The Coronavirus outbreak has turned into a global emergency as entire nations go into lockdown mode and economies brace for impact. Businesses across the world are grinding to a halt as the pandemic necessitates social distancing, the shuttering of services and cancellation of events. Never have emergency preparedness plans been more in focus.
More vulnerable than established corporations, startups are understandably worried. Many are calling for hiring slowdowns or moratoriums, as well as spending curbs, cutting out travel and hunkering down for a very tough time ahead. Funding seems to be the first casualty and those that are in the middle of a fund-raise or have small reserves of cash are looking for solutions.
What seems likely is that, while overall funding may slow down, the best companies will still get funded – albeit with delays. Those that have already raised funds and have at least six months of operating capital should be fine too.
However, pre-seed and seed-stage startups might find the going tough as burn rates rise and sales fall. It will be tougher for these startups to gain customers, find potential new business and scale-up. This, in turn, would make it more difficult to raise the next round of funding.
It’s not that venture capital firms have no cash to draw on but they would be understandably cautious, choosing to focus on their best-performing portfolio funds instead.
Although we don’t know how the pandemic will play out over the rest of the year, it has many lessons on crisis preparation and management.
Employees come first
Your staff should always be your first priority. Make sure they are safe. That may mean rethinking some work practices – you may need to restrict travel and switch to meetings via video or audio hook-ups. Some offices may need to temporarily shut and employees be asked to work from home; most companies have already implemented this for desk workers. Encourage every employee showing symptoms to get tested. As part of your preparedness, institute simulations. Just as we have frequent fire drills, ones around natural and health disasters should become a regular practice. There is no such thing as too much communication in these times. Critical talent needs assurance.
Chip away at your burn rate
Don’t wait for things to turn around; such epidemics have long-lasting impacts, so plan for a rough ride. You may need to rethink your annual plans to reduce the burn rate and extend the runway with the capital you have. Move out of expensive office space, dump unnecessary perks, look for cheaper and more efficient solutions, and don’t be afraid to make tough calls. You can reevaluate plans as you get more feedback from the market. Incidentally, if you are among the lucky ones to have sufficient capital in hand, this is a good time to hire aggressively.
Create a response centre
Here’s one investment you should make – an emergency operations centre to tackle crises and ensure the impact on operations is limited. These should penetrate deep into the organisation, going beyond the corporate office to the shop floor. You’ll need documented protocols, escalation matrices and tasks assigned to specific people.
Manage the supply chain
Your vendors need your attention – if the crisis plan includes how to keep operations humming along, you’ll need steady supplies of raw material and services. Take stock of where you’re vulnerable and act immediately. If that means handholding vendors or opening up new avenues of supply, do it. You might also require backup plans for manufacturing, external and internal communication, ensuring against supply chain disruption, etc.
These might seem like costs but enlightened start-ups will look upon them as investments. The economic carnage we’ve witnessed over the past few weeks requires an extraordinary response. Make sure your startup is prepared.
By Dilip Kumar Khandelwal, a Global technology thought leader, business mentor, and angel investor.