Founders will inevitably be faced with difficult decisions
Remember fundraising outcomes are not only dependent on your business and its metrics but also on the macro environment
In the times of this humanitarian crisis, it is critical for the companies to focus on the health and safety of their employees
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.
We are in the midst of an unprecedented global health crisis that will have a deep impact on every facet of India’s society and economy. As we weather through this incredibly tough time, we as investors are trying to do what we can in our capacity to help steer our founders through these uncharted waters.
This is first and foremost a humanitarian crisis, and we encourage founders to focus on health and safety – for their teams, their families, their customers and themselves, as the top priority.
It is also a period of very high uncertainty, both in terms of the short term impact on business and the long-term impact on the macro environment in which you’re building those businesses. Founders will inevitably be faced with difficult decisions, tactically on execution for the next 21-30 days, and strategically on how to plan for the next 12-18 months.
Through this document, we have come together to pool knowledge and best practices from across the startup ecosystem on how to deal with the crisis at hand. A majority of these learnings have been gleaned from in-depth conversations with founders across our collective portfolio and our collective experience of navigating crisis situations over the past several decades.
- The macro situation is constantly evolving, adaptability of all plans is key
- Be prepared for the worst; then readjust if the situation improves faster
- It’s important to be in alignment with the full team on what you are trying to solve for across different macro scenarios
- In order to change direction, alignment is everything – and that will happen through honest, frequent and consistent communication. Consider holding a weekly CXO meeting to discuss business updates, burn and runway with the core team
- For most companies, the priorities should be: employee safety first, business continuity second, and liquidity and runway a key third
- Taking a “wait and watch” approach before taking any action in the hope that clarity will emerge is not a good idea in a situation like the one we’re in
- Start with “type 1” actions (those that can be easily reversed) first and then progressively consider more serious actions. An example of a type 1 decision is cutting digital marketing
- As you prepare scenarios, stress test all assumptions. We are in unprecedented times and normal business assumptions do not apply. Assume the following situations will happen:
- Receivables getting delayed
- Customers asking for price cuts for services they may have already consumed
- Contracts not closing at the last minute
- The X-axis represents the macro environment. The easiest way to think about this is the duration of a lockdown and therefore impact on revenue
- The Y-axis represents company actions. Represent these as cuts in OPEX spend
- Consequently, estimate runway available based on your cash balance today
- List out actions you would need to take for each scenario and plan
- Start executing actions from the left, and keep executing newer actions as more clarity emerges on the macro scenarios
- Goal is to be at least in the “yellows”, ideally in the “greens”The matrix below can help you create a structured plan that spans a range of scenarios
- Remember fundraising outcomes are not only dependent on your business and its metrics but also on the macro environment
- Assume it will be very difficult to raise financing in the next 3 months, and possibly longer
- The goal should be to have 12-18 months of runway given the current macro environment
- Assumptions from bull market financings or even from a few weeks ago do not apply. Many investors will move away from thinking about “growth at all costs” to “reasonable growth with a path to profitability”. Adjust your business plan and messaging accordingly
- Valuation multiples will be reset. This is because many investors perceive there is much more macro risk today and public markets are now valuing companies differently than a few weeks ago
- It’s more important to optimize for company runway than valuation at this point
- A “flat round” that extends your runway to at least 12 months is a good outcome in these times
- If you need to fundraise today, progress with “decreasing familiarity”:
- Start with your existing investors and ask them how much they may be willing to invest and at what price
- Then reach out to other investors who you have gotten to know well or who have tracked your journey for the last few years to gauge their interest
- Then cast a wider outreach
- Even positive fundraising outcomes will take longer than usual in these times; be patient
- Do not perceive a slow response time from investors as lack of interest – many are working through situations with their portfolio companies or in their personal lives. Be responsive and persistent
During the current uncertain times when there is little clarity about demand and supply recovery, the need of the hour is to ensure that your company maximizes cash runway. One of the steps for that is cost management. The steps you take can vary, depending on whether you have <12 months runway, between 12-24 months runway and >24 months runway
Through the lockdown most businesses could see revenues going down to almost zero and even post that the recovery curve may be a ‘U’ shaped one vs a ‘V’ shaped one.
It may be prudent to stop all marketing expenses till business comes back to ‘close-to-normal’. When things start to pick up, increase marketing slowly, keeping CAC low. Ramp it up as things become more stable.
Use the opportunity to reduce leases that might have been non/low performing. Use of Force Majeure may be required if it’s part of your agreement.
<12 months runway
- Important to remember that your landlords ultimately stand to gain if you succeed. Explain the need of the hour to them
- Ask for 2-3 month (or more) of the moratorium on full or part payments. Some companies are getting this for three months and for upto 50%
- Explore 20-30% discount on a full year’s rent as an alternative
- Renegotiate any escalation clauses that are set in the contract
12-24 months runway
- Take some or all of the steps mentioned above to increase your runway to 24 months
*Including technology costs
- This is an important head item when it comes to cost savings, as most inefficiencies creep into general and administrative expenses during the growth phase and bull markets.
- Look for high-cost items like optimizing Cloud spends and reducing external professional fees (consulting, legal, recruiting).
- Also, go down to the bottom of the list and look at small line items like canteen costs, housekeeping (not salaries) and individual software subscriptions that are not being used at present.
<12 months runway
- Find ways to reduce this rapidly as this can be a massive source of cash savings. Try ways to work with suppliers to get relief on payable days. This is a long term partnership and hopefully in the long term they will benefit from having supported you in tough times
- Try to reduce inventory by decreasing orders and servicing any and all demands basis current inventory. It might be ok to let go of small demand vs. trying to build up inventory to service it
- Continue to push your enterprise customers to pay. It might be ok to take small discounts for immediate payments, as liquidity matters more than accrual economics at this stage
12-24 months runway
- Push your suppliers to increase payable
- Focus on collections from your enterprise clients
It is worth considering to stop all new capital investments and focus on the current business. Even if there is capital work-in-progress, pause the work and pick it up again when demand recovers.
It’s all hands on deck. Proactively involve functional leaders to ideate and execute these items. Communicate clearly to the entire organization so there is no confusion or water cooler conversations. These can only lead to more speculation and anxiety within the organization.
Be decisive and take actions in one single stroke – it allows people to feel secure about their future, knowing that going forward it’s BAU (or as close to it as it can be at this time)
<12 months runway
- This is CODE RED and it’s important to prioritize sustainability of the organization. Whatever doesn’t kill you will make you stronger for the long race ahead
12-24 months runway
- Try to cut costs nominally to increase your runway to 24 months
>24 months runway
- Good time to focus on cutting down on extra costs that might have built up during the inefficient, high growth phase.
- Burn FAT not MUSCLE
Advice For Founders
- Plan for U-shaped recovery – companies expecting a 20-100% drop in business over the next few weeks but planning for lower demand, for longer
- Expect equity financing to take longer or not happen at all till there is a full global recovery
- India’s startup system doesn’t operate in isolation and in fact, is dependent on external capital primarily from the US and China. It’s likely that the Indian mid to late-stage startup financing market will see a rebound only after their “home” markets rebound. So even if India escapes the Covid-19 crisis, we will still have to wait for the rest of the world to come back
- With all this, managing burn to ensure runway through 2021, or at-least till June 2021, is key
- Cost and cash out-flow rationalization
- Marketing: 50-100% cut in most cases; digital services with positive marketing RoI can increase marketing spend as more people look for digital solutions e.g. Ed-Tech, Gaming
- No costs are really “fixed”
- Proactively work with landlords for rental renegotiations
- No new hiring
- Co-opt team leaders in identifying payroll cost solutions – be pragmatic but humane. Examples of ideas companies are thinking about vary from salary reduction, shifting to variable pay, salary deferral or worst case headcount reduction
- Re-look at your product roadmap – rationalize long term projects
- Discuss waivers and moratoriums for some expenses
- Cut discretionary expenses down to zero
- Working capital management
- Match outflows to inflow cycle as much as possible; if you don’t ask for concessions, you won’t get them
- Avoid deferred payment structures that hit as a bullet payment and take the business down. Look at fundamental reduction in cash outflows and cash-flow matching.
These are trying times for all of us and it’s important that we stay deeply connected with our teams. Here are a few areas we should be proactive about.
In these times, communication via zoom and/or calls, engagement takes a whole new meaning. Our current available modes of communication demand strong listening skills. Companies have been proactively sharing information on how to stay safe and are leveraging communities to help and support each other.
Efforts are being made to stay connected and upbeat in this period of isolation. Team competitive challenges that can work online might also be a good idea at this time.
Some interesting practices shared by some of our founders and HR folks, like a Zoom “chai pe charcha” (not necessarily on a work-related topic – but teams doing activities, ideating or just plain catching up) have picked up.
Whatsapp groups sharing information related to basic amenities and other useful tips also seem to be picking up. People are coming together as teams to help those less fortunate.
This kind of isolation is unprecedented for most of us and it can take a toll on one’s mental and emotional well-being. There are many products today that aid wellness, from meditation & fitness to AI-based mental health support platforms.
Employee Assistance Programs are also getting more traffic. These are essentially counsellors on call. Some companies were already offering this service, some have adopted it in these tough times and there are third party offerings that one can look at.
Outside of COVID, people who have family members who are ailing or on medication right now and are not able to step out to meet a doctor might need to explore teleconsultations. There are various service providers who are connecting people to doctors from multiple disciplines via calls/zoom. There are affordable corporate and retail offerings in this space as well.
An aspect of wellness that shouldn’t be ignored is the impact of learning. Research shows people feel more productive when learning new things. Many ed-tech companies are offering their services at discount, or for free, at these times.
Sharing these with team members is also a good way to enable them to divert their minds into something that is useful and of interest. The programs range from job skills to self-improvement. For example, you can find some good options here and here.
The scenario assessment that you do for your company may require some difficult actions to enable the company to sustain operations. We have gathered some insights on how various leaders have tackled this in trying times.
Things to consider
- Focusing on people costs to be undertaken only after all other costs are reviewed and reduced
- Stay updated with government directions (both Central and State) on the dismissal of employees, reduction of salary, etc.
- Seek legal advice. Every situation is unique. Even more so at present, with no global precedence
- Make sure all the steps that impact employee salaries or similar, are not in breach of employment contracts or internal policies. In being good corporate citizens, always endeavour that employee-specific moves are implemented with employee buy-in (to avoid disputes & additional compliance issues)
- Transparent and frequent communication in these times is key
If you must re-examine people costs, consider some (or a combination) of the options listed below.
- Pause hiring – Some companies opt to pause hiring and existing team members agree to take more responsibility
- Re-alignment of roles – Identify roles that may have become less relevant at this time, agree with and realign those employees to other roles. Things do and will get better and you will need the old teams back again. Going back to the market to rebuild your team will not only be expensive but will also set you back as new employees will take time to scale up and become effective in your system. There is also a premium to having colleagues who understand the ethos and culture of the organization
- Change in the appraisal system – Push out the appraisal cycle and defer bonuses – or convert them to ESOPs**.** Again, please be aware of your contractual obligations, and don’t be afraid to over-communicate with your employees!
- Pay deferrals – Some companies have been successful in finding support for voluntary deferment of pay for their senior management. One company’s management team has decided on a 3-month salary deferment, which is helping ease cash flow pressures.
- Furlough – Another strategy that may work is to identify roles that are currently not productive or required and send those team members on leave with adjusted compensation. As order funnels dry-out, this has played out well for roles that are more market-facing. However, this step may not be as desirable if you foresee the furlough period extending beyond three months.
- Alternate working days – Another option is to agree with employees that they work on every alternate day with a proportionate adjustment in their compensation for a stipulated period of time.
- Pay reduction – If this option is being considered, it is advisable to start at the top when it comes to reductions. Also, it is best done as a voluntary exercise. Pay-cuts for employees lower down the pyramid can hamper morale across the organization and may not be as effective financially.
- Here’s a good example of what a company recently did when faced with an externally driven situation. The top management voluntarily took a 40% cut on compensation. They then reduced the percentage of cuts as they went down the grades. As a result, employees who made Rs. 50000 or less didn’t get impacted. They extended relevant insurance for all their team members and ensured employees’ safety by reorganising the way they worked.
- Once again, extending ESOPs in lieu of pay cuts is considered a good practice.
- It is advised to always try and be as transparent and consultative as possible about the steps you are taking. How long should the pay cut be for? Should it be time-bound? The decisions made and the reasons behind them should be communicated clearly, be in the interest of employees along with the company and passed through a legal experts’ lens.
Having considered all these options, if you need to reduce OPEX further, only then consider head-count reductions. In this scenario, we would advise enlisting the support of a good employment lawyer to enable fair, compliant and thoughtful handling of the situation.
A repository of open positions in the eco-system will soon be made available.
Business Continuity Plan (BCP)
A Business Continuity Plan (BCP) outlines a range of scenarios that could negatively impact the business and the steps that will be needed to minimise the damage and expedite recovery. We have outlined key elements of a good BCP in this situation that founders can modify and adapt for their businesses:
- Define escalation levels and responses that need to be tailored for each level. For example:
- Code Blue: Business as usual
- Code Orange: Lockdown for 3-6 weeks; slow recovery post that
- Code Red: Lockdown for 12 weeks; mass scale infections and very slow recovery
- Create a “Tiger Team” – cross-functional team to swiftly take decisions when needed. Typically includes top management but also key influential people in the organisation
- Identify “Mission Critical” parts of the business (functions, key customers, products, markets, etc) where disruption needs to be minimized
- Equip organisation to work from home / in distributed teams
- IT infrastructure – laptops, dongles, VPN, video conferencing software, collaboration software
- Appropriate tools e.g. for call centre employees
- Travel arrangements for employees if needed to come to work (no public transport)
- Create backups and redundancies
- Code base
- Important documentation
- Testing resilience of Disaster Recovery setup
- Insurance cover: health insurance and loss of income insurance for employees
- Employee health and safety
- Travel advisory
- Office sanitisation protocol
- Equipping field staff (e.g. delivery boys) with gloves, sanitisers, masks
- Proactive health checkups for at-risk staff
- Chain of notification and quarantine guidelines if an employee or family members gets infected
- Key-person risk – physical separation of key management where possible
- Data access and security
- Remote infra monitoring and remote IT helpdesk
- Backup schedule and processing
- Mission-critical functions
- Daily tracking and reviewing mechanisms
- Repurpose team and re-allocate resources if required
- Revised incentive structure if required
- Clearly articulate what parts of the business you will just not do to limit risk and free up resources e.g. not serve certain locations, customer segments, etc.
- Prioritisation based on importance and risk of churn
- Proactive communication plans
- Identification of highest priority vendors and building redundancies
- Payout plan in each escalation level
- Proactive communication plans
- New hiring – plan in each escalation level and process
- Training – process and resources
- Appraisals – timing and linkage to cash flow for each escalation level
- Retrenchment – scale and communication based on each escalation level
- Communication and morale
- Full team communication plan by top team
- Frequent – daily, if not weekly
- Clear and concise
- Focus on positives and celebrate every win
- Identification of inter-team communication fault lines
- Functional / team communication
- Frequent e.g. weekly one-on-ones
- Focus on deliverables
- Weekly happy hours over video or “Water cooler channels on Slack” where employees are encouraged to share and ask questions
- Full team communication plan by top team
- Financing and cash flow planning in different scenarios
- Create second “Tiger Team” to identify and execute leapfrogging opportunities e.g. offline payment companies enabling grocery delivery; B2B grocery delivery company delivering groceries to apartments; social commerce app selling online education products
- Office reopening plan – gradual and team-wise to minimise the risk of contagion
- 100-day plan – when the office reopens e.g. repurpose people to do sales, hiring ramp up, marketing plan
This is a sample BCP created in the wake of COVID-19 which can serve as an example for anyone looking to create one.
Strategic Relationships/ M&A
As founders, you are pursuing your vision and mission to achieve impact in whichever manner you define it, including improving the lives of millions of consumers or changing the way people work in enterprises around the world. The dream is to build long-term independent companies.
What we have observed in deep sustained downturns, such as in 2000/2001 (globally), 2008/2009 (globally) and 2016/17 (in India), is that despite best efforts on all sides, companies sometimes start facing hard choices between sustaining independently at sub-scale levels of activity or merging with other entities.
We have outlined key actions items to undertake to increase the probability of good M&A options, should you choose to exercise it. We believe that these relationships and knowledge will stand you in good stead even if you do not choose to exercise this option.
Managing Through an M&A Process
- Managing your company through a sale process is a tough assignment. You have to balance operating the company productively with retaining high-value employees while keeping your fiduciary duty to your shareholders and stakeholders such as employees, suppliers, creditors and customers.
- Work with your investors and advisors who have been through these situations before.
- Manage cash very carefully so that you have a graceful process to complete the sale of the company in an orderly manner.
- Always keep a list of liabilities (employee vacation outstanding, accounts payable, debt, prepaid revenue from customers etc.) and manage this carefully. Please make sure that you always have enough cash on hand to pay down all your liabilities.
- Manage internal communications and morale proactively. Rumors spread very easily and so it is important to be clear and as transparent as you can be, in order to retain employees and continue to operate the company effectively.
Self-assessment/ Self-awareness and Timing
- Be clear and realistic about how you are going to be perceived by potential acquirers.
- If you are a sub-scale team with technology and engineers, you may be perceived as an acqui-hire by larger companies where they acquire you for your engineers and technology only.
- If you are a sub-scale team with technology and engineers but also significant product/IP and some early customer traction, you may be perceived as a tuck-in where the acquirer uses their distribution clout to significantly expand the revenue from your product.
- If you are a scaled company with customers, revenue and a strong team, you may be perceived as a strategic asset/high value.
- Be deterministic. This sort of transaction does not happen by itself – it needs strong and sustained focus. Be clear about the help you need to get this done. Work with your investors and perhaps an advisor/banker to drive the process forward deterministically.
- Be clear about the time you have available to get this done and start early. In other parts of the document, we have talked about scenario planning and fundraising. Typically, you will need 6 to 12 months to produce a properly-valued M&A transaction. Anything less than that is likely to be more of a firesale.
- It is unlikely that several offers will appear at the same time. Typically, offers appear at different times and have to be either engaged with on their own merits, without knowing whether other offers will appear. If you can manage your interested suitors to provide offers in a similar time period, you will be better off in terms of creating a bidding war that could drive a better price and terms for your company and its shareholders.
- Be prepared for a couple of months time between term sheet/LOI for M&A and signing of definitive documents.
- In most cases, mergers and acquisitions happen between leaders of companies that have gotten to know each over a longer period of time. Generally, these M&A transactions are not between strangers who just looked at spreadsheets and decided to go through with a transaction. Relationships, trust and knowledge have to be built up on both sides, at multiple levels.
- Make a shortlist of companies that you think would value your customer base, revenue, technology/IP, people and operational capabilities. Divide these into tier 1, tier 2, tier 3. These companies could be in India or could be based elsewhere.
- Tier 1 are most likely to want to merge with you and are large public companies with solid balance sheets and a history of making acquisitions. Your business model and their business model match. These companies are most likely to value what you have and provide fair consideration for your assets. These may also be scaled private companies with solid balance sheets that are looking for strategic bolt-ons.
- Tier 2 are companies that may be large and well-capitalized but in adjacent areas of the market. Their acquisition of your company may not seem to be an immediately obvious thing for them to do. Perhaps you business models do not match currently but they may be looking to extend into your space/model.
- Tier 3 are private companies that are not at scale and will most likely pay in equity only. You may also run the risk of collectively not being at scale or viable in the long term. Only target this tier as a last resort.
- Reach out first to the Tier 1 and Tier 2 companies that you already have relationships with. You will likely get the most traction with these existing relationships as opposed to brand new relationships that you try to start now.
- Be careful about your insertion point. In some companies, M&A decisions are strategized and made by the product/engineering teams with execution support from corporate development teams. In other companies, the corporate development teams scour the market for interesting companies and then make recommendations to the business unit/product heads and then drive execution. In some cases, you may choose to start with the strategic investments team at these larger companies – this is sometimes a low-pressure way to start discussions and allow them to get to know you in the context of an investment discussion which could turn into an M&A discussion at a later point, if you choose.
- Consider working with an advisor/banker to drive this process for you. If you have not done M&A previously or do not have the strategic relationships to tap into, this may be a productive way to go about.
- Be clear about what value the banker will provide you. Think carefully about what you would like your advisor to do for you – two dimensions here to think about are strategic relationships and process management. In some cases, you may already have all the strategic relationships but do not have time to manage the process. Or it may be the other way around. Evaluate potential advisors on the dimensions that you are not going to drive yourself. For example, if you are an enterprise software company selling globally, you may not have the relationships in the US and so a banker that has relationships with large enterprise software companies in the US may be useful for you.
- If you need to figure which bankers to contact and how the commercials with them are set up, consult with your investors or other founders who have done this before.
M&A Types and Considerations
- There are a number of different variations in terms of the types of offers you can get. We will outline here some of the main variations we see. Please consult with your investors, advisors/bankers and tax advisors to understand what your options are and the consequences of each type of offer.
- Equity only – the consideration offered for your company is the common stock of the acquirer. If the acquirer is a private company, understand the cap table of the acquirer, especially items such as the preference stack above common (generally equal to the amount of capital that investors have put into the company). Also understand what a realistic valuation of the acquirer company’s stock is – for example, in the recent downturn in the market, the acquirer’s valuation or market cap may have decreased substantially from the valuation of its most recent financing.
- Equity + cash – the consideration offered for you company is the common stock of the acquirer plus cash. The higher the proportion of cash in your offer, the more solid the offer is, unless it is a very liquid public stock that you believe will maintain or increase in value.
- Cash only – it is uncommon to have these sorts of transactions unless you have engineering a bidding war amongst several cash-rich companies.
- Asset purchase – in some cases, the acquirer may only want to acquire your assets (customers, IP, people etc.) and pay your company in equity and/or cash in return. You will then be left with liabilities on your balance sheets. Once you dispense with these liabilities (including tax), anything left over will be distributed to the shareholders of your company. In general, this is a less favourable outcome for you compared to a stock purchase. However, this could be a faster transaction to execute as the acquirer does not have to take the risk of known/unknown liabilities on your balance sheet.
- Stock purchase – the acquirer buys the entire company by purchasing all shares in the company. The acquirer taken on the risk of any known/unknown liabilities in your company and will likely diligence this heavily before signing any definitive documents. The acquirer could also ask for an escrow where a certain portion (typically 10-30%) of the transaction consideration is set aside for 1-2 years to be paid out to the acquirer in case any liabilities appear that were not initially disclosed or anticipated.
- Some other considerations as you think through this process:
- Earn-out – the acquirer will typically want to lock you into their company for a certain amount of time, usually ranging for 1-3 years. They will aim to compensate for this over and above your regular salary/ESOPs by provide an earn-out which could be cash payments based on the time you stay at their company or on deliverables you achieve. These payouts could be every quarter or year, depending on the structure of the deal. Earn-out amounts and structures are negotiated at the same time as the acquisition transaction but are two separate and distinct things.
- Management carve-out – if you and your investors embark on a sale process for your company, have an early and clear discussion with your investors on whether there will be a management carve-out. The purpose of the management carve-out is to incent the management (including founders) to stay at the company and productively focus on a sale outcome, especially in low-value outcomes. A management carve-out is typically structured as soon as you start a sale process. In the carve-out, you and your investors will collectively decide how much of the sale price is set aside for the management of the company (typically 10-20%) and how this amount will be subdivided between the management team members and employees of the company. Be clear what this is, write this down and get sign-off from your investors and management team.
- Tax – work with your investors and tax advisers to understand all the tax ramifications of a sale. Complications can occur due to international structures (e.g. US C-corp with India subsidiary), asset vs stock sales, different types of taxes that become applicable etc.
- Given the rapid evolution of the Covid situation, overcommunicate with external stakeholders with open and transparent updates.
- Be truthful about what you don’t know and avoid sweeping statements that may prove to be false in the coming weeks. The world knows the uncertainty of COVID-19, and isn’t expecting you to predict the future. Rather, they want to be informed and confident that you’re responding to the best of your ability.
- Avoid a situation where there are inconsistent and contradictory communications being shared with customers, business partners, suppliers, and investors.
For B2C businesses:
- Provide updates on how you’re putting customer health and well-being first.
- Prepare and disseminate FAQs within the app as well as over email and social media handles.
- If the service is going to be disrupted, mention it upfront, instead of customer realising that after placing the order
For B2B businesses:
- Keep your customers updated on what to expect, so that they can better plan for any disruptions.
- Understand key customer challenges, and if you can support in any way.
- Listen to the possible solutions they have.
- If possible, try to communicate over VC or phone calls.
Enable your teams for success.
- Provide employees with the right messaging to provide to customers and partners.
- Once employees are given messaging, choose communication channels that make sense for each stakeholder group.
Create a dedicated team for interfacing with regulators, police etc.
Assessing/Managing Systemic Risks
- Founders should have someone in the team to focus on the risk management side of the business. For younger startups, this can be taken up with the help and resources of your investors.
- The major objective of risk management is to create a framework that allows the company to be proactive rather than reactive while assessing the macroeconomics trends in the market.
- While assessing impact, go one layer deeper and see if your customers and the sectors that they operate in are getting affected.
Some of the systemic risks and ways to work around them are as follows –
Exchange Rates risk
- If the company is import-dependent, mitigating the forex risk can be crucial.
- Advisable to take an FX cover for the duration of the credit period received from the supplier, continue this practice at all times.
Public Market risk
- Companies should not go behind maximizing their treasury profits but instead diversify their investments.
Disruptions in Supply Chain
- Do not rely on a single source for inputs, advisable to diversify the supply chain by evaluating alternative sources.
- Even if the dependency is only on China, which has seen some resumption in manufacturing activity, it would be good to have action plans in place in case a second wave of the virus emerges.
- In case of logistics, advisable to diversify and not be dependent on a single service provider.
Over-dependency On Capital Sources
- Do not get over-leveraged by taking too much debt, especially if profitability in the near term is a challenge, it can accelerate the downward slide for the company in case of default.
- Be very conservative in estimating the NPAs from customers and suppliers, the general assumptions might not hold through in such unprecedented times. Plan working capital requirements accordingly.
- Over the long run, companies can try to get the right mix of investors that can de-risk their dependency on a particular existing investor for additional need-based financing.
- Companies are the most vulnerable to cyber-attacks and consumer data leakages, as business processes get revisited to cater to remote operations and employees work from home.
- It is advisable that companies constitute a small war room to develop an action plan to avoid such scenarios and avail the services of 3rd parties if required based on the identified risk potential.
WFH + Redesign of Business Processes
Managing Teams while working remotely:
- Demand commitment from your team.
- Ensure you set clear expectations from your reportee(s) working remotely.
- Plan well. Ensure individuals are clear about their goals
- Define ownership, timelines, and document completion of work.
- Encourage your team to take scheduled breaks
- Set a working ritual for the team. Below are some of the recommended rituals
- Daily Stand-up with the team (to set expectations, updates on previous day’s achievements. Use a simple update format like:
- What was planned?
- What got completed?
- What got delayed?
- What was carried forward?
- Office hours – All members of the same team commit to being online and fully responsive for the same period of time every day
- May not be the entire 8-hour workday, to allow team members flexibility in their working schedules
- g. Team A commits to being online from 11:00 – 17:00 every day
- Team members must be on Slack, Workplace Chat and respond to any queries or pings in these tools at this time
- Weekly 1:1 with the team members (not just a work review!)
- Weekly Team Reviews and updates
- Daily Stand-up with the team (to set expectations, updates on previous day’s achievements. Use a simple update format like:
- Ensure maximum documentation for work/meetings so that it is easier to set the context without relying on verbal communication.
Managing Meetings While Working Remotely
- Send and encourage pre-reads for every meeting. Align the members on the agenda
- Encourage employees to join on video calls. It results in improved attention
- Ensure meetings are inclusive (Listen to everyone. Don’t let silent voices go unheard)
- Pause at times. Engage to understand if everyone is on the call or if anyone has dropped-off/is facing a technical issue
- MoMs should be captured for every meeting. Assign responsibilities in advance
Keeping Team Engagement Levels High
- Schedule a call every morning to gather updates from the team
- Ensure team rituals are diligently followed
- Call out working hour expectations explicitly. However, be accommodative of genuine reasons
- Get the team together on Hangouts to celebrate birthdays/ team wins etc
- Have virtual coffee meetings/ informal discussions with the team
- Ensure that you provide timely feedback. Do 1:1 chats to provide regular feedback
- Send out celebratory/appreciative emails
- Do not express frustration in group chats, meetings. Provide personal feedback
What ‘NOT’ To ‘DO’ While Managing Your Team Remotely
- Do not expect availability on-demand, rather expect accountability. Natural breaks can’t be avoided, same is true for power cuts
- Do not expect 24X7 availability. Set clear expectations on working hours; Be empathetic to the need for them to manage the household in this lockdown situation
- Don’t keep planning at the last minute. Always ensure that the agenda for the day is set and committed. Build Buffers
- Do not assume. It is better to over-communicate, clarify than assume
- Do not sit back and wait for responses. It is okay to follow-up, remind, seek updates. Ensure that you do not micro-manage
- Do not delay feedback. Prompt feedback should be provided on-time
Health & Sanitization
In the times of this humanitarian crisis, it is critical for the companies to focus on the health and safety of their employees.
- As the field force braves through all the risks to ensure smooth operations of the essential service providers, it is critical that companies make provisions for appropriate safety gear for all field force employees.
- Focus on the training and awareness of hygiene as well as broadcasting all the latest developments to the field force.
- Telemedicine and Insurance facilities for the field force should be explored.
- Customers should not feel a health hazard while engaging with the field force. To maintain customer delight, provide hand sanitizers etc. to the field force as well as work on innovating new models like contact-less delivery etc.
Mental Health Of Employees Working From Home
- Given that the lockdown and the impending work from home is going to be a long haul of at-least 3 weeks, ensure that you have counsellors to help employees who may have troubles in dealing with the situation. Some of the mental health-focused service providers like Yourdost, Mindtalk, Moodcafe, Innerhour etc. can also be recommended to the employees.
- Be considerate in the short term, to some of the team members who have families at home and may have trouble paying attention to work while they adjust to the non-availability of their support staff.
- In such times, over-communication is not a bad idea. Founders should maintain the engagement with the full team through virtual town halls. These virtual town halls should not only include business updates but also incorporate fun elements to keep morale strong.
- Build organization structures such that there is a senior person mapped for a group of people apart from the manager. This allows the employees to reach out to the senior member apart from their manager to discuss any concerns that might crop up in such times.
- Even if some employees are being asked to leave, options to see if their medical insurance covers can be continued for some definite period should be explored.
We hope the information shared in this article is helpful. It is being provided with the objective of making relevant information available quickly at a time of crisis. The views expressed are those of individual authors, are provided ‘as-is’, and may not be free from errors or inaccuracies.
This article is not a substitute for professional, management, financial, legal, medical, investment or regulatory advice. You should not act, or refrain from acting, on the basis of this information without doing your own research and seeking appropriate professional advice.
Accel, Bessemer Venture Partners, Chiratae Ventures, Kalaari Capital, Lightspeed, Matrix Partners India, Nexus Venture Partners, Omidyar Network India, SAIF Partners, Sequoia Capital India