With the start of the coronavirus pandemic, some 87 percent of Israeli startups set up remote operations, a survey has revealed. And while most respondents report a rise in productivity and and the same number of work hours as pre-pandemic, they are concerned about a negative impact on company culture, as employees lose a sense of belonging and the ability to maintain creativity.
Some 85% of the respondents said they are likely or somewhat likely to sustain remote work shifts more than 12 months after the end of the pandemic, the survey showed.
The Startup Snapshot survey was conducted by Y. Benjamin Strategic Marketing; LeumiTech, the banking arm of Bank Leumi Le-Israel Ltd, which focuses on tech firms; attorneys Yigal Arnon & Co.; the tech accelerator program of Intel Corp., Intel Ignite; Benson Oak Ventures and the Zell Entrepreneurship Program.
Over half of the 200-plus startups in the survey had raised $10 million or less, 81% had 40 or fewer employees, and 71% were already generating revenues.
Upsides of working from home included increased employee satisfaction and possibly a reduction in real estate costs. Forty-four percent of respondents said they had reduced office space or canceled leases.
Employers, meanwhile, were finding it harder to maintain a sense of belonging among their workers, and seeking ways to engage and retain their employees, as well as maintain creativity. Seventy-nine percent of respondents said that company culture — defined as teamwork, innovation and loyalty to the company — was greatly or partially impacted.
If the work from home trend continues, “innovation will suffer in the long-term, as the lack of water cooler conversations will limit the flywheel effect of new idea creation,” said Intel Ignite’s general manager Tzahi Weisfeld in the report. “It’s very hard to innovate in a vacuum.”
To survive in this changing world, “the startup community will need to find a way to preserve” the innovative edge it gets from office interactions, said Yifat Oron, the CEO of LeumiTech, in a text message. “Finding the right hybrid model, work from home and office, is essential to maintain innovation.”
The pandemic has also had a huge impact on the hiring market, as many startups froze hiring new workers or reduced their workforce. Today, many of those let go are now looking for new positions, leading to an excess of qualified candidates, the report said. The pandemic, which has made employee location less relevant, is also starting a trend in which startups are increasing their reliance on outsourcing, tapping into a flexible, global pool of talent, the survey said.
Twenty-nine percent of respondents said they were increasing their reliance on outsourcing, with 50% saying employee location was less important.
“Israeli employers are leveraging the opportunity, tapping into top talent from around the world to build truly global organizations,” the report said.
In the survey, 60% of respondents said they had to change their sales strategy, focusing more on digital channels, shifting to online sales, or partnering with local distributors. Twenty-one percent said they had changed their target geography and 14% said they had hired sales representatives in target markets.
“Far away from their target market, without networking and conferences,” companies are relying increasingly on digital sales and on-site distributors, the report said.
“If successful, the new sales playbook has the potential to ultimately create a monumental, long-term advantage for Israeli tech. Essentially ‘flattening the world,’ the geographic distance from international markets will no longer be a competitive disadvantage, and local startups will successfully compete with global firms, all from the comfort of their own home,” the report said.
More than half of the companies surveyed, 55%, said they had to adapt their product to the new circumstances, either adding new features or overhauling their offerings.
Nearly half of the respondents, 46%, said they were struggling to pitch their technologies to foreign investors and customers remotely, via online communication only rather than in person. This has resulted in smaller check sizes and less international interest, they said. The companies most affected by this were the smaller startups, the survey showed.
“We held the survey to see how the remote trend is affecting tech firms” in terms of their workforce, hiring, sales, and fundraising, said Yael Benjamin, one of the authors of the report.
The picture that emerges is twofold, she said. On the one hand the shift to online sales, hiring, and remote work is opening up new opportunities, and entrepreneurs are learning to manage their business operations, workers and investor relations from afar. They’re cutting costs with reduced travel, remote deployment of products and less office space.
On the other hand, it poses challenges to corporate culture, innovation and fundraising.
“The pandemic has forced a change in how things are done,” Benjamin said. “It is posing a lot of challenges. The companies that will be able to crack the change, and take advantage of a flattened world, will have a huge advantage.”
The survey also shows that Israeli entrepreneurs have not taken a wait and see approach as the pandemic develops. Indeed, the majority of startups, 69%, said they hadn’t made changes to their sales budget, choosing instead to focus on repositioning their product, shifting strategies and doubling down and securing market share in the changing market conditions.
“Most startups are playing offense,” Benjamin said. “They are showing that they are agile, and able to adapt quickly to a new reality. This will likely give them a lot of advantages going forward.”