5 takeaways from our virtual panel on how startups can survive 2020

“How can my startup survive 2020?” That is a question many founders are asking today, as even companies who believe they would not be affected by the Covid-19 pandemic will be—one way or another.

Tech in Asia was fortunate to hear from Amit Saberwal, the CEO of hospitality startup Reddoorz, and Dimitra Taslim, an investor at GGV Capital, as they share their insights and opinions on what it will take for startups to pull themselves up by their bootstraps amid the Covid-19 crisis.

Here are the five important points that we gleaned from them as part of our first virtual panel discussion “How Can Startups Survive 2020” which was livestreamed on April 8.

1. Keeping a steady runway

One thing that both Saberwal and Taslim agreed on right off the bat was the need for sufficient capital to last a company, at the very least through Q1 2022. This would put them in a much better position to navigate a dynamically changing situation and lets them take advantage of the opportunity for recovery and upturn the soonest it happens. According to Saberwal, being financially prepared can help make up for lost ground faster once the crisis is over.

While some startups have been fortunate to close fresh funding recently, Taslim advised those who have not to consider alternative sources of funding, such as bank loans or venture debt. The bar for securing new rounds has been raised, as investors will be mostly looking at startups who show signs of profitability. From Taslim’s perspective, companies that are asset-heavy may look a little less attractive now.

Increased importance has also been placed on positive contribution margins, where a company doesn’t lose money in each transaction and can earn back every dollar it spends on marketing. Placing all its cards on the table and considering mergers could also be another option, depending on the company’s situation and industry, opined Saberwal.

“Competitors in the past could very well be partners in the future” – Amit Saberwal.

2. Exercising financial discipline and prudence

If gaining extra capital proves to be a stumbling block, the next option is to look within the company and reduce all nonessential costs.

Reddoorz, for instance, is operating on a “zero-revenue budget” assumption until the middle of next year, Saberwal shared. Redeploying capital to core products and markets was also one strategy the company has employed to ensure that it is ready when an eventual recovery does occur.

Having less growth also presents an opportune time for companies to revisit their technical stack and pay off technical debt by optimizing their processes. These would inadvertently save costs.

However, some expenses are interlinked with each other, and, as Taslim put it, present themselves as a “trail of breadcrumbs.” If demand is low for your product, it would not make sense to keep a huge team of salespeople. Similarly, without any new accounts being brought in, the number of customer success managers for such accounts would be redundant.

By following the breadcrumbs throughout the company, cost savings can be easily identified. However, both Saberwal and Taslim were quick to advise founders that layoffs should be seen only as the last resort and must be conducted in the most humane way possible.

3. Managing the inevitable layoffs and salary cuts

What if nonessential costs include jobs and salary revisions? That’s probably one of the hardest but necessary decisions a founder has to make, Saberwal shared. He suggested keeping employees on reduced wages during a leave of absence if their roles are made redundant during this period.

“It is better for the whole company to suffer together than to keep a remaining few,” Taslim said, as company morale would be badly hit by mass layoffs. A suggestion he gave for CEOs is to form a taskforce with their chief financial officer, head of people, and legal counsel when deciding what roles should be restructured, who will be affected, and how will they be compensated. The investor also believes that there is no magic percentage when it comes to deciding how much of a pay cut the company should put in effect.

4. Making marketing relevant again

Marketing is the likeliest function to receive budget cuts, but that does not mean it should cease to exist. For example, Reddoorz is focusing its marketing efforts on channels that do not call for too much cost, such as SEO, shared Saberwal. It’s also putting more effort on reactivating previous customers and managing customer churn.

Taslim agreed that this is crucial, as customer acquisition is difficult at this point. It would be better to continually engage past customers so that they will stick around during the recovery period. Marketing tone will also need to be more sensitive: Companies can highlight initiatives that have an added element of corporate social responsibility to them.

5. Digging deep and sticking through

We’ve heard of unicorns and zebras before, but both panelists agreed that now is the time for cockroaches—startups that place less emphasis on growth and more on survival—to emerge from the shadows of Covid-19.

After all, it was shortly after the SARS pandemic of 2003 that Alibaba launched its hugely successful ecommerce site Taobao and its cloud service Alibaba Cloud, said Taslim. Saberwal added that by focusing the entire organization’s efforts on a clear direction and strategy, collective wisdom and effort can be harnessed better.

While there’s no crystal ball that can predict what the future holds for startups, it’s worthwhile to have some idea on how the landscape will change post-Covid-19.

Taslim believes big tech companies will emerge even stronger from the current situation because of three things: (1) their business models that are centered around network effects; (2) the almost negligible cost of goods sold; and (3) a nonlinear cost of user acquisition. These make them well-equipped to weather out the storm.  Startups must keep these giant competitors in their purview when strategizing for the next 12 to 18 months.

Saberwal, on the other hand, thinks it is still a good time to be a startup, as the ecosystem in the region has evolved and matured a lot and is able to better support companies through this period.

Startup founders are known to be survivors and would likely get past this downturn together. We hope that from this sharing, you are invigorated to proclaim, “My startup can survive 2020!” and continue doing the good work that has helped the Southeast Asian startup ecosystem develop greatly in the last few years.

Join us at our next virtual event!

We are holding our next meetup on Wednesday, April 22, 2020. This time, we’re excited to be speaking to Razer’s chief investment officer, Edwin Chan, and its chief strategy officer, Li Meng Lee. You can find out more here.