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How an Early-Stage Startup can deal with the Covid-19 Lockdown and the aftermath

How an Early-Stage Startup can deal with the Covid-19 Lockdown and the aftermath

Wednesday April 08, 2020,

6 min Read

We are currently in truly unprecedented times, never has a generation alive witnessed such an event, bringing the whole world to a standstill

Governments worldwide are still grappling with the situation, while some countries have been successfully able to contain the spread such as South Korea and Japan, other countries such as Italy and USA still seem to be trying to get a handle on it while also becoming epicentres in the west.

The pandemic has also completely brought the business world to a halt as businesses try and figure out how to ensure their survival in this new reality. While for some completely online businesses this can serve as a unique opportunity (Online streaming, Social Media, Online Gaming sites, etc) for most businesses the virus has mainly been bad news as everyone is trying to operate in a world where people and goods are not allowed to move and the future looks uncertain as to when all this will all come to an end.

Startups, relatively, will end up suffering a bit more than established business given their size, cash reserves and the stage of most businesses where cash is being burnt to establish the business. Given that I too am in a similar situation, I thought it would be a good idea to share some thoughts on how Startups, especially early stage startups can deal with the current health crisis which is sure to turn into an economic crisis as well.

WORK FROM HOME: This is a challenge which the entire world is facing right now, how do you ensure that business keeps running while your staff works from home. We have a staff of 40 people as of now, across customer support, operations, sales, etc, and our entire team is working from their respective homes. Your first step should be to separate essential services from non-essential services and staff. If there is staff which is non-essential, maybe you can negotiate a leave period for them at a lower than current salary rate. For essential staff, make sure that their tasks and work is measurable in a quantifiable manner, use tools such as Zoom, Slack, Asana plus form a daily reporting framework for all staff members and their supervisors so there is a clear record of how the team is spending their time and to ensure there is the least loss of productivity. The pandemic has resulted in the initiation of the largest work from home experiment ever conducted, the results of which are sure to be interesting and will definitely be used as a great case study for future managers and teams. It is very important to keep constant communication with the team and to keep the teams motivated. Working from home can be challenging, as a leader, offer help in any way you can to all your team members, be there for them during this time. If this is a test for team members to show their commitment to the company and their work, then this is also a test for senior management to show how much they care about their team’s well being, so keep them motivated.

BUSINESS GROWTH: If your business relies on movement of goods and services (eg: Ecommerce, logistics, home services, etc) then beyond a point there is not much you would be able to do amidst this lockdown, and your operations would have to halted or slowed down unless you provide essential services or goods which the government is allowing in a phased manner. However, if you business is entirely online and does not require physical movement and users can still user your products or services while sitting at home, then this is an opportunity for your business to push for growth, engage with your users as much as you can, offer attractive products, understand their needs, use this time to make improvements to your products based on customer feedback. This time can be used to reprioritise your tech teams’ tasks where they can make changes to boost business growth more or make changes which have been pending since a while if there is less load on your platform. This also gives a chance for the leadership to find new and more innovative ways to sell their services and to establish stronger customer loyalty.

CASH FLOWS: Most early stage startups are not cash positive and rely on external funding for their business growth, and working capital needs as well, they are at a stage where they are focussing on business growth and traction and burning cash to achieve the same. A nationwide or in a sense a worldwide lockdown has brought growth to a halt or at least slowed things down for many businesses and startups, a lot of startups tend to be online and it is possible that they may be able to continue as usual but most companies will witness a hit one way or another. In this case, companies will have to take some tough decisions in order to survive, these are the things i think which can be done:

  • Freeze all hiring plans - Stretch your current workforce
  • Negotiate deals with all external vendors - it's not like they're getting new business anytime soon
  • Negotiate your rental agreements - it's not like they're getting new tenants anytime soon
  • Review marketing campaigns - stick to only essential marketing expenses
  • Stop all non-core expenses
  • Defer all incentive and bonus payments
  • Put a pause on all contract workers
  • Discuss salary cuts for middle and senior management - Founders should take the highest hit and the lowest level personnel should not be hit at all, avoid laying off staff as you would need them once this settles down.

Lastly, discuss the situation with your external investors, in case there is a need for survival capital, they should be ready, look for a bridge loan if you can. Act fast, valuations will see a correction so do not dismiss deals on that basis, switch to survival mode if needed.

There are tough times ahead and a lot of businesses might shut shop, but this will also help you realise efficiencies in your business and maybe take advantage of opportunities previously unknown. This too shall pass, keep your head down and keep moving ahead, a lot of businesses will be judged going forward on how they performed during this time.