In April 2020, Pooja Dhingra had to close her beloved Le15 Café in the wake of the nationwide lockdown in India. With 7.4 million followers and countless loyal consumers, Dhingra’s dismay came as a shock to the upper class of Mumbai – the pandemic had finally hit where it hurt. And it was only April. Iconic spots like Full Circle and Café Turtle have drawn their curtains in Khan Market and our handy Dabbawalas have suspended their services. The already difficult terrain of the startup ecosystem has, of course, not been exempted.
Studying the more quantifiable side of the impact, a recent survey looked into the effect of COVID-19 on start-ups in India, and the data collected from 250 Indian entrepreneurs found that:
- 40% of the start-ups have temporarily halted operations or are in the process of closing down
- 70% have cash flow just enough to last another 3 months
- 9/10 start-ups have reported a decline in revenue
The food, travel, logistics spaces as well as gig economy workers have faced the worst brunt of the virus, seeing a continuous crashing decline in the demand for their services. The silver lining in this bleak economy seems to come from video calling platforms, gaming, health-tech and edtech industries – all of which are seeing a growth in revenue. B2C industries are worse hit than the B2B space where the revenue decline isn’t as severe. Organizations are rapidly slashing costs, closely monitoring their burn rate, and accelerating layoffs while freezing hiring to sail through this storm.
Diversification into growth verticals like healthcare and edtech seems to be the name of the game for 40% of the startups surveyed. 54% are looking to oscillate towards new business opportunities. There has been an amplification of focus on emerging new tech like Artificial Intelligence, IoT, cloud computing, etc.
The response to the crisis has seen a surge in creativity, as start-ups rally to redirect efforts and revise strategies. The times are truly a testament of the skills of every ‘Creative Thinker’ on LinkedIn. It is understood that with every averse economic situation, comes opportunity. This time the opportunity has knocked on the start-up ecosystem in the form of technology, enabling tangible results as an outcome of creative ideas. With offerings being taken online in every sector possible, it would not be wrong to say that every business in today’s day and time is a tech business. So, one must make sure to add ‘GO ONLINE’ on the top of their organization’s Survival 101 to-do list.
Regardless of a fighting response, our start-up warriors are facing a significant negative impact in terms of funding which can affect long-term sustainability, as per Nasscom analysts. Venture capitalist firms like Sequoia Capital, Accel and Lightspeed have given a word of caution stating that a tough and uncertain macro environment awaits start-ups. There is a clear uneven distribution of hurt and growth across markets that calls for a long and active restoration , and that will certainly require an external boost.
To combat the funding crunch, start-ups are all suited up with their armours, and are resorting to several measures such as seeking government support, loans from banks and non-banking financial institutions, and capital infusions from existing and new investors. Cutting marketing costs may seem like the right choice during such times, however, it makes the recovery longer and tougher. Companies should be aiming to capitalize on this opportunity by creating top of mind recall for when markets open up, maintaining their market share and hopefully, even growing it. Given time, calculated risks eventually do pay off and start-ups would know that more than anyone. The pandemic may restructure the entire system but by staying diligent and making timely strategic decisions, the ecosystem should start looking brighter, forecast may be clear and business can set sail smoothly, once again.