This article is from an episode of Matrix Moments by Matrix Partners India, a podcast featuring candid conversations on what it really takes to survive the startup world. This is heavily revised from the original show transcript. For the full interview, go here.
With the rapid evolution taking place in the global business environment, we’re dedicating today’s episode to discuss and decode the implications of the Covid-19 outbreak on the startup ecosystem.
Rajinder Balaraman, director of Matrix Partners India, and Matrix Partners founder and managing director Avnish Bajaj talk about how things may play out amid the crisis and how startups should respond.
Rajinder Balaraman (RB): Any thoughts on the current panic over Covid-19? Is it warranted?
Avnish Bajaj (AB): There are times when a disproportionate response is the proportionate response. I think this situation needs a disproportionate response.
What we really need to do is cut the number of people that can get infected by just increasing social distancing and social isolation. So I think it warrants a very, very aggressive response from all of us – not just from the government – over the next two, three, four weeks. And hopefully with that, we will tide over it.
RB: How would you compare this crisis to the ones that we’ve seen before? What is the possible impact on the startup ecosystem?
AB: Obviously, none of us have seen this before, so the economic impact is unclear. You’re seeing the Federal Reserve in the US cut rates to zero, and people might compare it to the global financial crisis or the dot-com bubble. But I think this is very, very different. This is a combination of a health and an economic crisis.
I don’t know how this measures up to the other crises, but if it plays out like China – where after six to eight weeks factories are now coming back online – tech and startups are going to see the shift because they can rebound very quickly.
But this outbreak is much harder to call. If we continue down this linear path, that would be great. I’m afraid this may not happen unless we really hunker down and start practicing social distancing norms. If that happens and the heat comes in the end of April to mid-May and there may be no coronavirus, it’s going to be a very rapid uptake for tech and startup companies.
But I think the answer will be clearer in the next two to three weeks.
RB: What is your perspective on an appropriate response for companies today?
AB: I think working from home is the easiest tactical part of it. But the Boston Consulting Group came out with a report that has some other good strategies. It answers questions like, “How do you plan through something like this and bring business continuity?”
For most startups, they have not had to think about business continuity. Founders are worrying about funding, they’re worrying about other things, but they’re not learning about how a business can have continuity.
What is the company’s main risk? How can my sales people continue? So I think that is a very tricky thing.
Often, I evaluate these situations not as an investor but as an entrepreneur. As an investor, I would look at various things like cash flow, spontaneity, runway, and all of that stuff. If I put on my entrepreneur hat, I would concentrate on the recovery curve from recession.
Probably, until the end of this month, I’d operate under the V-shape scenario, where the recession happens then recovers quickly. Under this scenario, I’d ask, “What are the things I can do to move to variable costs?”
But if it gets into the nonlinear, exponential kind of a situation, then I would be more worried and move to plan B, which would be expecting a U-shape recovery – a longer process than the V-shape scenario.
These are the possibilities, and as a business leader, you have to think through these possibilities so you won’t get blindsided by them.
In this situation, I would just keep decent ideas in mind and have some clear plans on what would happen in each case.
RB: This all makes sense, but there’s still a lot of uncertainty. What should companies do? What are the best practices?
AB: There should be one designated person at the co-founder level who’s in charge of this situation. I think that is a no-brainer. It can’t be that four co-founders are in charge of the situation in general.
So, I would be very clear that you should put one person in charge of this who has your confidence, who’s thinking through all of the scenarios.
But like I said earlier, the report from BCG can help. I don’t have all the best practices, so hopefully people can share their own here.
The positive note is that we have survived everything as a civilization, right? And if ever, we are more ready to deal with stuff now, and I’m pretty optimistic that if we just manage to play this out over a period of time, this is going to get much better.