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How might local startups survive this downturn?

| Updated: July 13, 2020 15:51:55


How might local startups survive this downturn?

The nationwide lockdown imposed by the government to curb the spread of coronavirus brought economic activity to a standstill for nearly three months. This has impacted businesses of all sizes, across the country. Startups were not spared. They have seen a sharp fall in business revenues, and a growing gap in their cash flow, followed by a slew of other challenges. While some startups in sectors such as edtech, online groceries, entertainment, and health are witnessing growth, the overall ecosystem has been severely impacted.

Ridesharing dropped to zero, and food orders went down by more than half. Many riders packed their bags and left the cities for a while. The story is the same for all ride-sharing platforms. Food delivery services like Foodpanda and Pathao saw a sharp downturn. Initially, more than half the restaurants, at least temporarily, closed down. The rest relied on deliveries. Even then, demand was suppressed as consumers were cautious about having food from outside. App-based truck rental service Truck Lagbe saw a huge drop in their business. Overnight, businesses and consumers stopped ordering.

However, not all is lost. On-demand video-streaming platform Bongo has seen more than five times their usual traffic. This viewership, however, doesn't always translate to revenue. These startups are to name but a few. Aviation, travel and tourism, hospitality, real estate, and logistics are among the sectors that have been impacted the most by the pandemic.

The challenge

Companies have seen a sharp fall in business revenues, and a growing gap in their cash flow. Apart from that, startup funding has taken a hit with investors becoming wary of economic uncertainties triggered by the coronavirus crisis. On top of this, customer needs are shifting. The Covid-19 accelerator, a joint initiative of the Bangladesh Hi-Tech Park Authority (BHTPA), BetterStories Limited, LightCastle Partners, and US Market Access Asia was inaugurated by ICT State Minister Zunaid Ahmed Palak on June 06.

In the fourth session of the programme titled "Business Continuity Planning" -- powered by Pathao, founders of Pathao, Bongo, Trucklagbe, and Gaze shared their battle-tested lessons.

Financial strategy: Don't run out of money

For startups, the biggest threat to survival is running out of money. Founders need to estimate all possible revenue cuts, plan for those situations, and be prepared so their firms survive and can see the tough times through. There are many ways to do this. A framework recommended by Fahim Ahmed, CFO Pathao, is Zero-based Budgeting (ZBB) which requires starting from a "zero base" and building up by estimating the costs and needs of every wing of one's organisation. Applying ZBB to a firm means bringing down all the allocated budgets to zero--then, going through every department of the business, like marketing, customer service, sales, and engineering, and adding required amounts to each section. This results in a budget that is absolutely needed to survive, with no extravagant expenses. It is always better to over estimate a crisis rather than underestimating and exploding. ZBB helps one do just that. Two weeks into the lockdown, Pathao announced the implementation of progressive pay cuts throughout the company. The progressive nature of this salary restructuring meant that the hardest hit would be those with higher salaries so that lower-paid employees would be protected and job cuts could be avoided. These salary cuts seemed preemptive back in April. However, since then, most startups in the ecosystem have taken steps to reduce their payroll costs. The earlier they acted, the better off they are since preserving cash is crucial for survival.

Truck Lagbe's Founder Anayet Rashid shared that they went through a similar exercise early on. In fact, they had the difficult decision of parting ways with much of their field force team. Many companies had layoffs. Many have shut their doors altogether. Across the board, founders are faced with difficult decisions. These decisions are not popular or easy but are usually crucial for survival.

Communication strategy: Tell your story (or someone else will)

During a crisis, leadership becomes more complex and crucial. Transparency is key to building and deepening trust between management and employees. "We may be building the digital economy, but we still live in an analog world of humans. Your team, customer, ecosystem, investor, and policymakers need to hear from you," said CFO of Pathao.

Product strategy: Rethinking priorities, keeping focus

In light of the crisis, the market has shifted. Consumer habits have shifted. So, companies need to find out whether they have changed. They further need to think on whether to keep building what you previously planned. Startups need to rethink more than just their finances. They need to reassess their business and product strategy.

Founders have to guide their teams by defining priorities. They should identify and communicate the three to five most important ones. This means making smart trade-offs. Startups can start by asking themselves three questions. What services will their customers need? How are they spending their time and money during the lockdown? What are the problems we can solve for them?

A dozen or so companies started delivering online groceries. Pathao launched its on-demand grocery delivery service, Pathao Tong. Evaly launched Evaly Express for groceries. PriyoShop, the e-commerce marketplace, launched a similar service. Everyone from Sheba.xyz to e-commerce site Backpack launched such a service. People do need to buy grocery supplies. But whether or not companies will pursue this line of business in the post-pandemic world is a big question.

Business strategy: Forging partnerships, building momentum

Compared to business as usual, crises produce an urgency and momentum to get things done. Deals that would have taken months to finish are negotiated in hours and executed in days. However, it would not be productive for startups to use this momentum and attempt to build everything under the sun themselves. Instead, after assessing their customer needs, startups need to find ways to collaborate with others.

Take the example of online marketplace Sheba.xyz. They partnered with over 30 companies, small and large, and started a fund named "Mission Save Bangladesh" for those who are deemed most at risk from the coronavirus. These partners included newspaper dailies like The Daily Star and Samakal, big corporates like IPDC, and many local startup organisations.

Another interesting case-in-point is the recent partnership of on-demand video streaming service Bongo and Pathao. The two companies found a way to work together and deliver entertainment.

Times will be tough; the road ahead may seem uncertain. Funding may be hard to come by and hockey stick growth may be way off. However, both globally and in Bangladesh, a new cohort of enduring companies will emerge from the 2020 recession. The companies that can move fast, remain flexible, and have an enduring mission will be best positioned to make it.

Ahmed Fahad is vice-president and head of product at Pathao. He is a global shaper at the World Economic Forum. He studied Finance at IBA, University of Dhaka. He can be reached

at hey@ahmedfahad.com

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