The Covid-19 Pandemic has hit the overall global economy. It is said that the global recession in 2020 might be worse than what we experienced in 2008. As per the United Nations Conference on Trade and Development — “The world economy will go into recession this year with a predicted loss of global income in trillions of dollars.”
How does this influence the startup ecosystem? Domestic venture capitalists (VCs) are delaying in making investments as they cancel or postpone travel and meetings. Some large funding deals for companies in transportation, and food and grocery delivery are likely to be delayed because of the virus. Dozens of smaller funding deals have already been postponed. Consumption of non-essential products and services is practically on a standstill in the current lockdown.
With the number of cases increasing each day, there is a possibility of a requirement for a longer lockdown. Not only in product but in service and e-commerce start-ups too the liquidity crunch is leading to cancelled orders/ projects. This has a direct impact on the ability of the start-ups to maintain their day-to-day operations. This affects their liquidity and hence ability to pay their staff, to reach their consumers/ customers and to markets. The uncertainty about the future leads to demotivation and lack of engagement. These are all real issues that the entire ecosystem is facing, none of us are alone in this and there is no running from it.
We believe that persistence in these difficult times is the only way for start-ups to sustain — 1. It is imperative to understand that this too shall pass. It might take time, but it will. So how do we stay afloat until then? What are the activities that we can do during the lockdown so that we are future ready? Engage with your consumers and customers to predict future needs in your areas of business and be future ready. 2. Dealing with inability to pay staff — if you can implement across the board pay cuts so that you can sustain the next few months, it is better than laying off. Remember, these are the people who are with you in challenging times. Communicate with them with transparency, and implement temporary pay cuts until the situation stabilises. Laying off people at this stage might seem easier, but then one will need to re-hire and re-train new employees when things stabilise. 3. Defer bonuses and incentive plans, with the consent of your staff. Liquidity crunch is everywhere. Payments are stuck and projects are delayed. Hence, take employees into confidence. 4. Funding – bootstrap — ask for family, friends, angel investors to help tide over this period. If nothing works, see if some of personal savings can keep bare operations running. 5. Follow the same approach of empathy, genuineness and transparent communication with your vendors and suppliers. They are equally affected by this situation. Build confidence with them and keep in touch. Lack of communication can be damaging to otherwise long term relationships that can be 6. Engage with your employees regularly. Make a one-on-one Zoom call or conference, but be in touch genuinely, with humility and candidness. Build empathy and resilience between yourselves and your teams. 7. Identify areas that each employee can develop and ask them to take online courses. 8. Create plans on how you will approach the market post the lock down. Create rough execution plans. Involve your team for ideas. It will not only keep them engaged but will offer a sense of security. 9. This lockdown is forcing us to save on impulse spending on the personal front (eating out/ movies/ shopping etc) as well as office overheads (travel/ electricity etc.). Plan on how to use those savings prudently. Where should you channelise these funds to get maximum benefits. 10. Keep a look out for relief from the governmental measures. For example, the EMI deferment announced by SBI.
Times are tough, but they are tough for everybody. The only way we can emerge out of this with minimal damages is if we take our people along with strength, humility and empathy. Dig deep for the strength that made us entrepreneurs in the first place. There was never a guarantee of success, nor a promise of an obstacle-free path. So let’s hang in there and do what is in our control to the best of our abilities, and things will turn soon.
(The writer is managing partner, Marching Sheep)