Startups are struggling to manage their expenses, cut cost, optimise their resources and others
Founders and leaders need to have a series of contingency plans to keep the show running
The biggest problem in this situation is that no one knows how long this pandemic is going to last, says Tulsian
The Framework
A new world order requires new frameworks for businesses to operate in a post-Covid19 world. Our series on how companies are adapting to WFH, pivoting their business models, redefining business functions and processes, and more.
The world has turned upside down due to Covid-19. While the large corporates have enough capital to burn, the startups are going through some really tough times to sustain their business. The coronavirus crisis has hit startups hard.
In a difficult situation, many startups are struggling to manage their expenses, cut cost, optimise their resources and raise funds among other financial and operational challenges.
In the second episode of #StartupsVsCovid19 ‘Ask Me Anything’ series, POSist founder Ashish Tulsian along with Vaibhav Agarwal, cofounder and CEO of Inc42, discussed various pain points and challenges that the Indian entrepreneurs are facing in terms of cash crunch, cost-cutting, the budget spends, business sustainability and more.
“Nobody is prepared for this to happen,” said Tulsian.
Planning For All Scenarios
So the question for startups is how they can manage their capital for the next one year or more. Many have said that startups need to create a series of plans for all possibilities ranging from worst-case scenario to the most optimistic possibility. The biggest problem in this situation is that no one knows how long this pandemic is going to last. However, if the situation continues, startups need to have a series of contingency plans to keep the show running.
Citing the example from a POSist perspective, Tulsian said that after the lockdown situation, restaurants were shut, the company was one of the first to get impacted. After airlines and hotels, restaurants were the third most-impacted industry, he added.
If the situation continues for the next three months, restaurants will suffer a major revenue blow. While many restaurants will be operational again, consumers might not prefer to go until the pandemic fears are allayed.
On the flip side, if the situation continues for the next six to nine months, then many restaurants will shut down permanently. Many of them will not even be in business anymore. In such a scenario, the plan of all startups reliant on the restaurant industry has to change. But Tulsian added that there’s no clarity on what might happen after six months or nine months.
“I suggest entrepreneurs make three months plan (Plan A), a six months plan (Plan B), and a 12 months plan (Plan C), they may or may not coincide or be sequential. In other words, you need to take this flow,” Tulsian explained.
But having said that sectors will start bouncing back at varying pace. The hospitality industry might take longer to bounce back than consumer services and products. So startups in digital marketing and ecommerce technology need to be ready faster. And this will be the key success criterion for many businesses in the next six months — identifying till when they must conserve capital and ramping up at the right time to start earning revenue and grab newer customers.
Budget Cutting, Maximise Runway & More
Citing examples in the restaurant space, Tulsian said that the cash flow has been hit massively. If restaurants are not making money and reviewing subscription, POSist will also not earn revenue. “So, whatever cash we have is the only cash we have until the cash flow starts in the market.”
Therefore, entrepreneurs who have limited cash in the bank, need to maximise their runway. Entrepreneurs have taken charge of managing cash flows, by even foregoing their salaries. Over the last month, we have seen several entrepreneurs announcing that they won’t draw a salary for the next few months. While some have donated their pay towards funds, others have foregone their salary to support the company’s runway issues.
The likes of Paytm founder Vijay Shekhar Sharma, Ola cofounder Bhavish Aggarwal, MakeMyTrip (MMT) founder and executive chairman Deep Kalra and CEO Rajesh Magow, Swiggy cofounder and CEO Sriharsha Majety have given up their pay to support employees.
And other startups have had to take more extreme measures such as layoffs. But Tulsian believes that not all startups might have to go this route. “If you smartly defer a lot of expenses and start building up the plans, things will start to materialise,” said Tulsian.
