Future And Impact Of Technology Enabled Startups In 2020
The world is confronting the effects of a pandemic. Tech companies, nonetheless, continue to remain in the spotlight. It is during the time of crises that tech companies can and must provide digital solutions to adapt to the new normal. In this blog, we try to explore how tech startups are impacting the world during COVID-times and how the future looks like for them.
Technology-enabled startups can be categorized into two categories: The first being, startups that are focused on consumers and the second being the startups focused on enterprises. These two different segments have two distinct impacts. Tech Enabled Startups
Let us start with the first category of tech-enabled startups. Predominantly in this type, you will see either a B2C or a little bit of B2B2C, both being consumer-centric.
The impact of the startups focused on or directly impacting the consumers is very serious. Be it any industry from the travel industry, hospitality industry to health industry, education industry. The impact is severe in some industries as compared to others. This is because in some cases you can innovate and deliver services online. But in some other cases, there is not much you can do.
For instance, in the hospitality or leisure industry, no events are happening anywhere. There are no malls or movie theaters or restaurants open anywhere. So, all the startups that are catering to this segment have faced a drop in the revenues to zero. And there is nothing that anyone can do about that because the revenue stream has dried out and everybody is in survival mode.
However, when we look at segments like health and education, there is some ray of hope. Although, the businesses across all the hospitals are down for various reasons. People don’t even want to go to doctors or hospitals now. All the surgeries, unless emergency, are delayed. But in these segments, new opportunities are emerging where more and more online services can be provided. Digital health is moving much faster after this pandemic. Same is the case with education. We don’t know whether the schools and colleges will open up within the next 6 to 9 months. No one can guess or predict how things are going to recover and how long it is going to take. We will have to figure out ways of enabling these services to consumers.
There is no way to say when revenues will come back and how will they recover. People will have to figure out a way to stay alive for one year. Look at your revenue sources and the money that you have and make sure that you can survive for a year with that.
COVID-19 is a crisis that no one has seen before, and no one wants to see again. So, the only thing the consumer segment can do is to figure out a way to survive the next 4-5 quarters.
Enterprise Tech Startups
Moving on to the enterprise startups or the technology startups, things are a little better. This is because enterprises typically have signed licenses for a year. So, they are at least guaranteed revenues for some time. There is some predictability. But even then, people can walk out of their revenues; people can avoid signing new contracts or new licenses. So in this segment, all startups need to assume that they will hit 60-70% of their revenue targets and that they are not going to sign any new licenses. Then, they should figure out how long they can survive. If that is below four quarters, figure out a way to survive.
Your planning can be a little bit more deterministic. Use this time to communicate with your customers. And if you survive the next year, then as soon as we are out of the COVID crisis, things would be on a path to recovery, and you can build your businesses. Be prepared for the changes coming ahead.
What would be a company’s priorities towards its workforce amidst work-from-home protocol?
Employees are the key to startups. Work from home is something that will become the norm. Every startup will have to consult the employees and take the best steps. According to the founders, productivity has increased post-COVID. This is very surprising. They are putting up timely calls daily.
Most importantly, employees are taking it upon themselves to be productive because there has to be a sense of ownership. The founders need to take care of encouraging employee morale, holding on to the employees and getting everybody together. They should take it upon themselves to have transparent and open communication with all the employees.
Q&A Q1. How does a startup expand in the market?
If you are into B2H, you need to have partners. See how you can work in the partner ecosystem. If you look at guys who are going to do the deliveries, it will require substantial funding to build that scale across India. It is not just one locality. So rather than partnering with one, you might have to partner with many platforms.
You have to build the user interfaces yourself. You have to make sure how you can give the best experience to your customers.
Q2. What is the future of the event and hospitality industry?
Next 6-9 months are very hard for the hospitality and the event industry to bounce back as anyone would think twice before going to a restaurant. For example, it took six years, post 9/11, for the airline industry to gain the same level of confidence it had before. Similarly, post-COVID, the next 6-12 months will be very hard. And it is a harsh reality that when people have to let go, they will first let go of the contract employees. So, life will be hard in this industry. But the good news is that when hiring begins again, contract employees will be preferred.
Q3. What will be the impact of Reliance Jio and Facebook deal?
Their primary focus will be the delivery from general stores to homes. From a B2B perspective, payment solution and other aspects, Reliance has focused very sharply on what kind of software they can employ in the general stores. Now, with Facebook coming in and enabling placing orders through WhatsApp, they are going to compete with Amazon. As far as smaller enterprises are concerned, we will see all the accounting software required to run the small businesses. They have to become digital now.
Q4. What opportunities do digital services throw towards B2B companies?
In India, there are approximately 63 million MSMEs and their reach hasn’t been great. Only a small percentage of them are using digital software, and some of them might continue working in their old fashioned way. We will see at the end of this crisis how many of them survive. The number of stores that have more than 50 products in number is much smaller.
So, when you start delivering digital services to these, they expect everything to be free. Thus, the transition might take some time, but at least in the top 5%, we will see digitization happening faster.
From an enterprise perspective, founders still face a tough time in India because there is not enough growth revenue here.
Q5. What will be the most critical metrics for valuation going forward post COVID-19?
Most important metric will be unit economics. For getting funded, you have to show that you have meaningful unit economics and this process had started even before COVID crisis. In the past year, a lot of corrections have been happening in the market. So, firstly it will accelerate the changes even more.
Secondly, there will be severe corrections and evaluations. For very early-stage companies, it all depends on how much money you want to raise and how much equity the investor is expecting.
Q6. How does a startup go international?
Whenever you want to go to the US market, make sure that you have 3-4 million dollars in your chest. You have to raise that capital in India.
Do a proper market survey. Make sure that you know about the segment or the area where you are going. Use your connections to find one or two good salespersons.The founder has to move for at least a year and be with the salespersons.
Q7. Can COVID crisis lead to a robust SaaS B2B company emerging from India?
B2B SaaS business is becoming more durable and more substantial. But the point to be worried about is market scale. There are a lot of successful new companies. But, unfortunately, they had to move out of India to scale. The market in India is still not large enough for a company to scale.
Another issue is that whatever we have gets divided by 70 is converted into dollars. Indian companies can’t afford to pay in the same dollar rates. So, there are a lot of other dynamics that are working against this.
Words of advice to startup founders
Every crisis presents opportunities. If you have a good idea and you think you can make a difference in the market, you should look at it. But be very sensitive to finances. Try to be as self-sufficient as possible. Don’t assume that you can raise lots of money in the market. Be very capital efficient. Try and see if you can fund yourself until the crisis is over.