June 2020 Startup Scene
SURVIVAL OF THE FITTEST : Startups Coming to Terms with Coronavirus
As the Coronavirus continues to upend all societal and economic structures, enterprises are adopting novel strategies to function in the new normal.
Arsalan Akhter, founder of Today's Telegram, a startup focusing on customised leather products says that the first two weeks of lockdown for the prevention of Covid-19 infection enabled time for introspection and gave him space to reflect on the company's vision. Like all of us, Akhter also thought that this would pass soon and everything would be back to normal. But after completing almost 60 days of lockdown, Akhter strongly felt, "But now, we have got to live with it."
Recently he started his production to meet the orders from outside the country. "Workers need to go back to work as it will be difficult for them to sustain their livelihood. So, we need to keep the cycle running. Though slow, we need to keep peddling," says Akhter.
"Our workers were willing to work, but due to the lockdown we couldn't bring the raw materials to Kathmandu," says Akhter. Most of their raw materials are leather, which is produced by their parent company United Tanneries. And they bring 25 percent exterior raw materials from the local market.
Though operations and revenue of all the startups have been affected, manufacturing startups have been particularly hit hard due to the disturbance in the supply chain. "What happens in a manufacturing startup is that if one unit is closed, the whole supply chain gets affected," says Niraj Khanal, co-founder and CEO of Antarprerana, a company which supports entrepreneurs in mentorship and investment.
Similarly, most of the startups handle expenses from their monthly revenue. Apart from immediate expenses including rent and employees' salary, many founders are struggling to pay back bank loans. Some startups have paused their operations and some have laid off full-time staff and are outsourcing. Some are using emergency funds, some are finding ways to survive and some have pivoted.
Sroth Code, a Nepali premium game app designer company was not affected by the lockdown for the first two months. "As all our products are digital, working from home was equally effective. However, product demand has decreased now. So, in the upcoming months, our budget will also decrease," says Uttam Adhikari, founder of Sroth Code. The company's client base consists of online portals, telecommunication and other entertainment companies.
Eticket Nepal, an online booking app for events, movies and travel ticket has paused its operation. Eticket Nepal is a product of Galaktik Nepal, an IT solutions company. "Seeing the scope of tourism, entertainment and online payment, we started Eticket Nepal. But everything has been halted," says Janak Shrestha, founder of Galaktik Nepal. "We hadn't thought of such a scenario," he says. Currently, Shrestha says that the company is surviving because of a few projects from Galaktik.
A study named 'Entrepreneurs Response to COVID-19 Crisis in Nepal' was conducted by the Centre of Research and Development, King's College in collaboration with various other startup ecosystem enablers in May 2020. The report was prepared with the help of responses from 103 small enterprises in Nepal. Among them, 102 enterprises were registered after 2003 from various sectors including agriculture and forestry, art, construction, food and beverage, education, IT, logistics, manufacturing, services, fashion and apparel. According to the report only 36 percent of the participants were aware of the upcoming crisis. The ones who were prepared communicated with their employees and client, collected payment from the market, stopped the purchase of raw materials and shifted operations online, the report says.
Adding Verticals to Survive
Enterprises dealing with agricultural products were closed for a few days after the virus outbreak in Kathmandu. But now they are continuing their business. They are coming up with different strategies.
'Clicks to Bricks' strategy is gaining attention worldwide. This is a business model where businesses have both an online store and a physical location. This way, retailers can drive customers to physical stores and connect with them. Nepal, which is more into brick and mortar shopping is gradually adapting to online shopping as well. So, clicks to bricks can be quite a beneficial strategy to invite and make more people aware of e-commerce. Metro Tarkari founder Anil Basnet has also opened a physical store in New Baneshwar. "We will expand the number of physical stores as this way it becomes more convenient to deliver in the local area and connect with customers," he says.
Not only customers, even many entrepreneurs had not prioritised an online presence. The virus outbreak has forced businesses to bring quick changes and strategies. Agri-entrepreneur Sunita Nemaphuki has added a new vertical to her venture recently. Nemaphuki, the founder of R&D Innovative Solution, has been delivering farming equipment through kausikheti.ordersathi.com. "Lockdown has provided an opportunity for many people to engage in rooftop terrace farming. So, our idea is working well," says Nemaphuki. She says that they have been getting orders of more than Rs 1,00,000 every day. "However, we can meet only 10-15 percent of the demand due to expensive logistics," says Nemaphuki.
Considering the long term crisis for the hospitality sector many restaurants and hotels have already implemented a different strategy. Ecommerce startups including SastoDeal, Socheko.com and Bhojdeals have been collaborating with chain restaurants like Bajeko Sekuwa to deliver cooked and frozen food. According to Sanjib Kumar Timalsina, Head of Operations of Bajeko Sekuwa, they have been delivering around 30-35 orders a day. The orders mostly come from offices and also a few residents. "We have expanded our horizon so that we can at least manage the house rents and workers' salary with continuous revenue," says Timalsina.
An old adage, "Crisis does not build character, it reveals it," is very much relevant for all the businesses now. As the situation is getting uncomfortable every day, this is a crucial time for leaders to adapt to flexibility and be more interactive with everyone associated with them.
"No matter how old the enterprise is, its survival and thriving depend on the leadership," says Khanal. The leaders who are communicating properly with their staff and managing their entrepreneurial emotions now are surviving well, says Khanal. "But the journey is very difficult for the ones who have been ignoring following the traits for right leadership," he shares. When we talked with enterprises, most of them shared that they have been regularly interacting with their staff. "We have a virtual team meeting every morning so that we can update each other on what we are up to," says Nemaphuki.
Another entrepreneur Rishi R. Adhikari, founder of Kitabyatra, says that they are also constantly in touch with all their employees. Likewise, many entrepreneurs, especially the ones who are operating online have started researching on customer behaviour. Metro Tarkari founder Basnet says that he realised that the company had not done proper market research, due to which, they are now facing challenges to identify potential customers and the essential items that they demand.
Cash Cushion for Emergency
From HR management, financial management to creating survival strategies, startups and other medium-sized ventures are facing many challenges which most were unprepared for. For Nemaphuki, who has been in the area of entrepreneurship for more than a decade, financial management is one important lesson. "When an entrepreneur maintains an account in a single bank, the bank pulls the EMI from the deposit. Thus, in the period of crisis like this the entrepreneur cannot be sure of his deposit," she says. In such a context, it is safe to maintain an account in different banks, shares Nemaphuki.
Employees' salary has been another major challenge for enterprises. Most of the enterprises New Business Age talked to claim that they have been providing at least a minimal amount so that the basic needs of employees are taken care of. "We need to safeguard the employees who have put in so much effort to bring our venture to this level. So, we make sure they don't have to face any severe financial crisis. If we don't care about our workers now, the future of any enterprise will not be sustainable," says Rishi R. Adhikari. He shares that having an emergency fund is helping him to survive now. Similarly, Akhter, who had to completely suspend operations for the whole two months shares that he had been giving around 40 percent of salary to his workers.
Similarly, Uttam Adhikari of Sroth Code says that the company is financially prepared for a few more months. "We are in a 'wait and watch' situation. Basically, we are not sure about the relevancy of digital entertainment products now. Meanwhile, we are also exploring newer strategies for long term survival," he says.
Binay Devkota, founder of Clock B Business Innovations, an investment firm observes that the culture of keeping an emergency fund is very rare amongst the startups in Nepal. "Very few companies have a backup fund for an emergency," he says.
Ashutosh Tiwari, co-founder of Entrepreneurs for Nepal and founder of Safal Partner, an investment management company views that the enterprises following fundamental business practices will come out well from the pandemic. "One of the healthy practices includes emergency savings for at least three months," he says.
Tiwari opines that this is also an opportunity for many startups to exit. "It is not necessary that every startup must survive," he shares.