended Oct. 3, the most recent data available, they were up nearly 40% over the same week a year earlier. The applications don't necessarily mean businesses were started, but the numbers do show that despite the virus's grip on the economy, people were considering it.

Square, a company that helps companies process credit card payments, said 1 in 3 of its new clients in the second quarter of 2020 were new businesses; and Stripe, another payment processing company, reported that the new businesses using its platform that have opened since the pandemic have generated over $10 billion in revenue.

“The interruption that it created is an extra hurdle that we have to overcome, but it also lends itself to being a business opening up in a period of time when you have very little competition,” Cohen said.

In Florida, as the vast majority of fitness clubs switched to virtual classes, Legacy Fit took the opposite approach. The state was one of the nation's COVID-19 hot spots in July, but CEO Manning Sumner decided to open new studios in Fort Lauderdale and Pembroke Pines, hosting classes in a ballroom-sized outdoor tent to ensure safety, while allowing clients to exercise in person.

His gamble paid off. The classes are packed.

“People have missed community. They are anxious to get back to group exercise,” Sumner said. “For the average class-goer, the novelty of isolated, virtual workouts has worn off.”

Upscale boutique hotel chain Aparium was deep into construction on six new hotels when the virus hit. It was too expensive to turn back, and the company was aware that timelines would be derailed, cutting into profit margins by millions.

The virus' domino effect seemed unending. Construction crews tested positive, so they added a nurse to the staff, created separate break rooms, and conducted temperature checks religiously. Shipping delays forced them to source new materials. In a typical tourist economy, the hotel would have about 150 employees, but they ended up hiring less than half the staff they originally anticipated for the Tampa, Florida, location, which opened in September.

Another hotel is opening soon in Des Moines, Iowa, although both projects were originally slated to finish in April or May.

“Our financial projections pre-COVID, we had to toss out the window,” co-founder Mario Tricoci said. “We're doing all we can to break even in 2020 when we reopen and probably the first half of 2021.”

Aparium serves a niche market that Tricoci said makes him optimistic. Their 100- to 200-room hotels don't cater to conventions and business travelers. Instead, they aim to be the place for leisure travelers to be seen at the lobby bar or restaurant.

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