Startups and Covid-19: Challenges and opportunities
Speaker: Mr. Sanjeev Shivesh, Former IRAS officer, Founder, the Entrepreneurship School Serial entrepreneur and angel investor
Facilitator: Mandira Popat, Digital entrepreneur
Compiled by: Sudhanshu Shekhar
Date: 13th May 2020
Mr. Sanjeev gave the audience a plethora of knowledge related to startups and how one can create opportunity in these times too.
Ms. Mandira began the conversation by asking a question related to the covid-19 and how Indian startups can face such situations. Mr Sanjeev answered by describing the current situation as not a conducive one for starting a business or a startup. This is because the demand has vanished from the market. It is a possibility that some sectors of technology like zoom haven’t faced the brunt of this situation. So, it depends on the sector of the startup. He mentioned that they conducted a survey on 23rd March where they asked around 34 startups and MSMEs about the time frame within which their cash reserves would get consumed. The average answer was 22 days. A big question which comes here is about the operations and whether they can operate without cash. Mr. Sanjeev felt that around 20% of the startups won’t be able to survive in this situation. Secondly, in April GST return data showed that the country’s economy or net supply chain fell which indicates the market behavior. Thirdly, there would be a problem of talent exodus where the employee, not getting enough salary or benefits, may leave the organization or may not work efficiently. Fourthly, there would be funding challenges. He stressed that survival would be the mantra this year.
Ms. Mandira then asked the question related to fundraising and as the fundraising is at a standstill and cash flows of companies are almost exhausted, how do they cope up in the current scenario? Mr. Sanjeev replied to this by commenting that startups must think of options to prolong survival. He insisted not on spending on irrelevant sections at this point in time. Moreover, one has to connect with employees, suppliers, and customers as these are the best time to do that. The startups should also think about the aspect that they can use digital communication means to start doing paid programs/ workshops for entrepreneurs. Everyone should start thinking about how they can innovate. In difficult times, it’s the good decisions that count.
Ms. Mandira then went on to mention the key takeaways from the discussion made so far. The next question was related to the opportunities in current times for a person to come up with a startup. He beautifully connected initiating a startup with principles of frugality in his answer. He said that his challenge to any person initiating a startup would be if the person can start a zero rupee startup, or for that matter a budget of Rs. 5000-10000 would also do great. He also considers this time as good for one, given that one has sufficient bank balance. Moreover, it is the right time for mergers and acquisitions or acquiring new capabilities, provided you have budgets.
Another interesting question that came up was regarding the micro-enterprises. Where does the speaker see them going and if they can drive the economy rather than FMCG companies? Mr. Sanjeev suggested that they have to. In the last 45 days, there have been several lockdown extensions and slowly we have realized that every city has migrants. Though we ignored them, they were there. Now, reverse migration is going on where they are heading back to their earlier places. Now the next month is cropping month and many of them would be busy with that. He feels that many migrants would want to see their villages developing and some of them will try to replicate things for the same. He expressed that there would be some rural entrepreneurs that would come up. These entrepreneurs have to start by solving problems including education. The government must also aid them by providing a conducive environment for startups to spring. Self-reliance is the key.
He was then asked about the key policy decisions that need to be taken to create that conducive environment and to make the startup self-reliant. Mr. Sanjeev replied by saying that self-reliance has 2 levels, and the key to one of the levels is with entrepreneurs only. So it is important that if one has to make the startup survive in the competitive world, then one must strive to create an ecosystem that is both effective and efficient. As far as survival and sustainability are concerned, the promoter and founder have to take important steps. One of the key decisions here is the availability of cash. So, planning around net cash availability is a simplified formula to be used. Now, how does the cash addition or reduction take place? So it is based on 2 elements- sales and cost. If sales are higher than the cost involved, there is net cash addition. But if the cost involved is higher than the sales, there is net cash reduction. This formula should be used by the startups over the period of these 45-60 days to maintain cash reserves. Obviously, when businesses mature, the formula will also change. But on an initial level, this formula can be used to see results.
The next question was related to red tape and bureaucracy and the fact that as entrepreneurs, one cannot wait for the ecosystem to change. So how to curb bureaucracy and red-tapism? To this, Mr. Sanjeev answered by saying that whenever any venture starts up, it should not think too much. This is because no one bothers much about a low scale venture. These matters should rather be taken upon when the turnover of the nascent startup crosses 25 lakhs. So that is how it all goes.
Key highlights of the Session:
- The current situation is not a conducive one for starting a business or a startup. This is because the demand has vanished from the market. But it also depends on the sector of the startup.
- Around 20% of startups won’t be able to survive in this situation.
- Everyone should start thinking about how they can innovate. In difficult times, it’s the good decisions that count.
- In these times, a startup must connect itself with frugality.
- It is the right time for mergers and acquisitions or acquiring new capabilities, provided you have budgets.
- Self-reliance has 2 levels, and the key to one of the levels is with entrepreneurs only. So it is important that if one has to make the startup survive in the competitive world, then one must strive to create an ecosystem that is both effective and efficient.
- In the initial stages, one must not think much about red tapism and bureaucracy. It is only after the startup reaches a particular level, that the entrepreneur needs to cater to these issues.