Startups post-COVID: If you are alive, you are in profits
Dr. Bhaskar Bhowmick, IIT Kharagpur, cautions that the COVID-19 disaster will be the cause of death for many small organizations as well. So, it’s the right time to give more focus to investing in the right tools and strategies. This will give them long-term benefits, because when all of this subsides, startups should have a solid comeback story.
TPCI: How is the COVID-19 crisis expected to impact investor confidence towards Indian startups? What will its effect be on the choice of targets (sectors, nature of startups, etc) and quantum of investments?
Bhaskar Bhowmick: The war against COVID-19 continues across the world. With lockdowns and restrictions in place across every nation, the significant slowdown of the global economy is quite observable and bothering. As the spread of infection still continues, the damage, both to health and economic health, seems irreversible. The pandemic will have a material impact on the products and services offered by big and small scale sectors.
It may restrict normal demand for their products, and the disruption in the supply may push input prices up. This may negatively hurt the cash flows in both big and small firms. Small firms are set to face a cash crunch due to an immediate fall in business, and deal with operational challenges such as low resources. The immediate challenge of start-ups will be to pay their statutory dues, wages and to creditors.
The initial impact in the investment sector is going to change fundamentally on identifying and selecting the parameters for decision making. I do not think it will be same in long run, although in short run we may find some specific indicators to take faster decisions.
TPCI: For start-ups facing an imminent downturn in demand, what would be the most appropriate turnaround strategies in terms of operational and revenue models? Please mention examples of start-ups that are showing promise in this regard.
Bhaskar Bhowmick: The coronavirus lockdown in India has caused significant disruptions in various industries and crippled the small scale sectors including start-ups. These small businesses largely depend on immediate recurring sales to meet fixed costs. Currently, they are facing very low cash inflow. There are already high outstanding dues to be paid to them. All these small businesses do not have the option of halting further and waiting, altering their business model, and deferring payments etc. as the big brothers can afford to. They have to start adopting new digital technologies such as registering on online marketplaces, building websites, connecting new customers, boosting their social media presence, improve customer experience using chatbots and cloud phones, adopting digital billing solutions, and many more.
They should also capitalise on their existing customer data to drive traffic to their own website. Small scale sectors including start-ups across diverse categories cannot rely entirely on their offline presence. They will have to inevitably adjust to the new norms of online buying as much as possible. This could force small units to slowly start multi-channel interactions and converge operations of their online and offline activities. Not doing so will mean suffering revenue losses. First, they can register on an online marketplaces.
B2B platforms like Tradeindia.com or any other online marketplace help small businesses to have a digital presence instantly, which helps them exhibit products and services to prospects, accelerating purchase decisions and improving conversion rates. Start-ups and small businesses have limited resources and bandwidth to exist everywhere, so another approach would be to go deep and go wide. This means they should identify the social media platforms most used by their audience, and create highly valuable and engaging content to build interactions.
These units must capitalise on the recovery trends by introducing innovative ways of responding to fulfilling orders – be it establishing an Online-to-Offline platform or building initial digital logistics and payment reconciliation capabilities to be in the lead in the race to recovery. They have to do it in harmony with the recovery of the total economy. The bus will be missed if they lose the trends. With continued uncertainty, we predict that brands which are currently the most receptive and agile in meeting these new norms of customer behaviour will prevail, rather than those who wait it out.
TPCI: Considering that new funding may be hard to come by, what should be the approach of start-ups towards survival in the short term?
Bhaskar Bhowmick: In the short term, it’s important to find some liquid cash to start rolling the business. It’s obvious that the traditional investors will not be available in this time. So start-ups and small businesses have to be innovative in attracting immediate funding. The government is in the process of announcing different packages for reviving the economy. These small units need to have a close look into the developments in the financial and economic developments and act accordingly. They have to also consider some bootstrapping options involving mentors and advocates to run the immediate show. They should come out with new and attractive business models and product offerings keeping in mind the post- Covid 19 scenario, so that they can go for crowd funding as well.
TPCI: What interesting opportunities do you see emerging for startups in the market environment post-COVID? Which segments are looking promising at the moment?
Bhaskar Bhowmick: COVID-19 pandemic is a particularly tough time for businesses around the globe with reduced cash flow and new challenges altogether, but it has also given rise to new opportunities. For instance, food-tech giant Swiggy is looking to make an entry into alcohol delivery, while new subscriptions and renewals have been barred for the time being. Recently, Swiggy is in talks with several state governments, seeking permission for home delivery of alcohol from local licensed retailers, their chief operating officer revealed in a recent industry event. Rival Zomato is also looking forward to extend their businesses including other essential items delivery. Zomato is also holding discussions with the International Spirits and Wines Association of India (ISWAI) and state governments to venture into other businesses.
Delhi-NCR based cloud kitchen start-up’ Instapizza’ started live streaming of their kitchens where chefs can be seen baking pizzas and preparing other food in order to gain consumer confidence as the number of food orders dwindle. Besides the live streaming, Instapizza claims that hourly symptom checks of people working in the kitchen are conducted routinely. Cloud kitchen major Rebel Foods, which operates brands such as ‘Faasos’, ‘Oven Story’, ‘Mandarin Oak’, among others, has also taken a slew of initiatives to encourage more consumers to order their food online.
Transparency in business, maintaining of protocol and innovative touchless offerings will be the sounds of tomorrow. So start-ups should start thinking out-of-the-box in terms of being flexible enough to bring those qualities in their regular business activities.
TPCI: What should be the change in approach for new startups trying to make pitches to investors in the post-COVID world?
Bhaskar Bhowmick: Coronavirus has undoubtedly shown us one of the biggest unexpected disruptions worldwide. This scenario is overwhelming, but it is imperative to have strategies that ensure your business runs smoothly.
The impact of the coronavirus on economies across the globe has been very severe and it has been no different on the start-up ecosystem. This has become more acute as start-ups are still young companies and would not have probably faced such a situation. The impact is already visible in terms of the lowering of investments coming into the start-up ecosystem, and some job reductions announced by companies.
But icons like Ratan Tata, Anand Mahindra have started being empathetic to scenario and become supporters of Indian start-up ecosystem, and started to invest in start-ups much before the mainstream start-up funding options begin to come live. This establishes my early remarks of including the start-up- advocates in the start-up ecosystem.
The other important parameter for pitching will be around the ‘people’. Apart from the ongoing challenge to sustain the production line, another big challenge that they are facing both internally and externally is managing their most important assets – ‘people’. So in the pitch, it has to be mentioned how you are going to train, re-train the people in the post-pandemic scenario. This will definitely have a great impact on the investment pitch.
Therefore, here are five important pitching points:
1. How am I and my organisation prepared?
2. How are my employees trained with respect to the Covid-19 crisis?
3. How well can my business maintain fairness and transparency during this time?
4. How can the various changes being made ensure uninterrupted operations?
5. How do I see the short-term and long-term profits in post-pandemic scenario?
TPCI: There was an overwhelming preference towards rapid growth and higher valuations in startups over the past few years, which also came at the cost of profitability. How will this change post-COVID in your opinion?
Bhaskar Bhowmick: Someone said during this out-break -if you are alive, you are already in profits. This is true for the present scenario. The disaster with the pandemic outbreak will be the cause of death for many small organizations as well. So, it’s the right time to give more focus to investing in the right tools and strategies.
This will give you long-term benefits because when all of this subsides, you should have a solid comeback story. So, it’s important to put in place a reliable social media and digital marketing strategy, and online team building to create a more personalized experience for your employees and customers. You have to wait for achieving those profit lines covering the increase in fixed costs. But, in the long term, it is definitely going to lower your fixed costs and the profit curve will be steeper.
TPCI: How well positioned are Indian start-ups in comparison to their counterparts in other parts of the world to drive the next phase of growth, positive disruption and innovation post-COVID-19? What initiatives (across stakeholders) will help them achieve this potential?
Bhaskar Bhowmick: Today more than ever, organisations across the world are clouded by uncertainty and no one knows when the COVID-19 situation is going to end. Not just that, the most ironic part is that there are no best practices that we can learn from anyone or any country, because everyone is in it together for the first time. Indian start-ups are inching ahead of their counterparts as they are from a market, which is inherently ‘chaotic’.
You need to understand the term chaotic in two perspectives. The first one is that struggling with chaotic situations makes you and your organization more resilient to uncertainties, whereas from the developed country perspective, they belong to more stable scenario. The chaotic situation on the other hand is becoming a blessing in disguise for start-ups from this part of the world. It pushes them to be more innovative and think from out of the box. The ‘information asymmetry’ and ‘institutional void’ has already made them ‘think differently’.
TPCI: How would this crisis impact key stakeholders like employees, customers, suppliers, and the organization’s value?
Bhaskar Bhowmick: Startups need to set new expectations and ask for expectations from team members and other stakeholders on aspects of communication, availability, task allocation, and approachability. They will have to ensure daily secured and inspiring discussions with our team, so they don’t feel lost and stay charged-up, especially when it’s new for most people to work alone amid a worldwide uncertainty of a pandemic. Startups must also use disciplined weekly reviews of employee morales and state of mind along with tasks and deadlines.
They also need to communicate how they are simplifying services to make them available online to customers. The focus should be on saving time, cost and effort for customers and analysing how they can feel secure with online transactions with your organization.
Keeping customers informed will reduce insecurity and establish trust with vendors, which will ensure they always stand by you. Startups should use video chats to connect on a deeper level than phone alone. This way, they will gain a better understanding of feelings, expressions, body language, etc, which will build better rapport daily.
Each crisis provides an opportunity to revamp the organization’s strategies, policies and tactics. This plan only evolves with regular review and taking suggestions from each stakeholder.
Prof Bhowmick is presently working as Faculty in Rajendra Mishra School of Engineering Entrepreneurship, IIT Kharagpur. He teaches Strategy, TechnoEntrepreneurship, and Business Models. He is visiting other intuitions like XLRI Jamshedpur, IMI, Kolkata, and IIM Raipur. He has published in many noted international journals, presented papers in international conferences and contributed to book chapters. He is also handling few important projects for incubation and funding of Government of India at IIT Kharagpur. Prof. Bhowmick has completed Fellow from Indian Institute of Management, Ahmedabad (IIMA) in Business Policy area in2012. He is also an alumnus of Indian Institute of Management, Calcutta (IIMC) and got certificate for Program for Development of Strategic Skills in 2006. He has completed his management degree (MBA) from University of Burdwan in 1992. Prof Bhowmick has completed his bachelor degree with Physics (Hons) from Calcutta University in 1989.
Prof. Bhowmick has industry experience of working 13 years in the industry for product development, marketing, and managing businesses. He has experience of entrepreneurship in launching small units within the multinational company folders. He has initiated launching personal care product division of Parle Products limited. He initiated establishing the business of synthetic threads of Lohia Group. He launched the consumer division of United Phosphorous limited in eastern India. In dealing with five companies during those years he has experienced independently handling distribution channels, managing regional offices, and recruitment of people.