Lockdown Challenges For StartUps: Navigating The COVID19 Crisis
Webinar Dated: 23rd March 2020
Country Head, Microsoft for Startups, MENA & SAARC
TIE has been focused on helping founders across india with discovering new opportunities, knowledge and people to help you build your business as founders. Given the unprecedented situation due to Covid, TIE wanted to organize an online workshop to help founders deal with the crisis. This online workshop ended up with a record 800 attendees from across India!
The workshop panelists shared learnings from startup industry members in China – China is coming out of the virus crisis, India is going into it. The workshop also covered views from India’s venture capital investors as well as best practices for working from home and staying mentally and physically fit. Microsoft’s Lathika Pai, Lightspeed’s Dev Khare, Sequoia’s Mohit Bhatnagar, Kalaari Capital’s Vani Kola and Arvind Jha organized the session. Invited founders and investors included Andy Chen of Whale, Damien Zhang of CDH Investments, Ankit Jain of MyOperator and Vijay Gupta of Think Future Technologies.
Andy Chen, Founder at Whale.im
Andy Chen, founder of Shanghai-based Whale spoke. Whale is a digital solutions company targeting consumer brands such as Bosch, P&G, Unilever as well as retailers like Walmart and Carrefour. Andy manages the sales, marketing and operations (commercial) side of the business.
What should you do going into the lockdown period to drive growth?
First and foremost, take care of the health of all your employees. Secondly, focus on existing clients. Whale did three things here:
- They launched client interviews with each high-value client to show empathy and understand their situation, their forecasts and their digital strategy
- Organized brainstorming sessions between the product & commercial teams. Goal was to surface new business opportunities arising due to Covid’s impact. They figured out that online retail will be the new opportunity, specifically live broadcasting to sell products which increased 2-3x over the previous year.
- Showed confidence to their employees and internal teams. most of their clients became quite convinced that digital was a long-term trend.
What has the impact on revenue and forecasts?
The most impact was in CQ1 (the main quarter that the virus had an impact). CQ1 was down 30% from target. Second quarter is just about to start so they have kept their estimates the same as before but there may be some impact (less than in CQ1). Whale understood most revenue would recover in second hald of the year because most brands want to recoup the lost revenue from first half. These brands will want to invest more for growth.
What serious/hard measures should one take going into lockdown?
Most of their investors launched a series of webinars/panels and gave coaching/mentoring. Topics covered included sustaining and growing with existing customers as well as cash flow management. China had already had a two-year cooling period in the financing markets and Covid-19 cooled the market down further. Whale itself did not lay off any people – rather, it became more selective in its recruiting as better quality talent was now available int the market. They reinforced OKRs (objectives and key results) and chose NOT to change their sales targets. they released more strict measures to measure efficiency of employees. needed employees to be more agile and focused on what they do and try their best to meet their targets.
What incentives/measure are you driving with employees?
Whale released a more aggressive new sales incentive plan where upside was higher and the lower 20% of performers may be asked to leave company. They also introduced more process-driven metrics e.g. how many clients to reach out to in a week. The goal was to tell the sales team it is everyone’s responsiblity to perform and take the company forward.
What are your concerns about global impact of Covid?
The overall confidence of capital markets globally might be impacted. Companies need to plan financing strategies more carefully. International expansion might get delayed.
Damien Zhang, Emerging Market Investments at CDH
Damien Zhang, Emerging Market Investments at CDH Investments spoke. CDH has $20 billion in investments across 300 companies in China and 7 in India.
How is CDH engaging with startup ecosystem in China during Covid?
CDH is in active discussions with its portfolio founder. Founders are also benefiting from connecting to each other.
What proportion of CDH’s startups in China are at serious risk because of virus?
Under 10% are at serious risk. CDH’s later-stage companies are more mature and have more robust balance sheets and therefore longer time horizons with their existing cash.
What sectors were most negative and positively impacted? What is going to be a permanent impact vs temporary?
After February, they started to see consumption coming back. It is very hard for people to not consume for three months in a row. Here were the segments negatively impacted in China during Covid-19:
- The initial hit was to retail and services (e.g restaurants) industries.
- Travel will take a permanent hit
- Ecommerce companies shipping internationally are impacted – only about 50% of suppliers of cross-border ecommerce companies are resuming production. But this will also eventually come back.
- Manufacturing, especially for exports, will have big negative impact because last 3 months they were challenged by supply side, could not produce. Demand side problem globally have cancelled orders.
Here were the segments positively impacted in China:
- Livestreaming and broadcasting are doing really well. Livestreaming will go viral in 2020. This will be a long-term impact because people got used to working and shopping remotely, might become a habit.
- Delivery/ecommerce – more people started to use online ordering during virus.
- Social reselling is doing really well during virus. CDH’s company in this space has an inventoryled model where they procure everything in their warehouse. WFH people have more time and so they start spending more time on reselling.
Is fear of the virus over now? or does it linger?
The virus started in mid Jan onwards. In the first one month, it was scary, and then came the lockdown. Now, when they look back, it does not seem that bad. Except for some cities and regions such as Wuhan and Hubei, most other areas are back to normal. Widespread usage of masks is now reducing as the virus scare recedes. Starting mid-February, they started to work in the office. When they saw new cases starting to drop, that gave them a lot of confidence. There are more cases coming from Chinese travellers travelling globally and bringing cases back to China. Hopefully, there will be no second wave of coronavirus cases.
What are some best practices for teams and companies working from home (WFH)?
Vijay and Ankit spoke of issues caused by WFH, incuding productivity loss, boredom, increased stress and lack of in-person guidance and support. Engineering teams found it easiest to adapt to WFH, corporate sales teams were hardest hit.
The founders spoke of practices that they had evolved that might stick around in the broader workforce post-Covid. These includes:
- Daily standups, more casual video sessions among teams using Google Hangout, Whatsapp Video, Zoom
- Continuous connection on Google Meet or Zoom
- Company supplied devices to people’s homes (extra monitor, extra mobile devices for testing)
- Move everything to collaboration mode: Google Docs, Trello
Mohit Bhatnagar, Managing Director at Sequoia
What is your guidance as an investor to founder dealing with Covid-19’s impact?
Mohit had five guidelines to share:
- Protect employees – go to WFH
- Overcommunicate with boards, executive teams, employees, on-the-ground workers, customers. This provides confidence to everybody around you that we will get through this together
- Act swiftly to save money and create runway. Extend payables, pull in receivables. You have the absolute right to ask customers to pay you. Go renegotiate rental agreements. Cut out unnecessary contracts.
- Look out for government relief and benefits. The government is keen that SMEs thrive.
- Before you get to forced rationalization, there are other things you can do such as salary cuts at the executive and manager level and taking unpaid leave.
Any guidance to founders on fundraising?
Founders have to learn to be effective on Zoom. If in the middle of a financing, close the round now, don’t delay on small details. Some rounds are getting delayed, some term sheets are getting pulled. If you have debt from a bank or venture debt fund, talk to them about moratoriums on repayment. Focus on quality of revenue (margins etc.) as opposed to growth at all costs thru discounts etc.. It is ok to reduce growth rates. Survival at all costs, focus on getting to 18-24 months of cash runway.
Vani Kola, Managing Director at Kalaari
What is guidance on keeping mentally and physically fit?
Founders are stress-junkies – they can “eat stress for breakfast.” But this Covid-19 crisis has heightened anxieties on the health, financial and professional side. Vani’s guidance included:
- Attitude and perspective is important. “Worry does not take away tomorrow’s struggle, it takes away today’s peace.”
- Make difficult decisions today for a stronger future.
- Have routines to create sense of normalcy – get ready in the morning, get into a home office.
- Prepare the mind and body: Start day with gratitude, get proper sleep, try yoga and meditation.