Covid 19 struck the world like a thunderbolt giving it practically no time to take any rearguard action. Few nations responded with alacrity than others and it is anybody’s guess on the scale of destruction this will cause.
Suffice it to say that the world will never be the same again as it regains sanity and starts functioning. The IMF Chief has already sounded the bugle of recession and pundits say that this will be worse than the 2008 financial crisis.
Startups who have enough capital to last at least 12 months are relatively better off than those who have a shorter runway or worse those who have run out of capital. Venture Funds are working with startups to work out action plans in weathering this storm which unfortunately is not confined to the teacup.
Tactical measures like reducing burn by cutting costs, downsizing, using the time to improve product or recalibrate impact on revenue are the usual and proverbial “low hanging fruits” that are being addressed. Such tactical measures are absolutely critical as stretching every dollar will be imperative given the flux in financial markets and the uncertainty surrounding the funding environment.
The Beginning Of A New Normal Post-Covid
However, every crisis presents an opportunity. It is therefore imperative to not think in a unidirectional and a negative manner and envision what the New Normal will be and hence, the implications for the startup. Now, such guesstimates could be completely off the mark but then it is much better to think and be prepared rather than scrambling for a response when the opportunity presents itself.
We would, therefore, urge startups to start thinking of this New Normal and envision how their business model should adapt or leverage this to succeed. I believe that once the world achieves some semblance of control over the Covid crisis, which could take a few months, we will have to confront a different order in which nations will interact and deal with other nations, how businesses will deal with their customers and supply chain, how consumers will consume products and services and how people will behave socially with each other.
This will have serious implications, political, social and economic but let us stay focused on the consequences for startups. Let us delve a little deeper into this.
The Elephant In The Room May Not Be The Elephant It Once Was
China has not acquitted itself honourably from this crisis. The virus originated from China but the Govt. did not act enough and keep the world informed about this surge in Covid cases until it was impossible to push it under a carpet.
Given the fact that most supply chains are concentrated in China, other countries/businesses have an umbilical cord with China, the impact has been debilitating. Countries that had closer ties with China have been impacted the most viz. US, Iran, Italy.
Our assessment is that while China claims to have controlled the virus and has started to get back to normal, many countries and global companies will realign their supply chain over the next couple of years to reduce its dependence on China. It remains to be seen the extent to which this re-alignment happens as things may well go back to normal as cost considerations will outweigh all other factors.
However, re-alignment of supply chain even by 20%-25% means that new geographies, including India, could benefit from this shift. In other words, new manufacturing, infrastructure and logistical opportunities will arise and startups addressing these issues stand to benefit.
In addition, China was a closed market for many businesses and if indeed there is a shift in such capacities, other new markets should open for startups as economic activity in these locations gain momentum.
The Changing Paradigm And Imperative For Change
I also believe that different countries will be impacted differently and hence restrictions on travel will be here to stay for a relatively long period. Working from home (WFH) is here to stay, at least in the foreseeable future and hence technologies that enable remote collaboration will thrive.
This will have implications for security, productivity, cross-functional processes and hence startups that address these aspects should see traction. Globalisation as a concept has been under scrutiny off late and this crisis will accentuate that thinking.
Multinational companies which have resources across countries and who travelled at the slightest opportunity will see a significant change in their operating model under the New Normal. Indian IT services companies, for example, used to leverage the onsite-offshore model to deliver services.
If travel is impeded then they have to start looking at their human resources differently – reskilling people, managing internal mobility would be areas where HR tech startups can play a greater role. If there is indeed a secular trend towards working from home, then on-demand startups like food delivery etc. could see better days. Similarly, startups that address remote healthcare, financial services or education will clearly see a tailwind.
Businesses that are seasonal in nature and are dependent on humans have seen the maximum impact. Agriculture, for example, is very seasonal and lack of transportation and people to inspect produce has resulted in unprecedented wastage of food and enhanced stress for the grower and people in the supply chain.
Hence automation of such processes will increase and will present massive opportunities. In fact, we believe that businesses will be far more open to computers doing much of the jobs that were the preserve of humans. Robotic Process Automation startups could, therefore, expect a plethora of such opportunities coming their way.
Retail is another sector that has seen a mixed impact. While online retail in certain areas like essential commodities has seen a surge, many others like Big Box Retail or Brands may see some challenging times. Given that we are in recessionary times, cost optimization will enable retailers to competitively price its products and stimulate demand.
And cost optimization will occur when you automate manual processes like merchandising, inventorying, sales etc. However, this should be seamless and experiential for the shopper and hence startups addressing retail pain points should do well.
Entertainment may also undergo a change as people may shun theatres and start consuming content on their phone or TV. Content and gaming startups, OTT platforms will continue to do well. With people maintaining social distancing, digital marketing and personalization will see rapid growth.
Of course, there are many startups which will be adversely impacted in these times. Oil prices have hit a historic low. Coupled with the fact that China controls most of the Lithium reserves, there is a thought that technologies focused on electric mobility may see some headwind as the TCO for an electric car may not compare favorably with lower oil prices. This could well be the case in the near term but the secular trend towards electric mobility is quite strong.
Look Out Of The Windshield
Summing up, I would like to conclude that while surviving the near term with tactical measures is important, it is also incumbent on startups to look long term and be prepared to recalibrate their business models to the New Normal. And while it is clear that there will be some stress in the near term, things are not so gloomy as they seem, and it is important to look out of the windshield rather than focusing only on the dashboard!