5 Things Startups Must do During Covid-19 Crisis, According to Investors
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The coronavirus or Covid-19 virus pandemic has sent the global economy into doldrums. In India, the ongoing 21-day countrywide lockdown aimed at preventing the virus from spreading has pushed most businesses to a grinding halt. Startups are no exception.
While some of the sectors like logistics, edtech and consumer goods remain largely untouched, most others need to prepare well to deal with the long-term economic impact coronavirus will leave on their businesses. “These are uncertain times and will continue so even post the Covid-19 phase. We’re easily looking at end of the year for the domestic economy to resemble some degree of normalcy,” said Ashish Fafadia, Partner, Blume Ventures, during an online conference, 'Impact on Funding—Midst and Aftermath of Covid-19', organised by Entrepreneur India.
From extending cash runway to innovating with the product, six renowned investors share the most important steps startups should take to operate efficiently during this time.
All the investors unanimously agreed that startups should keep their cash safe and carefully look at costs. “Cash is the hardest commodity to get right now,” said Sanjay Swami, Managing Partner, Prime Venture Partners. “It should be preserved in a prudent manner by cutting on spends.”
Tej Kapoor, co-executive president, Fosun RZ Capital (India and Africa) said startups should have liquid cash equal to about nine months of expenses.
However, the focus should not just be on conserving cash but also on how that cash is being used. “We are advising our portfolio companies to stick to large banks and fixed deposits for their spare capital rather than opting for illiquid instruments,” said Fafadia. “At this juncture, the idea is to be risk-averse and not optimise on smaller variables, like return on investment.”
Anjali Bansal, Founder, Avaana Capital is advising its portfolio fintech companies who are into lending to even halt disbursements for a few weeks to keep the funds for themselves.
Cut on marketing spends, customer acquisition costs and put expansion plans on a back footing. At the same time be sensitive towards vendors and others who are at the bottom of the value chain and make payments wherever necessary. “Be sensitive but also conservative to preserve cash,” Fafadia said.
Prepare for Post Covid Phase
Fafadia believes that the post-coronavirus phase will be just as, if not more, tough. “We are telling our portfolio companies that things will resume in the next 4-6 weeks, but will still be slow. So it is important to prepare for that phase as well.”
Businesses stopped suddenly due to the lockdown but they won’t bounce back with the same degree of force, he added.
For B2B companies, the slowdown can be relatively longer because customer businesses must have also been hit, affecting the entire cycle. “Many of the customers will also go out of business or downsize their projects. So, startups should prepare for about 30-35 per cent depletion in revenue,” said Swami of Prime Ventures.
Focus on Product Innovation for Positive Outcome
According to Bansal of Avaana Capital innovation driven businesses will come out of this crisis stronger, more differentiated and very well positioned. “There will be an even more significant shift in digital than there has been in the past. The way we work, live and consume will change, so businesses who evolve and innovate their products will lead and survive,” she said.
Sandeep Murthy, Partner, Lightbox concurred and said startups should use this time to evolve their products and improve customer experience. This is especially true for consumer product startups, believes VS Kannan Sitaram, Venture Partner, Fireside Ventures. “Consumer products falling in non-essential services may witness deferment of demand after the lockdown. Such startups should strategise on how they will tackle this deferment.”
In fact, Swami sees these as opportune time for startups. “Consumer behavior during this lockdown will shift to a point where virtual communication might become the new normal. As a result, sales process might move from in-person meetings to remote conversations. What this means is that if you have so far been selling regionally, now you have pan-country or even global opportunities opened up for you,” he explained.
Communicate with Investors, Employees, Customers
Startups should communicate with their investors explaining their current situation. They can help assist on how to maintain adequate runway and within that how to exercise utmost level of conservativeness.
Most importantly, companies should create transparency with all the stakeholders. “Have the right communication with all your stakeholders on what you are trying to do,” said Fafadia.
Kapoor said startups should communicate more than ever across the board—investors, employees, customers. “A lot of our portfolio companies have re-negotiated their rents by sharing their situation with landlords. So, communication is key and can help in big way during this phase,” he said.
Keep Your Employees Safe
Bansal believes the paramount thing to do is ensure employee safety. “This lockdown has been imposed because it’s a highly contagious situation, so the first thing businesses should do is keep their people safe. Business will happen if life continues.”
Along with cash conservation, employee safety is also part of business continuity plan, she added.
Along with physical safety, it important to keep them motivated as well, Kapoor said. “It is very very important that companies assume leadership in these dire situations.” The employer should reach out to those employees in need and help them in these dire circumstances. “You will be able to utilize your workforce in your innovation plans by keeping them motivated,” he added.
Fafadia insisted that founders look after their mental and physical health as well. “Other crises in the past decades that most of us would have seen were of a lesser magnitude but this is unfortunately going to be far worse. So, look after your mental as well as physical health.”