STARTUP IN THE TIME OF CORONA

Apr 1, 2020

 

A few weeks ago, Wuhan in China reported a spurt in cases involving a mysterious, pneumonia-like illnessą„¤ Since then, the coronavirus, now named COVID-19 and thought to have spread from bats to another species before being transmitted to humans at one of Wuhan’s live-animal markets, has infected thousands of people across the world. The outbreak has also infected and shaken the global economy, disrupting almost every major industry and sector. 

 

Sequoia Capital, one of the world’s leading venture capital firms and a periodic soothsayer for the industry, sent an email to its entrepreneurs Thursday warning that the coronavirus could usher in a prolonged global economic slowdown and fundamentally alter the business environment. The editorial, titled “Coronavirus: The Black Swan of 2020,” said companies should consider cutting costs, revising sales forecasts and conserving cash.

 

 

 

COVID-19 and STARTUP

Let’s embrace the hard truth: the COVID-19 pandemic is going to stress-test startups. I could have sugar-coated it and used a bit more optimistic words as the first line. But that can send a false message. Some may take this lightly and ignore or delay to take actions proactively. We don’t want that. We should take actions. Not next week, not tomorrow, but today.

 

For startups, the virus is doubly unforgiving. Startups that are fortunate enough to close a fundraising round during the outbreak will heave a sigh of relief, venture capital firms predict that startups will struggle to raise funds. As per report on Medium, Singapore-based VC fund Velocity Ventures anticipates a drop in funding of 25% for startups in Southeast Asia (SEA). In the wake of the coronavirus outbreak, some startups are already feeling the pinch.

 

However, pre-seed and seed-stage startups with less cash in the bank, he fears, “will find it almost impossible to raise an interim round, as their burn rate will increase as sales fall”. It is likely to be harder than usual for these companies to gain customers, meet potential clients and start showing traction. In turn, this is likely to make it more difficult for them to raise the next.

 

How Corona may impact Nepali Startups?

 

Last Friday, as a precaution, Nepal Government announced temporary bans by completely halting all long route transportation services, international flights and non essential services offered by both private and public sectors. The government has fixed 19 areas of essential goods and services. The entire country is on a lockdown for a week started 6 am Tuesday, amid concerns over the spread of Covid-19. This lead to closure of many startups. 

 

There can be a range of scenarios with a potential Coronavirus outbreak in Nepal. On one side, Corona may not spread that much here. This is the best case we can now hope and pray for. Nevertheless, we will have a huge impact, of course, considering the global situation and impact on the economy. On the other side, we may be affected like Italy, Iran and other highly affected countries. This directly impacts everything and all of us. Now we are in the situation of Lockdown.

 

We need to hope for the best but prepare for the worst. A startup is much more susceptible to turmoils like this. Large, stable companies normally have better resources to handle an emergency. They have some cushion to cover the losses, backups to get up and keep running. But it’s not the same for startups. All the startups are severely constrained on resources. A few weeks or months of dry season can put startups in immense danger, let alone a critical crisis. We have seen numerous promising startups fall through the crack during the Internet Bubble in 2001 and the Global Recession in 2009. 

 

On top of that, the startup ecosystem in Nepal is at its very early stage, and we don’t have the capacity or experience to handle a disaster situation. Many startups are working as per their capability and raising the fund as per their personal approach. This leads to the short of Working Capital. They are bound to take loan from Co-operative and managing the cash flow. In this situation where Technology is the main source of the business of many startups, there might be some problem on managing fund for the emergency. 

 

Many Nepali startup makes a product that are made for the favorable market condition and in this situation that product and services can not be cope up with this scenario and ultimately the idea and innovation will get failed. And the person associated with the startup will be morally down and  financially they will not be able to handle and there will be cash crunch. 

 

Before Lockdown situation, I talked with the many concerned person of the Nepali Startup. In conversation with Prakash Neupane, Co-Founder of Sarathi Cab Services, he mentioned, “The mobility has been certainly decreased by each day as compared to the previous. The number of cab associated with Sarathi are same as of now but due to low mobility, the cab drivers are facing the huge crisis of passengers. For prevention to this situation, we have made all the drivers clear about the hygiene to be made. The digital payment has also decreased due to this scenario. We are not sure about how much time we will be facing this and if the situation will not be in control soon than this may lead to closure of many startups in Nepal.”

 

Anil Banjara, Co-Founder of Sajha Deal, an e-commerce of Nepal, said that while witnessing other countries situation, we are having difficulty to import the goods from abroad and even we are not getting the goods from the vendor here at Nepal. The situation is deteriorating day by day and the frequency of purchase is also getting low due to which we might not be able to manage cash crunch. Our many of the expenses are fixed in nature as rent, salary and other expenses and if we could not function one day well then the whole cycle of cash flow will get hampered. Government should be flexible with the startups and should be able to address at this situation. 

 

Yes, we should be more conscious towards the health but due to the decision made by the government to avoid the gathering more than 25 individuals, we have to cancelled 15 booked conferences which lead to huge loss. The daily sales is only 5 % as compared to the previous days says Birendra Bikram Chand, Co-Founder, Carnival Restro and meetings. 

 

The same kind of problem has been facing by another Logistic service based startup. Roakchha KC, MD of Fast Movers Logistic shared that there is problems on importing the goods from outside Nepal which arises lack of goods required by e-commerce. Maximum of our clients are e-commerce and due to this delivery of the parcels are decreasing day to day.    

 

Manoj Gyawali, CEO of Jyoti Bikash Bank mentioned this situation is affecting each and every individuals and firms nevertheless of shape and size. Our economy is remittance and import base and we are sustaining due to cross boarder. We import many of our essentials from third country. If the situation gets worsen then whole eco system will be affected. 

 

These were the situation which appears before lockdown. Now the situation is much more severe.

 

What STARTUP can do in this situation?

 

In the case of the mass outbreak of Corona in Nepal, one should give the highest priority on survival during the pandemic. This is about the mindset. Now, this doesn’t imply that the effect of corona will necessarily hurt business growth or productivity. Some may have a positive impact somehow. But considering the global state of affairs, I would like to emphasize on giving priority on surviving than thinking of your month to month growth or highest productivity at this point. Once you have everything in your control again, shoot for the next.

 

A global pandemic like COVID-19 is a unique unfortunate event our generation is witnessing. It will have a long term impact, not only on the economy but on psychology as well. The time will be tough for founders, for employees, for investors, for each and everyone in the world. You know the saying, “save your money for a rainy day”; well, that day is now. Examine the cash you have on hand and imagine how you could make it last for at least six to nine months. And it you don’t have enough cash on hand, look at how you could cut expenses or increase sales by doing something different. Not every startup can be as lucky as Netflix to experience more growth as more people stay at home, and those who have had their supply chains disrupted will be the worst-hit.

 

At this situation, Take the strict measures and cut down spending you can avoid right now. Only spend where you have maximum return on investment now, and reduce cost everywhere else. Remember when you started your business and had no money and you were super creative on using word of mouth, organic social media and key networks to sell your product or service? Well, get back into that mentality. Be more creative with respect to your marketing expenses and look for ways to use marketing tactics that don’t have a significant cost. 

 

Leadership is crucial during such crises as employees look towards the founders and CEOs for guidance. While maintaining a sense of flexibility, it’s also important to adopt a realistic mindset to avoid any trap of not making a contingency plan. Don’t fool yourself and believe your most optimistic projections. Get very realistic. The goal is not to hunker down and hide but to devise or brainstorm ways you could actually sell more of your products or services. Perhaps it’s new markets, customers or leveraging a partnership. If you can’t run on a full scale, which are the core functions you can keep moving and generate revenue so that you can cover the operations expenses and salaries? Is there an opportunity to diversify the sources? Review your sales forecast. You may not immediately be able to forecast due to the turmoil, but it’s important you try to predict each and every impact on your sales and marketing.

 

You may have some funds kept aside for capital expenditure, raw materials, inventory, etc. Now you may have enough funds, but in the coming days, there can be a shortage of funds and investments. So think carefully which one is a necessity for you now. Downsizing, restructuring, however, the startup can name it, it’s a good time to rank employees and find “non-essential” employees. Layoff seasons are already in full swing and it’s a good time for startups to look at themselves and see if they really need that many people. The key is to be productive: having more than one employee being less productive than the others is already a luxury.

 

Since Corona has viral nature, in case of huge spread out in Nepal, you will have to either consider working from home or will be forced to do so. In places like Italy, the virus spread just in one week, and they didn’t have much time to be prepared. That’s why you need to create a Virtual Workplace Protocol as soon as you can. According to WHO’s advice for Public, Workplace Preparation, you may have people in your company who can still serve remotely. For example, Tech teams, Designers, Researchers, Tech teams, Data Analysts, Accountants, etc. This is true for situations where you still have the option to get people in the office. Meaning it’s not complete lockdown. There might be sales representatives who need to handle customers in person, operations people, etc. I can’t and really don’t want to generalize at all. If it’s comparatively safe, then you can consider this. It’s a judgment call and depends on the Leaders as long as there’s an opportunity to do so. Once your Virtual Workplace Protocol is ready, be prepared to communicate with your team so that you can activate the protocols at a moment’s notice. You may have multiple protocol stages for different scenarios. And once you have the protocol ready, try to ‘Run a Drill’ by asking everyone to work from the office on a specific day.

 

Identify what are the different ways a corona crisis can negatively impact your business. Then try to figure out how you can mitigate those risks from your business. Now brainstorm with your team and try to figure out if there are potential opportunities that you can use. Have an innovative strategy to respond to the risks and grab the opportunities as you go through this. It’s easy to focus on the inner work to survive the hard times, but it’s important that you won’t fade out of sight and out of mind. Keep up your brand awareness, communicating with your customers, your investors and the market. Engage with them – post newsletters, social media posts, try to get free creative PR. You need to stay in the news so that your customers remember that you are a player in the market, even if you don’t have significant growth yet. When the hard times are over, they will be more receptive to you if they have seen you around in the past months.

 

There’s the quote floating around – “Coronavirus will bankrupt more people than it kills”. As I already mentioned above, due to the resource constraint nature of startups, the financial impact on the business can be drastic. As per the COVID-19 Contingency Plans by Ellis Miller,

 

A financial contingency plan should document your course of action in times of crisis that threaten the stability of your company. It should focus on resource and financial allocations in particular. Many of the startup of Nepal with the low investment are bound to take loan from Co-operative, its the measurable condition to tackle with the monthly interest and installments. And some are the startups run by the loan taken from the bank, this also leads to financial crunch to the payment to the bank and financial institution. Even more dramatic situation in our society is that, we, the startups are bound to take loan from the friends, relatives and other person on the monthly high interest rate because we do not get loan or financial support from Government. In this regard, situation will be more severe. 

 

If you are in the stage of raising investments from Angel or VCs, think forward several months. Since the global economy is collapsing, it can become very difficult to raise the next round of your investment. Sequoia’s “Black Swan” post already has enough hints for us on that. Think in that case, how can you still keep moving? Can you reserve some extra cash now? Identify what are alternative funding opportunities. And don’t be late in the race, reach out to people who may help you out financially in the coming days. Do whatever you need to do to keep morale up in your company. Be transparent, encourage to take extra leave with the slightest symptom of sickness, keep close communication with everyone. Manage your own stress. Share your problems with family and friends, with close ones and try to release stress. What happens, happens to many of us, none of us is facing the situation alone.

 

Surviving coronavirus can make the immune systems of our startups stronger. This can be the beginning of a new era. Ultimately, startups that can endure these hardships will eventually emerge victorious. As William Bao Bean, a General Partner at SOSV, puts it: “It is the cockroaches, the survivors, who can really take advantage of this tough environment that will build the next generation of leaders.” Most importantly, take care of your family, your friends, and stay healthy! Let’s stand strong together in the crisis moment. Let’s support each other in the fight against coronavirus. Let’s extend our helping hands and survive this global phenomenon.

 

“STAY HEALTHY, KEEP READING & MAKE YOUR COMPANY HEALTHY”

 

Rishi Ram Adhikari

Twitter: @adhikariwrites