Anecdotal data from my angel investment and startup mentoring circles showed that about 90 percent of startups in their first three years of operations were in ICU mode in the early days of the outbreak/lockdowns. Entrepreneurs had no choice but to go past denials and work hard to save their ventures from total collapse.
Fast-forwarding to September: from my initial set of startups, about 20 percent have found themselves to be in a good spot, or have pivoted to make the most of the situation. They have used the tailwinds of online-everything to take their business to newer heights, some seeing up to three times jump in revenues in the last six months. Invariably these startups are operating in ed-tech, health-tech, and e-shopping spaces, as is borne out by the recent successes of big names such as Byju’s, Whitehat Jr, Medlife, 1mg, and BigBasket.
What about the other 80 percent of the startups? Well, the going has not been so smooth for them. From the total, about 20 percent of startups continue to be in ICU mode—even after juggling their product portfolios, laying-off some team members, and implementing austerity measures. They are severely short of their cash runaways, with little or no hope for recovery. Sadly, the prognosis for them is not too good.
The remaining 60 percent of startups are probably more representative of the current landscape. Most have pivoted their business models, learned to live with reduced revenues and lower costs, and re-oriented their offerings to meet the changing needs of digital customers. They have also accepted that the ‘new normal’ is here to stay. For now, these startups are out of the existential crisis zone—their struggle is more about relevance with a general sense of urgency to get one’s house in order. For such startups, we have been recommending a three-pronged approach to stabilize and scale-up.
Continue to work ‘on’ your startup
While hundreds of priorities, a tsunami of issues, and incessant zoom calls are screaming for your attention, as an entrepreneur, you must learn to ‘zoom out’. Keep abreast of the macro environment, government policies, and evolving customer segments/needs in your industry. This will require more frequent discussions among the founding team around: Are we in the right business? How to tap new revenue streams? How to keep the team motivated? Planning, re-planning, and continuous adjustments are the new mantra for all organizations.
Optimize your operations
You will need to make continuous changes in your operating processes to deliver and capture the newly-defined value. Keep a hawk-like eye on collections and spends; and a keener eye on customer delight. While investing in new digital solutions to manage operations will be tempting, set the ground by getting the most of manual activities of marketing sales, customer service and performance management. Figure what you will begin doing (for example, have more one-on-one conversations with customers), do better (collections), and stop doing at all (developing more bells-and-whistles for your product). As Marshall Goldsmith said, “We spend a lot of time teaching leaders what to do. We don’t spend enough time teaching leaders what to stop.”
Prepare to scale
As the startup acquires some level of strategic clarity, operational control, and financial predictability, it will be time to plan the next stage of growth. As the meltdown has taught—growth this time around will be built on the foundation of a steady, revenue/profit-positive and optimized business. In fact, with demonstrated ability to go past the downturn startups will be more attractive to investors who themselves have been shaken, and have become more selective about their investments.
A renewed focus on building fundamentally-robust businesses is back in vogue. Going beyond the scars of the pandemic, entrepreneurs must develop a long-term mindset of building viable and enduring organizations.