How Startups Can Stay Operational During the COVID-19 Pandemonium

News and stress about the coronavirus from around the world is creating significant uncertainty among leaders, employees and customers.

Beyond the commonsense measures, I wanted to provide a list of operational resources to help you as you develop your own internal and external responses and policies.

We have weathered a broad range of global challenges. While there is never a playbook, we’re hoping the information below will help you to:

  1. Take care of employees
  2. Support your organization’s ability to adapt to change with the least disruption in the long run

In a country like India with a large but mostly poor population of 1.3 billion and a per capita of around just $2,000, a virus such as this can spread like wildfire and cause devastation.

India, like China, could also be deeply affected, especially if it has under-reported its figures. Realizing this, the Indian government has done the smart thing by implementing a 21-day lockdown — or de-facto “house arrest” — along with an international and domestic flight ban, and a stoppage of the railway service.

For startups, this will be a particularly difficult time. In the recessions of 1982, 2000, and 2008, funding for startups dried up.

While many have heard me say that great startups are often created during market downturns — sometimes, it is easier said than done.

This is pretty obvious. If you don’t survive, there is no upside. So, all of the strategies below are about survival. It is time to put aside the grand plans to become a huge company with world-class products.

None of this matters if you don’t survive.

Create a real plan together with your co-founders and investors and look the truth straight in the eye. Things will get worse before they get better again.

Formulate a plan to survive the next year and a half without outside funding. This strategy should guide you to make hard and needed decisions.

Make sure that you, your co-founders, and your employees see eye-to-eye on the vision you have and the measures that you will take in the next weeks and months.

Startups don’t generally die for a lack of ideas. They die because they run out of cash. Put in place a plan to conserve cash.

Be aggressive in this plan; early action will be much more impactful than later action.

Have at least 12 months of cash on hand, because it is likely that is what you will need.

Even if the COVID-19 crisis resolves itself much sooner than that, the turmoil left in its wake will persist, particularly for startups.

Everyone is looking at you for leadership; this is your time to shine and show strength. You need to be a calm leader. Don’t panic!

Angels will continue to invest, but expect smaller rounds, at a lower valuation, in companies that don’t require large amounts of cash.

For existing portfolio companies, the sudden downturn in the market, coupled with the disruption of almost all business as usual will cause funding to stall.

While VCs and angel investors might have cash to invest, the pullback will trigger a triage mode (as it did in previous downturns), where investments will be in select companies.

Even some good companies won’t get financed. Assume that this pullback will last until after the COVID-19 crisis is over and add a few months to that for them to get back on their feet.

M&A will dry up — if you were in discussions last month, expect that nothing will happen until this crisis ends.

If you are lucky, you might get your existing angel investors to help carry you a bit but expect it to be really costly and only if you have a plan to make the money last a long time.

And, as I believe is always prudent, communicate well with your shareholders, giving them the bad news and the good.

Make sure you are transparent during times of uncertainty and that you give your board and investors comfort. Do not make decisions without them, even if you can do so from a legal standpoint.

Make sure they are part of the process. If you do ask them to help the company and give you more funding, make sure you communicate it in advance, and after you have all the facts. Don’t create unnecessary panic.

If you are counting on contracts in the pipeline to close, you shouldn’t. Most big companies, government clients, and especially small and medium businesses will also go into survival mode.

Unless you are supplying a product or service that they consider absolutely mission-critical, you should expect that revenue will be deferred for at least six months and probably longer.

If your existing contracts have cancellation clauses, expect that some will be exercised.

Your first step is to identify areas of vulnerability, and decide which of these can be mitigated early.

Ideally, you should have measures in place to diversify revenue or accelerate profitability and make sure that your financials are in order.

Have a solid financial model and run financial scenarios (e.g. make projections for the number of customers and think about what happens if your revenue drops to 75% or 50%). This will further help you to understand when to pull the trigger on major changes as things play out.

If you have a way to shift some or all of your business to be part of a solution to the COVID-19 problem, stay alert to do so. For example, even as GM is closing plants, it is looking at how to make ventilators and respirators.

While there will be great economic dislocation that affects small and large businesses, there are still some opportunities, especially for direct-to-consumer businesses.

People are sheltering at home and online a lot. If you are selling something that will make their lives better during this difficult period, there are opportunities.

Examples might be things like online learning or classes, online consulting, or even things that bring a smile in these difficult times. Similarly, any product or service that makes working from home easier will have a ready market.

Use this time to establish a culture of discipline for all conditions. Be helpful, smart, and prudent. With an established culture of discipline, you will be in a better position for any shock to the business and it will bring your team closer together.

While this is a really difficult decision, survival is the single most important thing. Many companies will have to pare back to the essential. Salaries will need to be slashed if companies will survive.

While the pandemic will certainly curtail travel, make that a policy. Cut all contract help that can be cut. Cut marketing and sales spend until your customers are back to work and buying once more.

Again, any step that cuts your burn early on, will have a lasting impact on the later cash balance and your cash horizon.

It’s your responsibility as a manager to keep your employees safe. By safe I mean two things.

First, comply with government regulations even if it’s not easy, and second, make sure that your employees feel comfortable. You might want to put a board resolution in place that allocates a leader in case you or any other board member get sick or need to be quarantined.

I firmly believe that the human and societal impact of COVID-19 will be extreme, even though we in India are at the early stage of this pandemic.

If we as a society can pull together, enact social distancing and other means of delaying the spread of this virus, we can come out of the other end of the tunnel.

This article was written by Arihant Patni — an entrepreneur, financial advisor and venture capitalist with extensive experience in diverse areas such as IT services/infrastructure, business development/marketing and wealth management.

Currently, Arihant is the Managing Director of Patni Financial Advisors, Hive Technologies, a platform that invests in data analytics and data science companies, and Ideaspring Capital, an early stage fund investing in deep tech enterprise companies. He is also Co-Founder and on the Board of Directors of Nirvana Venture Advisors, a venture capital fund with focus on the internet space.

Arihant also invests extensively as an early/growth stage investor directly in several venture backed companies taking on an active board role and helping them get to the next level.

An early-stage VC fund investing in technology product companies in India.