Top-5 Coping Strategies for Start-up Founders to Navigate through this Deadly Coronavirus Pandemic

This article aims to help leaders drive their businesses successfully through this pandemic COVID-19 or Coronavirus. Especially, if you are a part of the founding team or management or senior leadership team of a start-up or a boutique or a mid-sized firm, then you may find this article relevant as it touches upon some key challenges encountered by the firms and also highlights some probable survival strategies.

The COVID-19 pandemic is affecting our personal and professional life in a big way. Suddenly, survival has become the topmost priority for everyone; not that it wasn’t earlier, however, our survival was never threatened like this before. I’m sure everyone is following the safety guidelines issued by their respective governments. However, mind you, there are no specific guidelines for corporate survival during this pandemic! Each company (large-sized company to start-up) is evaluating its own survival strategy, and there is no one-size-fits-all remedy. Let’s assess the key challenges faced by companies in this global pandemic COVID-19.

Top-10 Key Challenges Faced by Traditional Large-scale Companies:

At present, the traditional large-sized companies with a huge client base and large market share, have some critical business problems to solve. These problems are multidimensional, complex, intertwined, and are of enormous magnitude. Also, the majority of these problems do not have a quick fix. In this current pandemic situation, these companies are wrestling the following challenges including,

1. plunge in revenue as the end-markets are closed with no visibility of any near-term revival
2. huge fixed overheads in the form of lease rentals, salaries, and other overheads
3. acute shortage of raw material supplies, leading to production losses and record low capacity utilization
4. continuous production losses and delayed client deliveries due to the lockdown
5. piled up inventory due to cancellation of client orders or unavailability of transport for delivery of finished goods
6. other operational challenges include, a) workspace not meeting government’s safety guidelines to resume operations, b) migrant labor not available and movement of the local workforce is impossible without public transport, and c) ineffective remote working setup
7. Existing high-Capex projects have been suspended, leading to indefinite project delays, sunk costs, high execution risk, and contractual penalties
8. hefty interest & debt repayments, as a majority of these companies, are levered
9. immense investor pressure; and for listed companies this could also mean loss of shareholders’ value, as equity shares could witness a freefall in this bear market
10. delayed receivables from clients, adding to liquidity pressure

If some of these problems persist for long, then it may force weaker companies to file for bankruptcy! However, stronger companies would able to mitigate few challenges through revenue diversification and strong client base (sticky relationships with strong businesses/brands), large-scale economies, established hi-tech systems and processes, strong equity capital backing, and adequate liquidity support from banks.

Top-10 Key Challenges Faced by Boutique to Mid-sized Firms:

As a founder of a boutique to mid-sized firm, I’m afraid you are not that privileged like a large-sized company! Generally, boutique or mid-sized firms are founded by the industry experts, are sized between 2 and 300 employees, bootstrapped or funded; debt-free/lightly levered; with a portfolio of small-to-mid-sized clients; skewed client/regional concentration with 1 or 2 large marquee clients; products or services range from concept stage to well-established brands; and with a promising business/market potential. This sounds amazing, doesn’t it! However, if you happen to meet any founder in today’s times, I’m sure you will find him/her fighting rigorously on diverse fronts to mitigate the following challenges including,

1. loss of a large client or/and multiple client losses, leading to massive revenue losses
2. deep price cuts by existing clients, leading to declined revenue and compressed margins
3. suspension or indefinite deferment of new product or service launches, leading to an uncertain payback period
4. prospective clients deferring their projects indefinitely, indicating weak business sentiments and low revenue visibility
5. Increased client expectations including water-tight quality and squeezed timelines, stricter Service Level agreements (SLAs), penalties for SLA breaches, stretched work hours, weekend support, and many more
6. Resource crunch due to employees reporting sick, leading to absentees at work amidst huge workload pressure from clients,
7. Technical issues of remote working (e.g. employees with no laptops/internet), adding to existing stress,
8. Huge fixed costs including office and factory rentals, salaries, technology and data costs, and sales and marketing overheads, leading to burning of working capital,
9. If you are levered, then the interest costs can further dent your liquidity and profitability
10. Last but not the least, smaller the client base, higher the correlation between your firm’s and your clients’ success and failure. Hence, it is absolutely important for you to conserve or protect your clients’ business and thus bargain stability for your firm.

Mind you, even a slight delay in addressing these problems can force the firms to shut down their business! The smaller companies do not have much buffer to absorb such shocks for long. The good news is that these firms enjoy some inherent business advantages such as leaner business model, quick decision-making, agility, flexibility, and adaptability.

While old and large trees can get uprooted in severe storms, young and smaller trees are more resilient to weather it!

Top-5 Coping Strategies for Founders of the Boutique to Mid-sized Firms:

Those who have survived two long recessionary cycles in the past would agree with me that this recession is way different from the earlier two; it is more expansive and may have profound ramifications on the health of individuals, society, businesses, and economy of the whole world. Here are some practical coping strategies one may consider ensuring the survival of firms and achieving business growth in these uncertain times:

1.  Human Safety and Corporate Survival Should Take the Precedence:

1.1. Physical and Mental Health is the key:

Physical and mental health is important, be it a human or the business. Ensure that health is given prime importance. Anyone in your family/neighborhood/firm with travel history or/and with COVID-19 symptoms must be immediately reported to the concerned authorities. Periodically, either formally or informally check the health status of your team members; and encourage (rather push!) them to go for testing, if things are not normal. Do not compel anyone to report to work, when they are down with serious and genuine medical issues.

1.2. Financial Health is important:

Ever wondered why airlines ask to put the mask on you first, before your child? The idea is to make yourself capable of protecting your child. As the founder of your firm, you ought to ensure the survival and stability of your business, so that you are well equipped to comfort others. It’s important to be a going concern! Hence, proactively and swiftly take the following measures:

1.2.1. Ensure the safety of yourself and your family. Any health issues at home can affect your effective functioning at work and may have a lasting impact on your business

1.2.2. Do a stress-test to check if your firm can sustain for at least six months in a worst-case scenario. Use the natural survival instincts and tactics adopted by animals in the jungle!

1.2.3. Do the ABC analysis of your clients to find high-risk clients (based on size, fitment [or dependency on your firm], the value offered, customer satisfaction levels, and age of relationship), and take immediate suitable actions to safeguard your current and future revenue and relationships

1.2.4. Rationalize the number of vendors by segregating services into must-have and wish-to-have. Accordingly, take immediate suitable measures to cut the vendor costs to minimal

1.2.5. If you implement the above measures meticulously, then you are well-positioned to reasonably deal with the employee cost. Employees are like your extended family, so more than contractual, you have a moral responsibility as well.

At this juncture, everything is urgent and important, hence one has to act instantaneously and concurrently on all fronts including self, family, firm, clients, vendors, and employees.

2. Travel light with minimal overhead costs:

When the flight is short on fuel and is in SOS mode, immediately the luggage is offloaded to travel light and save fuel for safe landing to a nearby airport. With that principle in mind, ruthlessly list and discontinue some of the wish-to-have facilities or facilities which you can do away with, for a short-term period (e.g. consolidate small sales or branch offices at various locations). Either cancel the vendor contracts or renegotiate the commercials to offload all unnecessary costs. One may get tempted to take undue advantage of the situation and put artificial price pressure on the vendors; however, as a professional firm, please go for a one-time renegotiation with a periodic/quarterly/monthly review. Mind you, your one unethical action can have irreversible damages including blacklisting of your firm by vendors or/and layoffs at the vendor’s firm or even business closures. 

Rationalize the non-essential recurring high costs like retainer engagements; e.g. strategy and brand consultants, PR agency support, legal consultants, mass email tools, graphics and editing support. Some of these services/functions are essential for say an FMCG company or strategy & marketing company, hence each firm needs to use its prudence.

If you are highly leveraged, then renegotiate the repayment terms with your lenders by taking them into confidence. Such interest costs and/or debt repayments can dent your financials severely.

3.  Go overboard on saving clients’ businesses and relationships:

Follow strict adherence to the agreed client SLAs. Let your teams know about zero tolerance on any SLA breaches. As a leader, ensure that underperformance and indiscipline are immediately and sternly addressed.

Think out of the box for offering value-additions to your clients (i.e. delivering value beyond set client expectations), to help them make effective business decisions or/and achieve high productivity. Value-additions can be in the form of additional outputs/in-depth analysis/higher volumes, automation tools, higher efficiency, weekend support, extended support hours, and timely communication. Offer any possible help which can make a meaningful difference to your clients.

If your client is a start-up or an initial growth-stage company with significant investments and perhaps highly levered too, then proactively offer discounted invoicing for a mutually agreed short period, to avoid any business closures by clients. This is a real opportunity to prove yourself as a true ‘Business Partner’. Don’t be surprised if these clients join you once the normalcy returns.

Please be aware that your clients may be fighting the worst battle than you. Unfortunately, if a client cancels a long-term contract, then try and waive off any financial implications (e.g. notice period or early cancellation penalties). This gesture will pay you off in the long run, if not now.

4. Treat your Team like your Extended Family:

Your team is nothing less than an extended family and thus it deserves your attention and care. Integrity, transparency, fairness, and communication are the key tenets of this relationship.

4.1. Transparency reduces anxiety:

Irrespective of your firm’s size, maintain a high level of transparency to avoid any panic reactions based on rumors. The last thing you want is to see is your best employees leaving the company due to anxiety.

4.2. Uniform, Continuous and Unambiguous Communication:

Over-communication is always better, hence have a continuous dialogue using Townhall meetings, team meetings, meetings with senior leads, one-on-one meetings, and informal meetings. For instance, at our firm ValueAdd Research, we have bi-weekly team meetings with client teams and functional teams; and a fortnightly Townhall meeting. Ensure that you and your leadership team follow the ‘walk-the-talk’ principle; and convey the right messages across corporate hierarchy. To avoid any transmission loss or miscommunication, share meeting summaries or Minutes of the Meeting (MoM) with your teams.

4.3. Job safety:

Possibly offer job protection to your team, to secure their financial health, in this pandemic situation. Layoffs can bring immediate financial relief, however, it may materially dampen employee morale. If push comes to shove, announce salary cuts across the firm, discontinue perks/ bonuses, and adopt any other possible measures to avoid layoffs. This doesn’t mean a blanket job protection for all. The voluntary and involuntary (performance-based) exits would continue as usual. Again, please be very ethical and fair in your actions by strictly adhering to your Human Resource policy. Pay your support staff (i.e. housekeeping, office boys, delivery boys, peons, and security staff) in full and on time; they may have a hand-to-mouth situation.

4.4. Hire carefully and strictly on a need basis:

Be extremely conservative by hiring only for the confirmed business opportunities or for attrition replacements. Any prolonged excess bench cost would adversely impact your financials. Also, be extremely careful while hiring in these times, who knows you may be hiring a laid-off employee from another firm!

5.    Seize opportunities like predators:

While you may be busy protecting the downside of your business, have a sharp eye on the developments or trends in your markets. One may see some new areas emerging as great opportunities due to these changes. For instance, healthcare was traditionally considered a defensive sector. However, it is emerging as a growth sector in the years to come, with the demand for medical equipment (sanitizers, masks, insulins), medicines and vaccines, increasing healthcare budget allocations by several countries, and the general public becoming extremely health conscious.

One may acquire troubled companies at distressed valuations or acquire healthy companies at cheaper valuations. Private equity or angel investors may do bottom-fishing by negotiating the most favorable termsheets. Companies may hire for leadership roles at a relatively lower cost of hiring. One needs to develop a far-sighted vision and focus on tapping the opportunities in this cloudy environment!

There is always an opportunity in disguise

Conclusion:

This is a testing time for you and your firm, and your actions will define your firm’s character and success in the long run. This pandemic situation and the following recessionary trend will teach us to swim against the tide, and I feel we shall evolve much stronger and mightier. It will bring a transformation in the way we think, we live, and we do business. Sooner we adapt, faster will be the recovery. Let’s work cohesively for the wellbeing of individuals, families, society, businesses, and the economy.

Stay healthy and stay safe. God bless you all.