What impact the Lockdown will make on Startups?
2008 was not really The Black Swan but its impact has been. The corona virus pandemic that started in December 2019 in Wuhan, China is the worst Black Swan humans have ever faced in this century. Quarantine and lockdown will be two words that we will forever be imprinted in human minds. The impact of the pandemic is huge in a short span because of the inter- connected world. Its impact does not end with Humans, it has made significant influence on certain businesses which will push other businesses also to rethink about their business models.
Turmoil in supply chains can bear significant consequences for Start-up’s across a diverse range of sectors, including technology and healthcare. The impact of China on the Supply chain of Fortune 1000 companies is over 90%. These companies must start from scratch to build their supply chain to avoid Chinese manufactured.
Offshore business will move to near-shore and decentralized manufacturing will rule the world instead of single source outsourcing. There are larger chances that Patent owners might go for multiple country licencing model instead of focusing just on cost reduction with a single country origin production system. The catastrophic damage caused by Corona Virus on the economy and that they cannot be predicted will force us to build robust systems for the future.
How Coronavirus pandemic will impact StartUp fundraising?
Are the startups anti fragile?… hell no! If you try to understand Black Swan effect on Startups, we will be surprised by the impact of it.
The early and growth stage Start-Up mantra is going to be- “Get acquired/merged or go out of business”. Early stage Start-ups might float as they worry about the cost of Founders/founding team. Grants and seed funds might become accessible after the lockdown. and for healthcare solutions to handle Surveillance or any other essential needs businesses might get the access to Angel/Seed investment locally even before the lockdown ends. If the Start Up’s have already raised an Angel round, they need to rework on their spending’s, business model, revenue model, growth plans and take it up with the investors and mentors to understand the impact.
Work from Home is good for some businesses but not or Funding
Start Up’s which require to have multiple rounds of meetings with investors, for due diligence will take a hit. Venture capitalists who are in the mode of raising funds might not go smooth as their investors could be spread across the world. Fear will rule this game. Luckily India might be a safe haven for investments, provided we continue to keep pandemic in control. However, it will not be as easy as before to raise multiple round of investments for the founders. Investor meetings and due diligence will be done remotely in couple of months’ time. So, businesses need to survive until then so that Investors understand the impact of this Pandemic and the course that governments across the world would take.
“Burn the cash to grow” will become impossible which will hurt Start-Ups which has long customer acquisition cycles. Eventually all these Start-ups will be forced to look for profits from day one, which might hurt the growth phase of many Start-Up’s. This will have a cascading effect on next round of funding and the fund utilisation if they raise the fund. Venture fund will prefer to focus on best performer to keep the bet safe, but they would continue to do the risk investments in a smaller size or with greater co-investments. Start-Ups which focus on overseas funding might hit a brick wall as they would be difficult to convince the VC’s.
How Start-up founders could survive Corona pandemic impact?
Whatever it is, founders need to act now or its never. There is not a second chance here. This mistake will cost a Start-Up if it is unprepared.
What is the question every Start-Up founder should ask now?
Do we need to change the business model? Revenue Mode?
Do the existing marketing/sales strategies will work now?
What will our customers do in next say one to two years?
How to reduce Start-up Burn rate?
What is the most profitable business model for a longer runway?
What will my investors do?
How should I gain the investors’ and other stakeholder’s confidence?
Do we have enough security systems in place to move the work out of workplace?
Years and years of our learning about customers, buying perceptions, sales cycles, inventory, revenue, burn rate, and runway are invalid in the current scenario. It’s a common perception among the founders that the runway lasts until the next round of funding and this will no longer be true. The assumption of next round is questionable and even before that growth plans until the next round will differ.
Is this weeks, months, a year, or years problem?
Uncertainty is not new for Start-ups in the game of risk vs reward. The biggest challenge with this Black Swan is how long it will exist. It’s not just during the lockdown even post lockdown it’s going to have an impact not just in India but also globally. If it exists for just few weeks, we need not worry much as we will have some ups and downs as India has handled it better than other countries. We have aplenty of opportunities.
In case if the pandemic goes beyond three or four weeks or even stays for couple of months then we must freeze immediately on costs that do not give immediate revenue. Many Start-up’s will find it difficult irrespective of whether its funded or not.
If it goes beyond couple of months Start-up’s should be prepared to handle the rough seas starting immediately. Life saver mode might go on from a year to three. As soon as the timeframe crosses three months the Start-up’s/Investors should prepare for the survival from reviewing the infrastructure costs, perks, burn rate, renegotiating all the contracts, etc.
Marketing and Sales strategies will transform dramatically to online but enabling that would be tedious if the Start Up’s are already not online. Thanks to the digital payment push from the Government of India that would play a greater & bigger part now. The fundamental question and most complex part are not selling or profit or execution. It is, whether your product market fit is still valid in these uncertain times. Start Up’s need to rediscover whether to offer additional features or change the product from the bottom. Businesses might be surprised to find that their competitors are irrelevant. If the scenario is expected to go beyond a year then business model changes, revenue models will change, delivery and sales process will change. Everything becomes completely irrelevant until a vaccine is found as a prevention & cure.
What is the responsibility of a Start-up founder & how to handle Covid 19 pandemic?
A founder is expected to find solutions to all challenges in front of him/her during this period. This will transform him/her as a compassionate leader. Once the Founders reworks production, Inventory, marketing. Sales, revenue, delivery models they need to communicate that effectively to various stakeholders of their Start-up from their employees to investors to vendors to partners. Founders must gain their confidence during these challenging times. Extremely hard targets are best to be avoided in their growth plans as it could hurt all the stakeholders unlike normal period.
First of all Founders must start by cutting costs in all possible ways which doesn’t directly connect with the revenues. Founders are passionate people sometimes the same passion which builds the business will kill it. Founders should be ready to lose the cards which they had been holding close to their hearts if that is not going to make profit. Keep the magic for dreams as this is not the time for it.
How Mentors and Investors can help StartUp Founders?
In uncertain times it is always better to cut down the capital and operational expenses to maximum extent. Discuss with investors and keep in touch with them to understand the Investment industry & updates to increase or further decrease the burn rate. Understand that investors might be trying to do the same, so be level -headed, empathetic and focussed. This is the time to come to a different level playing field.
Founders can acquire their competition if they have ample money with limited burn rate or can merge with the competition if the money is limited and if the burn rate is huge, or the founder can decide to make an exit. If the business has very high burn rate reduce it, and try to merge or get acquired within a month or two better to loose equity than the whole value. Understand that the inflated valuations will dive deeper in no time when the investors find no growth prospects so talk to founders/ Mentors and even Angel investors for deal making. Do not blame the VC’s and never bring the differences to public.
If investors had witnessed 2000 and 2008 from the frontline, they would have a greater financial wisdom and their investment decisions would change as an investor. Find the grey hairs for who had been there to support to sail through this unprecedented challenges. An advice from fellow founder could be a disaster as they might not have gone through these challenges. It is not really a market crash; this is a complete shutdown of the economy.
Which Start-ups are winning and losing during Covid19 pandemic?
Businesses that will hit the Bulls Eye
In the manufacturing Start-ups the hygiene products which are highly essential during Pandemic will create more new opportunities. The products which can grow exponentially not just in the domestic but also in the exports like gloves, masks, soaps, sanitizers, tissue rolls, contactless thermometers, antiseptic solutions, in-house air purifiers, low cost ventilators, low cost oxygen tanks and generators, Low cost dishwashers, will see a surge in sales in urban India and other international markets in a big way.
Most of the Service industry like Saloons, Therapeutic &wellness centres, home services, etc., will cater by products which will replace human touch. Every home will have the basic in-home service kit like personal trimmers for haircut, automated hair colouring kits, massage kits etc. for self -care. Plumbing kits, electricity maintenance kits, vehicle wash kits, UV lights to disinfect, etc. will also be in much demand.
Solar industry will grow as people would prefer to invest in solar devices as the daytime power usage will give them best return on investments. Nano tech Start-ups addressing hygiene, sustainability needs, healthcare, textiles, etc., will expand its horizon faster than ever before starting from now. There will be a huge demand for healthy ready to eat food with low preparation time and less complicated preparation methods. All these products will have local produce and sales because of the supply chain challenges and costs. This might also create make your own pasta, noodles or any other fresh food making machines.
Other opportunities are popping up everywhere – from food delivery to pharmacy, from insurance to home entertainment, online learning (Non-Academic). Art, craft and musical instruments will have a huge demand both for kids and grownups. Furniture’s designed to take care of both comfort and health needs. Space saving furniture’s, micro vending machines for beverages, low cost water purifiers with zero maintenance or with self-care,
Start-ups in Fintech, dating apps, EdTech, will-writing start-ups, fitness apps, remote working tools and recruiting start-up’s Digital healthcare, Remote working solutions, News/Media consumption will increase, Low budget television production will be of great boost, Gaming, streaming and online education content providers.
Robotics industry will penetrate many healthcare, sensitization and many other mundane tasks deeper and faster. This change will be irrevocable, and it will become cost effective. Real time data Start-ups will grow with robust technology and services might crop up after few years again. From floor cleaning to farming there are many areas where Robotics will make a huge impact.
Bio tech, Bio pharma sectors will attract more investments and growth specifically in India. India could be largest exporter of medical drugs across the world.
Indoor sports will be a big hit with and without VR and AI. This will create lot of semi physical activities which will address the health needs. There could be products like low cost Table tennis kit which might grow faster. Even toys industry could penetrate this opportunity.
Considering people will spend more time indoor and less on travelling there would be a need for low cost Video conference equipment’s with multiple screen, multiuser access. Investments on Audio and Video equipment’s will go high to meet the professional, entertainment and educational needs.
Plastic industry penetration will become lower other than in healthcare. Businesses have to explore lot in the “use and throw” segment like medical body suits, face protection masks (Not the breathing masks), textile application in healthcare and hygiene needs, etc.
Every household budget will add essential safety products budget for preventive & emergency health even post pandemic. If Start-ups build products and services which fits into this budget/expectation, then they are there for long time.
There will be a big demand for online psychological counselling Start-ups which will help keep the entire population sane. Similarly, marriage counselling, parental counselling, kids counselling, WFH Employee counselling, etc., will become a basic need.
What comes to a standstill until the Pandemic is completely wiped off:
It is not true that nobody ‘wins’ when it comes to coronavirus. Those Start-ups who have fewer cash reserves and a smaller margin of error for managing sudden downturns will be affected instantly. These Start-Up’s might go out of business for ever.
Brick-and-mortar retail sales, revenues have gone down so online businesses will grow so more opportunities for ecommerce players provided they have a good supply chain management solution and health care systems in place to protect both customers and employees. There are clearly dozens of sectors that will likely be impacted: biggest economic loser would be the travel and tourism industry not just in India but across the world. The whole value chain comprising taxi drivers, small-time travel agents, tour operators, hotels, and online travel aggregators (OTAs) has been badly hit.
Discretionary and luxury spending is bound to drop which will have a huge impact on the e-Commerce industry even if it gets started soon. Co-working space which never planned for social distancing, Retail, Airlines, Bus fleet operators, trains, Event ticket selling Start-Up’s, any business that depends on supply chain (specifically imports) will go stand still until the pandemic is completely erased in the country of origin or vaccination is developed in the destination. Of course, these are early days and as people continue to evolve and adapt to their new way of life, we are likely to see numerous other trends emerge in the way business is conducted and also in human behaviour.