Coronavirus pandemic has wreaked havoc on the global economy. Be it established businesses or startups, this outbreak has negatively impacted every area of the market. South Asian economy is no exception. Apart from this pandemic, South Asian startups have to fight one more battle that is the cash burn.
The formerly thriving South Asian startups sector is coming down to a halt. With economic activities paralysed, the majority of the tech and non-tech startups are looking forward to ways to cut costs. They are laying off employees as well as slicing wages and payrolls of those who are still working.
Their goal is to stay afloat by cutting off marketing costs and halting business expansion until the global market gets back to normal.
Market conditions before COVID-19 outbreak
South Asian digital startups expected in 2020 to be a promising year for unprecedented growth. That’s because, for the past couple of years, the technological sector of South Asia has been continually booming. From virtual wallets to online grocery shopping, the number of customers for digital services and financial technology had been rising with every passing day.
However, what they hadn’t expected was the worldwide coronavirus pandemic will impact everything from households to economies. The outbreak forced them into retreat. The measures that were taken to prevent coronavirus infections from spiralling out of control ground the society to halt.
As a result, consumerism had to take a back seat. This caused a massive decline in the growth rate of South Asian startups. As the pandemic intensified, the majority of the startup had to take strict measures to stay afloat.
They had to lay off the majority of the part-time employees, halt efforts of marketing your business in coronavirus and delay their plans for overseas expansion.
Also Read: 5 survival strategies for startups in a post-COVID-19 world
According to FOMO’s co-founder Zack Yang, this move enabled the company to reduce around 10 to 20 per cent of the total cost. He further added it has to be done since the capital market is far from positive these days. The situation of the global economy is getting worse as the pandemic prevails.
Transportation is another major sector that has been greatly impacted by the outbreak of coronavirus. The majority of the exporters have warned their customers to expect a delay in the delivery of goods because it is hard to find containers amid lockdown. The majority of these containers are stuck at ports making it hard for small businesses to make or receive shipments.
Why are startups losing investments?
Coronavirus pandemic has caused investors to reconsider funding in young startups. It has caused them to become more selective in where to invest. They are rather focused on conserving cash during the most uncertain of the times.
This is making it harder for startups to raise funds to keep their young businesses afloat. As a consequence, they have to layoff employees and pause their marketing efforts to conserve as much cash as they could.
While investors were already cautious about where to spend, the global pandemic made it even harder for small businesses to raise funds. As the capital market and the global economy fell, so did the South Asian startups.
GV Ravishankar, managing director at Sequoia Capital India, warned startups just as the pandemic hit, to expect very little funding during the next couple of months. He suggested them to cut their spending as “quickly and deeply” as possible.
Startup financing is expected to decline
Startup financing has fallen 22 per cent within the first quarter of 2020, said a Financial Times report. The global slowdown in startup investment has caused several young businesses and startups to close down. According to data shared by market intelligence platform CB Insights, various compounding economic factors have led to the acute decline in startup investment.
One of the most prominent of these factors is the economic uncertainty caused by the prevalence of coronavirus. When compared to 2019, the overall startup funding is expected to decline by 16 per cent. In 2020, the startup sector is going raise only US$77 billion as compared to US$92 billion in 2019 and down close to 12 per cent in comparison to US$87 billion in Q1 2019.
South Asian startups have been experiencing the detrimental effects of the Coronavirus pandemic for over five months now. A big number of small businesses have crippled in a matter of months. In India alone, a survey of 35,000 startups has revealed, over 71 per cent are experiencing a massive decline in the demand for goods and services.
On the other hand, 48 per cent of these businesses are facing disruption in supply as well as an increase in its cost. This disruption in supply and its cost has caused even more instability and uncertainty within the small business entrepreneurs community.
How South Asian startups are dealing with the impact
Surveys have revealed that the majority of the South Asian businesses will try to reduce the cost associated with workspace and operations. The majority of the employees will be asked to work from home. This will not only prevent the spread of the virus but also curb the cost of maintaining workspace and electricity bills.
Around 30 per cent of the respondents are willing to manage their expenses by cutting off on advertising or marketing costs, office rentals, and other operations. Around 37 per cent of these businesses haven’t experienced a significant impact of coronavirus pandemic, so they won’t be taking any such action.
The cost of business operations to be cut include:
- Discretionary expenses
- Reduction or exiting non-essential supplier project
- Reduction in the employee costs
Since the demand has gone low, it is a wise move to cut down on the supply that might not be needed. Various customers are also postponing their deliveries. This means startups don’t need to meet their demands right away. They can wait to purchase the new stock once things go back or close to normal.
Also Read: Top 5 promising media tech startups to look out for in 2020
How can the government help small businesses
There are various measures governments can take to curb the impact of coronavirus pandemic on small businesses and startups. One of these measures could be concessional working capital loans for startups, medium, and small businesses.
These loans should be granted based on one to three months’ average turnover of 2019. This loan can also be determined by the extent of disruption a business has faced in its demand and supply.
The government should also extend the period of payment to up to three months for:
- Utility
- GST
- Other statutory payments
The extension in the payment should not be impacted by the credit history of the business.
Why tech startups will thrive in the new normal
We are faced with an unprecedented global crisis. Even the most established corporations have taken a hit as Coronavirus infections spiral out of control. They have been incorporating smarter techniques to embrace the new normal. That’s what startups need to do as well. It’s time for them to rewrite their workspace culture and come out even stronger. Following are the way startups in South Asia can thrive in the new normal:
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Sought after exceptional tech talent:
For South Asian startups to grow and scale, it is important to hire employees with a bold vision and a strong grasp on the latest technology. These two factors serve as the key enablers for disruptive innovation. Start-ups need to keep pace with ever-rising users’ expectations.
With the advent of technology, competition in the market is getting tougher. Today, buggy UX means the loss of a massive number of potential customers. Therefore, startups need to replace their existing team with tech-savvy talent who is familiar with the latest tech stack and skills.
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Expand your market with offshoring:
As a South Asian startup, you must have desired to grow your tech capabilities along with expanding your business. Don’t worry, you can kill two birds with one stone without having to go out of your pocket. You can build an offshore team within the region you want to expand your business to. This will not only help you to gain the initial exposure you need but will also help you break through the new market without having to spend a lot of time on research.
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Switch to remote working:
Lockdown imposed by the government across South Asia has made us learn that it is possible to run an office-less business. Coupons and promo codes turn out to be the best marketing strategy amid the lockdown. The majority of the investors are taking out their investment or reconsidering investing in South Asian startups. During these hard times, there is no better way to cut the cost of running your business other than going remote.
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Create a sense of balance:
To thrive in the uncertain times, we are faced with today, startups need to come up with ways to balance growth, cost, and quality that too at the same time.
Also Read: Why I chose to intern in the tech startups ecosystem
Medical science has been integrating the latest technological trends such as robotics to stop coronavirus. However, it’s not just the medical field that had been impacted by the outbreak of coronavirus. Established businesses to startups, every sector of the market has been influenced as the pandemic prevailed.
The South Asian startup market is no exception. This pandemic has caused various start-ups to lose sales or even close down. However, with a little help from the government and working smartly, these startups can continue to thrive during the pandemic.
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