By now you have likely read all the doom and gloom memos and posts floating around in the US tech industry. Sequoia’s Black Swan memo, Fred Wilson’s Market Meltdown post, Mark Suster’s Funding in the Time of Coronavirus slides are just a few of them.
Here is the TL;DR.
Is Coronavirus the black swan of 2020 that leads us to a recessionary phase of the cycle?
It seems to be.
Will this impact your business adversely?
One way or the other, it will.
Is Asian fundraising environment going to be affected also?
Most likely yes.
Can you do something about it?
You sure as hell should hope so.
Now I have read the Sequoia memo same as you have. Frankly, the advice in it left me highly motivated albeit a bit wanting and confused as to its relevance. The memo talks about runway (increase it), fundraising (remove the need), sales forecast (make it), marketing (rationalise it), headcount (reduce it), and capital spending (evaluate it). Now all of this is great if you were a Sequoia (read any big fund) portfolio company, but based on probability you are likely not. Hence if you are a NORMAL startup founder who has raised a few dollars or none, then fundraising was never easy, runway is always too short, sales forecasts are rarely accurate, marketing is peanuts on a dollar already, head count of the team lies at 10 including your dog, and capital spending is Swiggy/GrabFood delivery. Umm, sorry to be asking this, but reduce what and increase what?
It’s unlikely that you’ll be able to bring a drastic change in your business or in your financial situation in the next few weeks. You will be affected by the externalities regardless. But in fact, the biggest risk that you likely have is internal, not external.
What happens if one of the team members in your tight cosy office contracts the virus? Do you shutdown the office? Do you switch to remote? How do you control the spread? How do you keep running the business?
Seeing the virus growth unfold in Singapore for the last few weeks and the actions taken by the government, I have realised that IT IS possible to control the spread and impact of the virus, even on your business, if you build the right operational playbook. I thought of penning down a few pieces of actionable advice ranging from team management to cash flow planning that we are discussing in my humble portfolio catchups/board rooms.
1. Build a Continuity Plan
First and foremost, I urge you to devise a plan to tackle the situation that the virus hits one or more of your team members. If I were you, I’d be building this plan in the following way.
Plan A: 0 infections in the team
Plan B: 1 to 2 infections in the team
Plan C: Multiple infections in the team
The tools in your arsenal then are carving out affected teams from the main team.
Sub-team: In this case, cordon off a functional team either on a separate floor or a separate location. See how this impacts productivity for a few days and change accordingly
Division Rotation: When the virus started spreading in Singapore, DBS implemented a Business Continuity Plan where a third of the entire DBS office was working from one office, another third from another office, and the final third started working remotely. This limits the risk to certain pools within your team, and you’ll have continuity of business for the medium-term. Remember that the virus doesn’t severely infect most people, hence you should expect affected individuals back on their feet in a short while.
Fully Remote: Some of my portfolio companies have already shifted to fully remote work. If your sales are done via inside sales calls, and your functional teams are still small, this is likely an easier option for you.
Handling remote work is not easy. See some of the recommendations on the same in this report and this post.
At the minimum I recommend asking your managers/VPs/team leads to start figuring out a plan to move their team to remote work on urgent notice without impacting the business severely. Maybe even ask them to do a test run for a few days. If you are interested to learn more, see Enterprise Singapore’s BCP guide.
2. Build a SWAT team
If your team does get affected from the virus you’ll likely face massive disruptions in the internal workflow. At such a time, you’d need a SWAT team that goes in and fixes fires. Choose a set of folks (around 10% of your overall workforce, if you’re 10 people, yes it’s likely going to be you) who’ll cover up these holes and gaps. The team should ideally be made of people who can wear multiple hats quickly, would be willing to work the extra hours apart from their usual role in the company, and know the company’s business end-to-end well.
3. Build Redundancy in the team as long as your Cash flows allow
Nature’s best way to tackle black swan events is redundancy. There is a reason humans have two eyes, two legs, two arms, two kidneys, and two lungs. These redundancies in the body are there to protect you in case of black swan risks. It’s counterintuitive but now would be the time to add a bit of redundancy in your team. Likely your next question is, where do we get the money to build redundancy? Well, I’d suggest instead of hiring an expensive resource at this time, you might be better off hiring two inexpensive resources for the same work. I’d recommend building 110–120% bandwidth for all the client facing, field, operations roles at lower cost resources. Net net, you’ll end up at the same burn, and if things don’t go for the worse, you’ll eventually grow into the extra capacity you built.
4. Build Redundancy in your supply chain
If your business depends on cross-border trade or a few critical suppliers, now is the best time to start building multiple supply chains. You have no clue when the vendor supplying you from a certain country or city disappears off the grid due to lockdowns or manpower crunch. Have a couple of fallback options for every critical piece of product in your system.
5. Build Redundancy in your customer base
Try to reduce over-reliance on a small set of customers. If you have very few customers, focus your energies on closing new business in the next couple of months, instead of chasing account expansions. If you can target new verticals/markets, now might be a good time to experiment on those to protect you from geographic/concentration risk.
6. Collect faster
Almost all B2B businesses have a collection cycle. In normal times you’d be fine with slightly delayed collections or longer payment cycles. But right now you should be dedicating bandwidth towards collections. The virus has not impacted cash flows for most companies yet, so you should be able to collect. This will also prevent any collection write-offs, bad debt.
7. Move costs to lower-cost-base markets
One of the easiest steps for companies who still want to grow their teams during recessionary times is to spin up remote teams in lower cost-base countries. You can keep these teams in-house or outsource completely depending on criticality of tasks. It’s an easy way to replace that next expensive hire with 2–3 inexpensive remote employees. You can try this for less critical feature engineering such as integration implementation or even less critical customer support.
8. Cut G&A expense
If you read my blog, this is my pet peeve. Now would be the best time to let go of the fancy office, free lunches, yada yada you have been spending on with not much avail. It’s easy to justify it to your team at these times, and it will do you good in the long run till the point you become self sustainable or are in control of your destiny.
9. If fundraising, be clean and quick
Start thinking of 1 month fundraise process rather than 6 months. Go in, test the fundraising waters, and if they are too cold, jump out and drop the plans. You’ll know within a matter of a month how your story is doing in the market and whether investors are likely to move in next few months at the price you’d like to raise at. If the price is substantially under your preferred price, raise less for now and wait for the markets to improve. At least you preserve dilution.
10. If you have raised debt, be extra cautious
With even predictable cash flows at risk in such times, repaying debt is the hardest of things to do. Try not to rely on debt as a cash flow source for the near future. If you already have debt, then set aside interest repayments and principal properly to bake it into your runway. You can even try to renegotiate your debt earlier rather than later if you foresee yourselves missing any repayments in the future.
These are my top 10 based on recent discussions with portfolio companies. If you are implementing any others steps in your company to brace for impact, please do share in the comments below and help us all!
This post was originally posted under the title ‘10 ways your business can tackle the impact of Coronavirus‘
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About Nikhil Kapur
Working together with some of the best minds in the tech sector of emerging markets. Love investing in products bringing customer delight. Leading Southeast Asia and India investments for STRIVE. Truly believe in the old-school hands-on approach to VC.
Built a profitable tech company in India. Loves dogs and travel. Enjoys the mix of light and dark side in the Startup world.
I write weekly about the Asian startup ecosystem at grayscale.vc.
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