With over 40 lakh known cases (and increasing by the minute) in over 210 countries, experts think the Covid19 pandemic shall only get worse, for the remaining 2020 at least. The pandemic deemed as a human tragedy, affecting millions of people across the world, claiming lives and killing economies.
The spread of Covid19 has pushed the pause button across the world’s biggest powerhouses. When the world was first hit with SARS almost 20 years back, it caused an economic blip, but Covid19 has caused a disruption so massive that the GDP of the entire world has been hit. An analysis by the UN Department of Economic and Social Affairs (DESA) states that the global economy could shrink by 1% in 2020 as against the previous forecast of 2.5%. And, with the virus not showing signs of abating, the UN warns that it may contract even further plunging the world economy into a deep recession.
With the lockdown imposed in many countries, restriction on movement of people and goods, and nearly 100 countries closing their borders, the global supply chains, and international trade has been affected immensely. The world financial markets have witnessed crashes and massive capital outflows, making new lows and causing severe depreciation of currency value.
The global economy is experiencing a slowdown like never before. India’s GDP has been on a consistent decline after peaking out at 7.9% in 2018 to 4.5% in Q2 of FY2020, recent predictions bring this down further.
Sectors like airlines, gems and jewelry, automobiles, real estate, and steel have shown high leverage even before the pandemic and the current situation have worsened the stress.
Startup – a new trend, setting India ahead globally, was just spreading its legs and getting comfortable, but the slow down is hitting hard. Now, many Indian startups have their own war to fight as the financial relief package is still awaited. The lockdown, as we can imagine, has disrupted businesses of many startups.
Many startups such as Bounce, Ixigo, and MakeMyTrip have begun to cut the salaries of their top management and employees, amidst the crisis. Cosmetic retailer Nykaa has called off its operations and has informed about their inability to pay their dues on time. Even the VCs and investors are losing their appetite to invest in these tough times. Food delivery firm Zomato was in the process of raising $450 million two months ago, but the funds are yet to arrive. Every startup is doing what it can to survive.
Further adding to their dilemma is the recent FDI policy change by the government. The new rule where the government wants to screen every investment done by the Chinese entities into the Indian companies may not augur well. The rule will bring billions of dollars of future Chinese investments into Indian startups under scrutiny, which may affect the deals.
But, there is a certain amount of cheer amidst such gloom and panic. The gaming industry, video conferencing providers, and online education companies are witnessing a boom like never before. The online gaming industry has skyrocketed during the COVID19 crisis. International games such as HouseParty and Psych have emerged as the most played games. Video Conferencing firms like Zoom are adding hordes of users conducting online meetings. The demand for food and groceries has increased. The medicine delivery startups are increasing as consumers stock up on masks, sanitizers, and drugs.
These are uncertain times and expected to continue even after the pandemic subsides. It may take months (or more) for normalcy to return. Every startup is now staring at the existing crisis of business continuity and at the same time counting their money. Every startup must learn to be innovative and productive, especially at these times. They need to undertake the best practices to tide over this uncertain period. Here are some tips:
Keep Cash Runway to Avoid Burn-Out!
Conserving cash and looking at costs is essential for a startup to avoid a fallout during COVID19. Experts agree that it may be difficult to raise funds in the coming months. Every fund raising outcome will take longer than usual. The startup should have enough cash to ride this out. The ones that do will have better market leadership.
Spend prudently and avoid burn-out. Be wise about your marketing spend, customer acquisition, and expansion. Be selective on how the cash is being used. Have an aggressive contingency plan. Undertake various scenario planning to better understand your cash needs. Communicate with your existing financial partners to ensure your current line of credit remains available and explore new options. Don’t be afraid to make some tough calls.
Innovation is KEY
Lockdown has forced most businesses to close their doors and work remotely.
Come up with unique ways of offering your products and services. The quarantine period has increased the time people spend on mobile, online apps, and streaming platforms. It is the time the marketers go digital and increase their online presence by offering their products to be directly delivered at home, offering services online like edutech companies are doing, updating their websites, and involving the customers in DIY projects to keep the loyalty, trust and connect with the customers. Asking the customers for ideas, providing the means to cope up with the situation, and going beyond to help them will go a long way to instill confidence in these tough times. If you feel the demand for your product is dissipating, look for options to pivot.
Over-Communicate With Your Team
Be transparent in your communications, with your board of members, employees, suppliers, and your customers. Communicating during these tough times is more effective than ever before. Establish a team that includes representatives from the company’s key function areas like supply chain, operations, sales, legal, etc. Provide timely updates and inform the stakeholders about the critical decisions taken by the board. Maintaining trust and confidence during this time of disruption is critical.
Set your Teams Up to be Successful:
Motivate, increase conversation, and keep open communication among your team members to keep the team physically, mentally, and emotionally healthy. Every communication is an opportunity to nurture your relations. Open communication fosters trust. Without in-person meetings and interactions, additional attention to remote communication ensures that the team members feel connected to the company’s mission and values. Make use of video conferencing, emails, and chat platforms to communicate clearly and productively. Schedule time for Q&A where the employees can submit and vote on questions they would like to get answered. This will also provide the senior management to know what’s on the employees’ minds.
Reduce Current Debts
Avoid build-up debts, especially during these times. The pandemic has pushed the startups into a vicious circle of layoffs, forced resignations, pay cuts, and doubts about their survival. At this dire moment, the startups must manage their bills the best they can. Make a list of all the debts you have and pay off the most important ones. Approach the creditors for delaying payments, opt for bank moratorium and defer payments wherever possible. Once the pandemic is over, take inventory of your outstanding debts, consolidate your credit, create a solid budget, and start paying off the debts.
With cash-crunch at its peak, salaries would be one of the biggest challenges. Instead of looking at manpower reduction or making major pay cuts, consider deferring the payouts. Talk to your employees and be open about it with them.
A few other companies are also offering ESOPs at lower rates. This could be one of the options you could consider as part of employee remuneration or incentives.
The current situation is intense and it’s likely to continue for a while. Apart from taking control of the business matters, you must keep calm to make the right decisions for your company. Setting fixed working hours, meditating, physical exercise, sufficient sleep, and spending time with your family can help you to take care of yourself. You can take stock of the situation, rework on the plan, communicate to the team, and restore usual business operations once the storm passes by. The only thing in your control is to accept the unpleasant situation, take responsibility, and start from where you are.
Experts and analysts say it could take the rest of the year for India to recover what’s lost in the past 2 months. Businesses need to be prepared for that.
Reach out to us if you are looking for expertise on compliance aspects or creating post Covid business plans. We are the startup experts!
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