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Start-ups scrape the bottom of the barrel

By Peerzada Abrar, Samreen Ahmad and Neha Alawadhi
March 22, 2020 11:17 IST

According to a survey by community platform LocalCircles, early-stage start-ups, funding dependent start-ups and many small businesses will soon be fighting for survival as the spurt in coronavirus cases hits them hard. 

Spurt in the novel coronavirus (covid-19) cases is hitting start-ups, especially consumer focused companies that are in their early phases of growth, hard. 

Take the example of True Elements, a Pune-based consumer focused start-up that offers health food. Sreejith Moolayil, co-founder of the firm, claims he is finding it tough to keep it afloat. The lockdown has gripped the entire state in a bid to stop the rapid spread of coronavirus. 

“As a start-up, we would be in a big mess because 15 days shutdown means our cash flow for those days is gone, I don’t know how I am going to pay salary to my employees. I am not a big-time venture capital-funded company,” said Moolayil, whose firm has 115 on its roll. 

 

For him, the other problem is that around 40 per cent of his production staff members have gone back to their hometowns due to the pandemic. 

Though the company, which sells health foods online, is witnessing a huge demand for its products, it is not able to meet the requirements. The firm is moving its production to a small town, 200 km away from Pune. 

“If there is an overall India lockdown, we won’t survive for more than a month,” said Moolayil. 

The example of TheWowBox is also somewhat the same though the start-up faced a slightly different challenge. The Mumbai-based company offers a discovery platform for new consumer products. As part of its promotion initiatives, the firm distributes newly launched products of different companies and also promotes entertainment events. 

According to its founder and chief executive officer (CEO) Nikunj Bubna, all these have to be completely stopped since consumers are now focusing on buying only essential items. 

“Our business has straight gone down to zero. We are having a warehouse where products or samples worth lakhs are on the verge of expiry,” said Bubna. “Our fundraising process also got impacted.” 

True Elements and TheWowBox are among several such start-ups and small businesses that are facing major challenges due to covid-19. 

According to a survey by community platform LocalCircles, early-stage start-ups, funding dependent start-ups and many small businesses will soon be fighting for survival. 

LocalCircles conducted a survey among 35,000 start-ups, small and medium enterprises (SMEs) and entrepreneurs on how they plan to cope with the coronavirus outbreak in the short term so that their businesses could recover once the restrictions are removed. 

It says, about 71 per cent of start-ups and small businesses are facing issues such as lower demand for products and services. This would potentially results in salary cuts and reduction in expenses towards marketing, advertising and infrastructure. 

Many companies have asked their employees to work from home and others have temporarily suspended operations. 

“The survey accurately captures what start-ups and SMEs are currently faced with and soon LocalCircles will aggregate and make recommendations to the government on relief measures needed for the start-up and the SME sector,” said Sachin Taparia, founder and chairman of LocalCircles. 

Some start-ups and SMEs have reported the exercise of ‘Force Majeure’ (superior force) clause by their customers and getting out of a contract, said Local Circles. Others are reporting postponement of deliveries by Indian and global customers. 

Governments in several countries have started doling out packages to make small businesses survive this difficult phase. The US, for example, has announced a $50 billion package for small businesses. 

The UK chancellor also announced a business bailout of 350 billion pounds via business loans. “What remains to be seen is the kind of measures the government of India will announce to assist start-ups and SMEs,” said LocalCircles. 

According to experts, start-ups have begun conserving cash irrespective of their size. Any kind of investment that was in the pipeline, including hiring and new projects, have been curtailed. 

“Most vulnerable are the start-ups which were running out of cash and have not been able to raise funds. As the scenario has slowed down, they could be under risk,” said Anup Jain, managing partner at Orios Venture Partners. 

Bengaluru-based electric bike-sharing platform Yulu has postponed its plan to launch in new cities, until the situation gets normal. The start-up has also put a temporary hold on P1 hirings -- those positions which are important but the company can do without. 

“In times like this, the focus is on fundamentals and core business, and also to try and save cost wherever possible. My first priority now is providing salary to my employees,” said Soham Chokshi, co-founder of digital logistics platform Shipsy, which caters to markets such as Southeast Asia, other than India. 

Soumajit Bhowmik, co-founder and CEO of Styched, a fast-fashion e-commerce portal, says, companies like his are struggling, owing to the stopping or reduction of supply of fabric which are usually imported from China, Vietnam and Thailand. There is also an impact on import of printers and ink as they are mostly imported from China. 

“After Holi, when the outbreak began, we would be able to deliver an order in 2-3 days. But now, it is taking 10-14 days. This is because last-mile delivery partners are delivering fewer packages due to safety concerns,” said Bhowmik. “On the customer side, people are shopping less, which has resulted in about 35-70 per cent drop in conversion rates.” 

According to Saurabh Marda, managing director (MD) of Freyr Energy, a Hyderbad-based solar systems integration and solutions firm, the company’s FY20 revenue is going to take a hit. “Our primary objective is to ensure liquidity in the company; so we can wait this out,” said Marda. 

Several start-ups have also come up with innovative features to collaborate with customers. myGate, which offers security management and convenience service for guard-gated premises, has rolled out Leave at Gate service. This enables contactless deliveries. 

As more number of corporates are now encouraging employees to work from home, Facilio, which offers management software, has opened up an online meeting room during ‘office hours’. 

Employees can drop in virtually, chat, and catch up over virtual coffee to make working in isolation look less difficult.

Photograph: David Stanway/Reuters.

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Peerzada Abrar, Samreen Ahmad and Neha Alawadhi in Bengaluru and New Delhi
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