4 May 2020
The coronavirus pandemic has caused severe health and humanitarian crisis. It also inflicted severe damages to start-ups, where founders face enormous business challenges: the collapse of customer demand, lack of cash, supply chain interruptions, unemployment, recession and increased uncertainty. Funding London, led by Maggie Rodriguez-Piza, is perhaps the only organisation in the capital helping the London-based start-ups at this crucial time to plan for their recoveries. As the pandemic is destroying the start-ups and young companies in the capital, Sukhendu Pal, along with Funding London’s other co-mentors, Steve Garnett, Rowan Taylor and Sean Hoban, are fighting on the frontline and saving start-ups from bankruptcies. Here Sukhendu shares the life-threatening challenges that start-up founders and SME leaders are facing, and how he is sharing his experience, and helping them navigate the uncharted waters.
What is worrying start-ups and SMEs most in this pandemic?
Lack of liquidity and scepticism of the government’s rescue schemes are the two most worrying themes for start-ups and small-business owners as they navigate this pandemic. The picture is a bleak one for UK’s small-business ecosystem. Nearly half of firms are temporarily closed, and a third of the workforce has been laid off or furloughed since March. The severity of the shock is also due in part to an overall lack of liquidity. Start-ups today are very lean and cash-strapped, and they will need to cut expenses to the bone to ride out this crisis. The more worrying matter, however, is many of the start-ups and SMEs distrust government’s rescue packages.
If the economy continues to head south, what does it mean for entrepreneurs ready to scale their business? Should they take a more conservative approach?
My answer is no. In my view, when an economy in recession is the best time to build a sales team and grow a business. The reason I say this is because I have lived and thrived through five recessions. For example, I was tasked with setting up Oracle’s financial services business in the City of London on 1 June 1987. Five and a half month later, on 19 October, we faced Black Monday, when the global stock markets crashed. My potential clients (banks, brokerages, fund managers and insurers) made thousands of employees redundant, and many closed their London operations and went back to their home countries. I was left with a depleted client base with a mandate to scale-up the business! I was rattled, and kept asking myself, “Would I need to lay off the people I recently hired? Would budget freezes in our clients impact our sales effort? Would my dream of building “the most successful and profitable business unit within Oracle” be foiled by circumstances outside of my control? Within a year, we had scaled from 3 customers to 21 customers, and I had a growing team of three dozen consulting and support people plus six salespeople. Revenue generated by the financial services business unit and profit per employee was much higher than any other business units of Oracle. To my surprise, things did not slow down, and I was able to re-focus and accelerated our pace of sales hiring. Looking back, the 1987 economic downturn may have helped us more than it hurt.
How do start-ups keep their cultures alive?
Start-up founders must be alert to the need to defend the company culture and keep it strong in the face of heightened uncertainty. Despite the unusual circumstances in which start-ups find themselves today, a strong culture, backed up by resilient, empathetic leadership, is part of what is necessary to ensure that the start-up remains on solid ground. By actively managing the behaviours, which are part of their company culture, employees will be more committed and feel part of a team contributing to a collective effort to help address a global crisis.
What can leaders do to create a robust remote working culture?
Leading a virtual workforce is tough. So, leaders have to actively work on it. Number one, make sure team members constantly feel like they know what is going on. You need to communicate what’s happening at the company level because, when people are working at home, they feel like they’ve been separated from the mothership. They wonder what’s happening at the company, with clients, and with common objectives. The communication around these points are vital, and you should be emailing more, sharing more.
During this period, people will also start to get nervous about revenue goals and other deliverables. You’ll have to make sure they feel like they’re going to be OK, therefore you have to be available to everyone equally. Finally, when you run your group meetings, aim for inclusion and balance the airtime, so everyone feels, seen and heard.
Coronavirus brought an unprecedented level of stress on young founders – many of whom are suffering from mental illness. How can they combat mental illness?
An increasingly complex and competitive world causes start-up founders to suffer from mental illness. Failure is common; however, pandemic induced stress is not the only reason why entrepreneurs can experience forms of mental illness. Many founders become depressed because they’re pushing themselves to be entrepreneurs when, in reality, they don’t have the personality for it in the first place. For some founders, learning how to manage the typical pandemic induced stress may no longer be enough. To beat mental illness, they must also learn how to manage and deal with their personality. Here are some tips to help entrepreneurs keep founder mental illness at bay:-
-Understand your personality and identify your weak spots;
-Hire people who complement your personality traits;
-Find a distinct place and time where you can destress and revert to your true self;
-Know the tell-tale signs of mental illness.
Just because someone doesn’t have the personality to be an entrepreneur doesn’t mean they can’t found their own company. But it does mean they must be aware of mental health risks and manage their personality and surroundings accordingly. By following the tips above, they can take one step closer to becoming a happier, more satisfied founder.
How can start-ups and SMEs ensure their relationships with customers outlast Coronavirus?
The coronavirus pandemic has forced businesses to maintain and build relationships with consumers when their world has been upended. Companies are now facing tension between generating sales during a period of extreme economic hardship and respecting the threats to life and livelihood, which have altered customer priorities and preferences. This tension is very real, particularly for newer ventures and smaller business that may not have the resources to survive prolonged periods of severely diminished cash flows. Therefore, what can start-ups and SMEs do to strengthen relationships with customers when social distancing has minimised or eliminated personal interaction?
A few weeks ago, a friend of mine, Steve Garnett, came up with a fabulous idea. He said “We should be calling our customers and ask about their well-being. When this is all over, people will remember the call. He mentioned a quote from Martin Luther King Jr, which says, ’In the end, we will remember not the words of our enemies but the silence of our friends’. The customers are our friends we shouldn’t be silent.” And, I agree with Steve – all start-up founders and SMEs should follow his advice.
Do small businesses need better rescue deals from the government?
Despite the good intentions of the UK government, many small businesses are struggling to access the emergency loan schemes which have been made available. Owners report delays in receiving loan approval and others say they have been turned down by their banks as they have no borrowing history with them. “Whatever it takes” slogan by politicians, I’m afraid, isn’t going to cut it. Ministers need to cut through the bureaucracy and go further in their guarantees. The reality is, there is no meaningful rescue scheme for UK start-ups. Grants, rather than state-backed loans that can convert into equity stakes, must be the way forward. The government announced that £750m will be available through grants and loans from Innovate UK, the national innovation agency, with the majority available to its 2,500 existing customers. However, like all other rescue schemes announced by this government, the devil is in the detail, and it is this detail implementation, which is critical. Getting the right support to businesses of all sizes is critical if they are to have any hope of surviving the next few months. Even if the bill for the UK government looks high, it will be nothing compared with the economic cost of unprecedented mass unemployment and depression which is inevitable, if businesses are not protected in the short term.
What does good leadership look like in a pandemic like COVID-19?
It takes a humble kind of leadership to push against the natural human tendency to downplay and delay. Far too many leaders instead try to send upbeat messages assuring all is well. However, this is by no means the only path for leaders to take. Good leadership traits, which are vital in a pandemic like the current one include:-
-Act with urgency;
-Communicate with transparency;
-Create certainty amid uncertainty with honesty;
-Don’t try and cover your back, respond productively to missteps, and
-Engage in constant meaningful updating.
Can start-ups and SMEs grow stronger during a recession?
It’s easier if a company has a strong balance sheet, plenty of cash it can use during the recession to become even stronger relative to the competition. Only a small number of start-ups and SMEs are in that situation at the moment. The majority of start-up founders I’ve spoken with have enough money to last the next 9-12 months. So here are the four steps they should consider now:-
–Invest in research and development now, so new products and services are ready for launch as the economy begins to grow again.
–Spend time learning about the customers of your weakest competitors. You might be inclined to go after their largest and most attractive clients.
–Identify your most critical suppliers and distributors, and determine if any face the possibility of severe impairment to their business due to the economic downturn.
–Think carefully about your talent needs. As weak companies lay off employees, many good people will find themselves searching for work. Hire top talent and re-configure your team.
Can a “fast mover advantage” help a start-up to succeed in the coronavirus pandemic?
“Fast mover advantage” is a very positive thing. Apple didn’t create the first digital music player, the first smartphone or the first tablet computer, yet it came to dominate each category. Amazon wasn’t the first to sell books on the Internet, either. These companies succeeded not because they were faster, but because they developed products that were demonstrably better than their competitors. Start-ups succeed by its ability to solve problems for its customers. And they can’t solve really tough problems by simply moving faster. Start-ups that endure and become iconic companies reinvent products and/or offerings long before they become “new normal”.
There is a saying that “every cloud has a silver lining” – what advantages can start-up founders take from this pandemic?
Here are the five key advantages that start-up founders can take on board from this pandemic:-
–High availability of talent;
-“Must-have” versus “nice-to-have” value propositions;
-Unit economics versus unnatural growth;
-A better work ethic;
Will Coronavirus change the way the world does business?
If nothing else, businesses will be forced to rethink their global value chains, shaped to maximise efficiency and profits. Resilience will become the new buzzword. Companies will think harder about diversifying their supplier base to hedge against disruptions to a particular producer, geographic region or changes in trade policy. This means building in redundancy and perhaps even moving away from the practice of holding near-zero inventories. Costs will certainly rise, however, in the post-Covid-19 world, concerns about supply chain fragility will come right after cost. Companies will be expected to assess the resilience of their second and third-tier suppliers, too.
We may see some reshoring as automation reduces labour costs. Newer EU member states and Spain may see a growth in manufacturing employment. Opportunities may be created for countries that have not been top of investors’ lists before. Coronavirus will not end globalisation, but it will change it. Companies will have to adapt to succeed. That’s what viruses force us to do, including economically.
Is coronavirus pandemic a good time to build or repurpose a start-up?
For years, I have argued that economic destruction, such as the one caused by the current Coronavirus, can be a great opportunity for start-ups to try something different or build something new to what they already built. If all you’ve got is a spreadsheet filled with red ink and dire forecasts, it’s easy to be paralysed by fear. But if you’ve got some bottle, and can muster a few good ideas, then hard times can be great times to separate yourself from the pack and build adversity advantages for years to come.
How is VC funding in the coronavirus world-impacting start-ups?
I’m seeing a clear contraction in the funding environment, a reduction in the number of new companies funded and a massive drop in valuations for start-ups. This is a reflection of what happened in past downturns. For example, commitments by limited partners to venture funds fell by 41% from 2000 to 2001; and by 58% from 2008 to 2009. Therefore, if the past is an example then it would not be surprising to see commitments to VCs in start-ups cut in half in 2020. There is also a loud and clear message for start-up founders: days of the vanity of winning meaningless prizes and absurd valuation are over; customer acquisitions and revenue are what matters again. Some VCs are as expected to work with their existing portfolio companies to help them through this downturn, which sets a higher bar for new investments. As a direct result, we’ll also see a decrease in the number of new series A financings. Start-ups can prepare for a recession by reducing expenses and focusing on where they are best able to stretch their cash. Besides the traditional wisdom of trying to conserve as much cash as possible, the objective for many start-ups has transitioned from growth to extending the runway while proving out unit economics. In a crisis like this, scale-up and growth matter much less than the ability to ride out a downturn.