From continuing operations to tackling supply chain issues and managing cash flow, there is a plethora of challenges that the start-up ecosystem is facing currently. However, the uncertainty has also acted as a boon for various tech and online firms, says Sakshi Sharma
The Coronavirus pandemic has put the global economy into a tailspin. Several countries are already heading towards a full-fledged recession, which experts predict would be akin to the Great Depression, while other economic disruptions seem inevitable. While the present crisis has short-term impact on all organisations, its effect on small businesses and start-ups is turning out to be far-reaching and long-lasting. It has left various industries and markets jittery about their future.
The start-up ecosystem is desperately attempting to cope with the unprecedented circumstances. There are a plethora of challenges right from continuing operations to tackling supply chain issues to managing cash flow. Besides these, raising fresh funds has turned out to be a major challenge for the community. Dr Apoorva Ranjan Sharma, Co-founder, Venture Catalysts, and Managing Director of 9Unicorns Accelerator Fund, says that the fall in public markets has directly impacted venture capitalists and angel investors which, in turn, has slowed down investments.
According to Venture Intelligence, start-up funding in India for March dropped by 22 per cent as compared to the same period in the previous year. The startup data tracker also reports that Indian startups only secured $354 million in March, down from $714 million in February — more than 50 per cent decline. These numbers indicate that start-up investors are tightening their purse strings and only focussing on their existing portfolio companies. When we move beyond the statistics, we face another grim reality. A slowdown in funding activities has resulted in a severe liquidity crunch, rendering many start-ups on the verge of bankruptcy. Moreover, start-up valuations have also declined in the wake of the crisis.
Under such circumstances how are the startups surviving? As per NASSCOM’s recent statement, the start-up sector is facing grave cash flow issues as 70 per cent of them have cash reserves that will last less than three months. The e-survey, titled Reviving the Indian start-up engine during COVID-19, showed that about 90 per cent of Indian start-ups saw a decline in revenues, while 30-40 per cent have halted their businesses temporarily.
Shilpa Lalit, founder, Artyshills, a company related to artworks, says, “Non-sale of products in the red zones is a problem. Another major challenge is that we are running out of stock of a lot of our supplies. And there are no labourers to run the factory. This demand-supply gap will take time to be bridged and stocks to revive.”
While Jitendra Chouksey, Founder of Fittr, an online fitness platform, feels that there’s no such thing as “disaster-proof” industry, he says: “There has been a slowdown in business, there is uncertainty and people are prioritising what they spend their money on.” If start-ups want to survive, they need to accept this new normal and figure out what the rules of doing business are going to be.
There are many start-ups that have lowered the rates of their services to survive during these times of crisis. Aarnav Kalra, Chief Operations Officer, Beforv, a digital start-up says that his business has incurred profits, though he had to reduce the price of his services in order to create more demand during the lockdown.
An independent artist and DIY expert, Shilpi, who was planning to set up a start-up but couldn’t accomplish her aim because of the pandemic, says that the lockdown has affected her craft immensely. “I have to confine my ideas to the products that I already have at home. I can’t step out to buy things to keep myself going,” she adds.
Of course, the above incident would make one wonder about the fresh start-ups who had started their operations before the lockdown. What about them? Jitendra says, “I don’t think anyone could have predicted this crisis. For those who’ve just started operations, the silver lining is that they have little to lose. Invest this time to go back to the drawing board and rejig the business plan and systems for a post-COVID scenario. This virus is here to stay for a long time and has disrupted how business is done or taken forward. I have one piece of advice: “think lean!”
The situation has affected people in every possible manner. While for some it is proving to be the worst nightmare, for others it has also proved to be a boon — the tech-based and digital start-ups as they have got a boost. Jitendra says that their biggest strength is their business model. Right from inception, they have been an online fitness platform with no offline footprint. “Since the beginning, our primary source of revenue has been client enrollments with Fittr coaches. These enrollments have continued despite the lockdown. Our business model is such that the client and coach don’t meet in person. All coaching is carried out online through our app. That’s why we have managed to seamlessly adapt to the remote work culture,” says he and goes on to add, “Mainstream businesses tend to invest heavily in infrastructure. As we’ve seen with other players in the fitness industry, unmanageable overhead costs was a major reason behind their financial woes post lockdown. This is a lean start-up and we’ve concentrated more on building a strong IT infrastructure and robust internal systems. These have helped us and saved us from hitting a trough.”
Shilpa says that though her stocks are hanging mid-way but she has received positive responses online. “People have a lot of free time to explore and scroll through the paintings and other artworks right now. They also have the time to pursue their lost passion in arts and craft, which was not possible before due to busy schedules. This has also led to an increase in the viewership of my online art tutorials,” she adds.
It has resulted in rise of new online businesses. A B2B edtech startup Next Education has come up with several new features to adapt to the need of the hour. Beas DevRalhan, CEO and Co-Founder, says: “Being stuck at home does not necessarily mean that students cannot continue to learn. Advancements in technology, both computational and telecommunication have enabled remote learning opportunities and helped us gain profits.”
While the start-ups have been impacted by COVID-19, they are more likely to regain lost ground after the lockdown gets over. Apoorva says, “This is because they have low-risk investment options.”
It goes without saying that the COVID-19 pandemic has seriously disrupted India’s start-up ecosystem, which was once thriving and booming. Apoorva says that the expectations from 2020 are low, but start-ups may pick up in the last quarter of this year. Of course, it will take time for it to go back into the pre-COVID state, but it is the early-stage start-ups that will take the lead.
Jitendra says that the founders should try to have a lean start-up, stay debt-free, invest in people and technology. “Also, keep an ear to the ground and be prepared to respond swiftly to market movements,” he adds.
The start-up Davids, who are able to ride out the virus, would emerge as the Goliaths of the business world post pandemic.
