The economic impact of the Covid-19 pandemic has disrupted the growth trajectory of businesses across industries and geographies. While established organisations struggle to stay afloat, the severity of the blow has been more brutal for startups. With fewer cash reserves and a smaller margin to weather such sudden slumps, entrepreneurs are finding themselves in a bind.
While some sectors have been hit harder than others — airlines, hospitality, restaurants, and retail, to name a few — none are completely immune to the slowdown. And this situation could be even more dire for Indian entrepreneurs because of the severe economic challenges developing countries are likely to face.
Disruptions in international trade, fall in export revenues, coupled with volatility in financial markets and liquidity crunch, can put many startups on life support. In fact, rating agency ICRA has downgraded the country’s growth rate in FY20-21 to 2% from a range of 4.7%-5.2%.
In this scenario, entrepreneurs need to adapt to a new set of rules, take some calculated risks and draw up a contingency plan for survival. This could entail re-looking their business models while taking some tough decisions to scale down and temporarily suspend certain operations due to the prevailing uncertainty.
What are the opportunities — or the lack of it thereof — the economic downturn caused by the Covid-19 pandemic is presenting to entrepreneurs? Let us find out.
With Remote Working, Take Advantage Of Wider Talent Pool
Although the recession will push entrepreneurs to consider cutting jobs and spending, the current economic downturn will also offer startups certain advantages. If hiring professionals or retaining most of the existing workforce has become untenable, they can dip into the vast pool of freelancers willing to work for less, or even outsource some of the tasks to places that have successfully emerged out of the crisis.
Not only will it trim recruiting costs, but it could also ensure a sharp jump in productivity during this lull period as these hires will be more likely to work for a modest salary. This acceleration of globalised services will also help you restructure some costly operations and open up more resources for collaboration.
Learning Opportunity For Entrepreneurs
It is rightly said that a crisis should never be allowed to go to waste. It may seem like an approach to soften the blow, but there is no contending the fact that entrepreneurs learn more from setbacks like these, than they do from victories. Such recessionary periods will force them to be more creative to not only trim cost structures but also leapfrog competition for available services.
They will be compelled to ask and explore very pointed questions — which functions can be simplified for faster and cheaper output? Which operations can be digitised to improve performance in an efficient way?
Entrepreneurs need to cash in on this seemingly negative experience and shore up learnings to reduce costly mistakes and position their businesses to make them more resilient to such setbacks in the future.
Prepare For Reduced Fundraising Activity
While adversity can translate into opportunities for certain startups if they try, some vulnerable businesses may not be able to keep afloat during this time, and without cash buffers in the form of fresh funding, they are likely to buckle under pressure.
This may especially be true for entrepreneurs whose prime focus had been customer acquisition, instead of making profits. According to a report, fundraising has slowed to a halt and some investors who had previously backed Indian startups, are putting off deals amid the Covid-19 pandemic. And this cannot be pinned to the slowdown alone.
The report further states that since deal-making involves a lot of travel, and with the industry hamstring by lockdowns, investments are being delayed or cancelled altogether.
With their coffers running dry and the next round of capital nowhere to be found, entrepreneurs must ensure that they are able to control the burn rate of their businesses in this time. They need to understand that being reliant on venture capital-backed funding alone instead of customer revenue can turn into a cash flow problem for them very quickly.
Chance To Pivot
The word ‘recession’ strikes fear in the hearts of entrepreneurs, but it should not have to be like this. Their businesses should be resilient to such shocks in a way that it does not impact eventual success.
These challenges can drive change in an organisation – whether that means revisiting existing business models or pivoting to another segment altogether. Their ability to adapt quickly to the shifting landscape will be their biggest defence against a crisis like this.
Furthermore, recession does not hit all startups equally, and thus, this is the time to look inward, and take some creative risks while choosing battles strategically for the sake of the company’s long-term performance.
For instance, startups in some sectors are witnessing a boom in business, while others in the same sector might suffer from reduced sales. Videoconferencing, online streaming and digital education have reported significant increases in traffic. Home delivery of essential services have also witnessed increased demand, but even here, issues around supply chains have hamstrung some startups within this space. Thus, entrepreneurs need to draw up a strategy that prioritises speed and flexibility, over other prevailing problems.
Although not without its challenges, such an approach would help entrepreneurs navigate the recession better and emerge out of the other end poised for growth. Furthermore, a comprehensive and multilateral response through policy initiatives and stimulus packages will help entrepreneurs cope better amid Covid-19 recession.