On the daily news, we often hear about how MNCs and big companies executives taking pay cuts, cutting costs, letting employees go and barely surviving. Now what about the startups and SMEs scene which has been flourishing in this region for the past 5 years? What does the situation really look like? Here’s a very quick and real lowdown.
How Will Startups Do In A Recession?
Amid the COVID-19 global meltdown, 21 founders from various SEA based startups from the SEA Founders got together for a “scramble” call on a Sunday morning over Zoom with Anna Gong (Perx Technologies) and Suresh V Shankar (Crayon Data) leading the discussion on issues and solutions to help each other tide through this difficult time.
The following notes are from a closed door 3 hour discussion to crowd-source challenges, ideas and solutions all of us are currently facing.
Staying Alive Is The Main Focus For Many Startups & Businesses
Overall, the landscape is evolving very quickly with new measures put up by various government bodies across the world every single day.
And it looks like we are only at the start of this downturn before we head into a full-blown recession which is fast accelerating.
Top 3 Concerns:
Delayed revenues (because clients drag out payment cycles)
Urgent need to bring down burn rates, and free up cashflow
Inability to travel and do business deals across borders
Top 3 Opportunities:
Chance to optimise costs and get rid of fat
Chance to re-focus on priorities in the business
Competitors may shut down
Here are the 5 Key Areas of Concerns & Solutions
The following key points outline the main plans that the founders are aiming to execute on, as well as solutions that were collectively contributed during the discussion.
Area 1: Revenue
Founders concerns on revenue are mainly on longer sales cycles and unpredictability of revenue streams.
Longer sales cycles
Prospects negotiate more (dragging out sales cycle) and expect discounts
Pipeline is weakened: deals are delayed or cancelled
Need alternative revenue streams
Revenue forecasts impacted; inability to project
Unable to travel for lead generation and to close deals
Size down projects to reduce sales cycle
Shorten delivery to receive ARR sooner
Double down on customer success to cross-sell/upsell to existing accounts
Get into more strategic partnerships to open up new revenue channels
Offer discounts for early payment
Looking for additional/new revenue streams by charging other/different stakeholders
Target verticals that are more resilient
Focus on business units with higher contribution margin
Alter product offering to meet changing market needs
Globalize/diversify product range and service
Reposition product to become an essential instead of a nice-to-have
Area 2: Cashflow
Delayed payments from customers severely reduce cash flow and runway for businesses.
Delayed payments: Delay in payment from customers
Reduces cash flow
High OPEX (Operating Expenditure)
Results in high burn rate for current crisis situation
How to adjust/reduce expenses?
Runway has been significantly reduced, so how can we extend it?
Bridge round funding from VCs (Venture Capital)
Government-supported loans from banks
Chasing more aggressively on existing receivables
Re-negotiating payments of existing loans from banks
Headcount freeze (don’t hire or expand team)
Cutting costs across: Marketing and ad spending, Salaries
Area 3: Costs
Cost-cutting measures to focus largely on employee salaries and benefits, and implementing a headcount freeze.
How to reduce costs without jeopardising the ability to produce and deliver value
High employee and tech costs
How to conserve cash especially when the burn is mostly for wages
How to validate a pay cut when there is still work needed to be done
Negotiate for lower rental
Negotiate with vendors eg AWS/GCP to lower price
AWS separates staging vs production environments
AWS price loaded onto production
Optimising on databases
Optimise API calls
Cut digital marketing budgets (e.g. slash Google ad spend by up to 50%)