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Finding Customers In The Time Of Coronavirus: What Startups In Africa Can Do To Survive     |     Advice From Investors To Startups On Coping With The Coronavirus Crisis     |     New Report Shows Which Sectors Startup Investments Are Now Going To As Covid-19 Hits Startup Investments Globally     |     Are Startup Accelerator Programs Right for Your Business?     |     COVID-19: American Giant’s Nike’s Secret for Surviving the Retail Apocalypse     |     What Startups Should Expect During The Covid-19 Crisis — Startup Genome     |     In a Crisis, You Must Overreact     |     What To Do If Your Startup Is Running Out of Cash     |     Lessons From Zoom, The Startup Empowering The Work From Home Policy Of Most Companies     |     A Coronavirus Survival Strategy for Your Startup     |    
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Category: Startup Advisory

Finding Customers In The Time Of Coronavirus: What Startups In Africa Can Do To Survive

April 26, 2020
Uber CEO Dara Khosrowshahi

The next few months are going to be heavily uncertain, and if the report held out by Startup Genome that 41% of global startups have less than 3 months of cash is anything to go by, the lives of startups, especially those in Africa, would heavily be set on edge. And startups in Africa had better watch this because unlike the UK government that recently announced a $1bn pledge to support startups; the Portuguese who just launched a €25 million package for local startups; or even France which has pulled out a chest of €4bn cash injections for its startups, there is currently no African government announcing a major monetary intervention to forestall the looming disaster in its startup ecosystem. Although South Africa and Nigeria, the continent’s most valuable startup ecosystems have tried to intervene, that may not be enough. While South Africa and Nigeria said at least $10.5 billion and $130 million respectively should serve as coronavirus support packages in their respective countries, the packages all come by way of loan facilities, and there is nothing to show that startups have more exclusive access to them than, say, an ordinary household looking to raise funds for household expenses. This is very much unlike, for example in France, the UK or Portugal where the funds come by the way of grants and loans, or simply investments through venture capital or private equity firms. Although also some African governments such as Egypt, South Africa among others have announced a series of tax cuts and reliefs to cushion the effects of the economic hardship occasioned by the outbreak of the coronavirus, these may only be relevant for startups that are still going concerns. Startups first need cash to stabilize their operations and retain workers before going to file regulatory returns with the government. There therefore follows a hard but true statement that as the coronavirus pandemic lingers in Africa, startups are entirely on their own. 

Uber CEO Dara Khosrowshahi
Uber CEO Dara Khosrowshahi

To that effect, could there be interim measures startups on the continent can initiate to ward off the short term impacts of the pandemic on their existence? We think there are. 

Pivot!

Change the course of the ride! For startups who have been forced to obey government lockdown orders, and have therefore shut down their operations, especially those that are not in the essential services sectors at this time, this seems the safest route to take. This is however more true for startups and businesses in the same industry. For example, Max.ng, a delivery and motorbike ride-hailing company in Nigeria, has turned their full attention to delivery, in response to the government lockdown order. Another remarkable story of such pivot is at Uber, industry giant in ride-hailing, which has developed a new tool for drivers who were most hit by the coronavirus. The company is now making it easier for its drivers to jump from one of its businesses to another. The Work Hub lets Uber drivers receive other work from the company’s other platforms such as Uber Eats, Uber Works and Uber Freight as well as the options to work for other companies in search of workers such as Domino’s, Shipt and CareGuide.

“They’re doing essential work to keep our communities moving as we fight this virus, but with fewer trips happening they need more ways to earn,” said Uber CEO Dara Khosrowshahi on the Work Hub homepage. “With the Work Hub, we hope drivers can find more work opportunities, whether that’s with another of Uber’s businesses, or at another company.”

However, while most startups may be constrained by time, resources and talent to embark on a major short term shift in operation, acquisition of startups which are offering essential services, and which are threatened by lack of resources may seem a major economic decision of survival to take now, although the liability of brand awareness may pose greater challenges. A new report by the Middle East and North Africa (MENA)’s largest startup data platform MAGNiTT shows investor appetite has increased in startups covering grocery delivery, healthcare, e-commerce and edtech (or online educational startups). Interswitch, the Nigerian digital payment solution saw this in time. In 2019, the leading e-payments giant acquired a majority stake in healthcare technology company, eClat. Although, Interswitch already belongs in a very successful ecosystem — fintech — expanding to healthcare is a masterstroke that has effectively positioned the company to play a crucial role in the health crisis. Interswitch has integrated its famed payments infrastructure with eClat. eClat has over seven years experience providing support services to healthcare service providers, and currently has major operations in Lagos, Oyo, Edo, Delta, Enugu and Ondo states in Nigeria, most of the states already worst hit by the coronavirus pandemic. 

This is therefore a crucial time for startups to pivot, from physical classroom to online classrooms; from physical events to online events, and so on. 

Read also: Egyptian Event Startup Eventtus Raises Funding Round To Move Events Online

Partner!

For most startups who are already short of cash and afraid of the risk of pivoting, or are even pinned down by the resistance of their major investors, this is probably the best time to pull a pen and sign a partnership deal with businesses in the essential services industry. One of the major advantages of running a startup is the freedom and less bureaucracy to explore trends and disruption opportunities. Startup founders also have the capacity to make quick decisions, and at least in far less formal ways. Therefore, the time to pull the partnership plug may be now! FinTech company, AellaCare and leading health insurance enterprise Hygeia’s partnership in the wake of the outbreak of virus in Africa is a big case in point. People are most concerned about their health status now. Government’s policies on health insurance don’t just exist. By estimates, about 95 percent of Nigerian adults, for instance, do not have insurance coverage and 77.2 percent of the country’s population have no understanding of what insurance entails. Aware of the fact that it is not one of the leading fintech companies in Nigeria and amidst the fear of being forced to shut down, AellaCare immediately pulled a partnership deal with health insurance enterprise Hygeia which they hope would help bridge the gap between people and health care services in Nigeria with relatively affordable health insurance coverage.

Through the partnership, customers can get Hygeia’s insurance plans on credit via the Aella app, which guarantees tailored financial plans, the flexibility of payments and better-improved healthcare access. Additionally, people can seek and receive needed health services such as General Consultations, Pharmacy Benefits, Ante-Natal Care & Delivery services, Accidents and Emergencies, Surgeries, Outpatient and Specialist Consultations, HIV/AIDS Care and Treatment, Dental Care, Prescription Glasses, Family Planning Services among others.

Another notable story of partnership in Africa in this period of the coronavirus pandemic is that between Twiga Foods and Jumia Kenya. In a bid to capture more market and increase returns, Jumia Kenya quickly entered into a mutual partnership deal with Kenya’s fruits and vegetables delivery platform Twiga Foods. 

“Our partnership with Twiga will allow customers to shop on Jumia for the fruits and vegetables they need. We are offering same-day free delivery on the platform in Nairobi. And will save customers money as Twiga cuts out the middlemen by buying directly from smallholder farmers across the country,” said Sam Chappatte, Jumia Kenya’s chief executive.

However, partnership doesn’t always have to be complicated; it is a common fact that a lot of online shops are now offering dealers spaces on their platforms to display their wares. 

To read more on how startups can partner with big corporations in an era of fierce competition click here.

Digital Marketing

While there is a greater need to conserve cash this period by the advice of different investors, a lot of people are now living online. DataReportal analysis indicates that 4.57 billion people now use the internet, an increase of more than 7% since this time last year. Social media users are growing even faster, up by more than 8% since April 2019 to reach 3.81 billion today. 

Particularly, detailed research from GlobalWebIndex reveals that people all over the world have been spending considerably more time on their digital devices as a result of coronavirus lockdowns.

Image showing how many people are using the internet during coronavirus lockdowns, information startups in Africa can leverage can take advantage of.

Launching advertising campaigns that target these devices may therefore present an opportunity of signing on new customers, although companies, like Facebook, have some doubts about the convertibility of these numbers into customers. Facebook recently advised investors that recent increases in user activity may not translate into equivalent increases in ad revenue, stating that:

“Facebook doesn’t monetize many of the services where we’re seeing increased engagement, and we’ve seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19.”

However, further research from GlobalWebIndex shows that more than half of internet users (51%) approve of brands continuing to advertise as normal despite the coronavirus outbreak, compared to less than one in five (18%) who say they disapprove. Just under a third (31%) say they neither approve nor disapprove.

Startups in Africa who have extra cash may plan lean advertising budgets during coronavirus lockdowns

No matter how the argument goes, companies with extra cash to spare may consider lean budgets on advertising, and digital advertising is the definitely the right space to be in in this trying time. 

To learn more about the different digital marketing channels and strategies to explore for your startup during this period, click here. 

Information is key for startups in Africa during Coronavirus lockdowns

Inform Your Customers!

Most consumers are clueless around this period of the pandemic. For the less tech-savvy ones among them who have been forced to move online, there is so much information and even insufficient information online to process. This group of consumers usually tend to stick with any tried and tested source of service provider they eventually meet. According to survey results from late-March, 84% of US consumers say how companies act during the current market is important to their loyalty moving forward. It then becomes important that businesses position themselves well to help solve this critical need for clear, specific information with details about where, how, and when to get needed things which will help people get by and adapt to the recent changes in life. 

According to Google, search interest is spiking for the following topics: Retail; “Can you freeze” different types of food; Home delivery; Short term work employee; or even Suspension of rent on housing. Creating content that informs people about those topics is one of the ways marketers and brands can help consumers right now. 

Google therefore offers these recommendations: Acknowledge the new reality; Give people credible, detailed, and current information about your operations. Reinforce that you’re there to help; Regularly update communications across your website, blogs, social handles, and Google My Business page; Be flexible. Help customers with cancellations, refunds, and customer service; Look for ways to connect your customers, locally and globally; Let people know that solutions are available whenever, wherever; Assess when people need you most, whether through your own first-party data (like site analytics or email opens) or Google Trends, and adjust your communications strategy accordingly; Update or publish often.

Put simply, Google recommends that there’s a need for content that informs, entertains, connects, and promotes wellness. 

Develop A Culture Of Constantly Evolving

Think of it, traditional brick-and-mortar retail companies and businesses appear to be the worst hit by the pandemic. Companies which have constantly reinvented themselves, appear to be laughing last now. The statement that nothing would ever remain the same again after the coronavirus pandemic is only a truism for businesses that have adopted constant innovation and remodeling strategies and those who have the strong organisational culture to do so. Companies, like Amazon, have long moved on. And as one American newspaper puts it, “if Amazon dominated the retail market before the coronavirus pandemic began, there’s good reason to believe it’ll emerge from the crisis even stronger.”

Amazon is a model for startups in Africa desiring to evolve post-coronavirus

Amazon’s success is not an overnight miracle. Its constant reinvention of itself through a culture of innovation, remodeling and reinvention has prepared it well to confront the current coronavirus pandemic. 

This 2016 report about Amazon’s growing power, by Stacy Mitchell co-director of the Institute for Local Self-Reliance, a nonprofit that advocates for an economy built on strong independent businesses summarizes the company’s success as follows:

Amazon presents a vastly more dangerous threat to competition than Walmart, because its ambition is not only to be the biggest player in the market. Its intention is to own the market itself by providing the underlying infrastructure — the online shopping platform, the shipping system, the cloud computing backbone — that competing firms depend on to transact business.

In the interim, it may be expedient to pursue the above listed strategies, but when we say of the world not remaining the same again after the coronavirus pandemic, we mean that a new world order that may not be severely threatened by similar disease outbreaks in the future is going to be constructed. African startups therefore, cannot afford to be left behind both in the short and in the long terms. 

 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

Advice From Investors To Startups On Coping With The Coronavirus Crisis

April 25, 2020

Entrepreneurs beware: you’ll have to work extra hard and take extra painful decisions for your startup to survive the coronavirus crisis.

The warning comes from Elaia, a venture capital firm based in Paris, who like several European investors isn’t sugar-coating its message to entrepreneurs on the kinds of challenges the coronavirus pandemic poses for startups.

Read also:Mediterrania Capital Partners Raises $309 Million To Invest In African Startups And Businesses

“Unless you are a biotech company working on a vaccine, your business will suffer. If you are operating in hotels, restaurants and catering, your business will suffer like hell,” Elaia told the companies in its portfolio, after the French were forced into confinement. “In any case, you’ll be affected by overwhelming market uncertainty.”

Investors are expecting their own day-to-day activities will be disturbed for over two months, a poll by fundraising advisory company Chausson Finance showed, based on answers from about 70 VCs. And “cash is king” is coming out on top from the advice they’re giving founders, poll results showed.

What other advice are investors giving? Here are seven pieces of wisdom for founders from seven different investors.

Tip number 1: Don’t just adjust, start over

You can’t just tweak your 2020 business and expenses forecasts. Given how deep the crisis is, you need to rethink them completely, says venture capital firm Elaia.

Read also:South Africa-China Economic and Trade Association (SACETA) Partners Africa Oil & Power to Open Doors to New Chinese Investment in Africa

The French investor, which focuses on deeptech and digital startups across Europe, is advising founders to base their new sales estimates on the most pessimistic scenario imaginable, to avoid having to revise it down again in a couple of weeks.

Companies should stick to very cautious sales estimates until at least after the summer, when general economic activity might resume. Second-quarter sales should realistically be set to zero.

More from Elaia:

Tip number 2: Plan your next round

Obviously fundraising isn’t going to get any easier as stock markets tank and investors may shy away from deals.

Still, though it may seem counterintuitive, the current situation actually means you should start planning your next round early, because it’s probably going to take longer to close, says Angular Ventures.

Start getting to know the right investors early and anticipate your next fundraising six to eight months ahead of time, instead of the usual four to six months before, the investor has been telling founders.

More from Angular Ventures:

Tip number 3: Rule of three

Axa Venture Partners is advising founders to think of coronavirus as a three-part crisis: first, confinement; second, when people are allowed to leave their homes again; and third, the mid to long run.

The investment fund, which is financed by insurer Axa and has backed 40 companies in sectors from cybersecurity to fintech, has started thematic Slack channels for its founders to exchange best practices. Their questions show entrepreneurs are mostly focused on the next 30 days of business, says Sébastien Loubry, a partner at Axa Venture Partners.

The impact of confinement measures should be treated separately and before everything else, with decisions on rent payments, temporary unemployment and pushing back hiring. But entrepreneurs should already have the second and third phases in mind as well; that includes questions about macroeconomic trends and changes in consumer habits, as well as the need for a deeper pivot in startups’ business models.

More from Axa Venture Partners:

Tip number 4: Keep churn to zero

Try and keep communication routes open with your customers throughout the crisis — it’s a critical part of keeping their trust and confidence, venture capital firm Serena Capital is telling founders.

Churn is going to be a huge challenge, especially for software as a service startups, as corporate customers weigh cost cuts and decide which suppliers to keep and which to scrap in the coming weeks.

That means this isn’t the time to cut back on your staff that handles customer relations, says Serena operating partner Amélie Faure. If you’re going to be customer-centric, it’s now or never, she says.

Be open to adapting contracts temporarily to your customer’s needs, or switching over to coronavirus-specific offers for the coming weeks. But don’t just renegotiate everything for free, Faure says — get something in return that doesn’t cost your customer anything, like a testimonial about your service for instance.

More from Serena Capital:

Tip number 5: Spread your cash to last you 18 months

French investor Kima Ventures polled its in-portfolio companies and found out they’ve got cash in the bank to last them about 12 months on average. Jean de La Rochebrochard, who runs Kima, says that’s a bit short.

“Try and spread that so it lasts you 18 months,” says Rochebrochard in a podcast for entrepreneurs he started last week. “You may have the best talent in the world, but the market always trumps that. Focus on cash for now.”

Rochebrochard predicts an improvement in economic conditions is unlikely before 18 months, and raising money is going to be tough until fall 2021. Founders should freeze expenses, call their bank and see what government support they can get, he says.

More from Rochebrochard and Kima:

Tip number 6: Spot downturn opportunities

Sure we’re headed for a downturn, but “it won’t last forever though — it’ll be maybe a six to nine month thing,” says Tony Fadell, the iPod inventor and Nest Labs founder turned investor at Future Shape. Founders’ mindsets need to also reflect what will come beyond the turmoil to spot opportunities, he says.

“The best time to invest is in a downturn,” Fadell says. Startups that are usually battling for rare talent may find it’s the best time to lure golden profiles to them.

More broadly, technology that’s been there for a while and hasn’t been massively adopted may finally get a chance in this period. Things like teleconferencing and remote teaching.

“There’s always a silver lining. It’s an opportunity for startups, including for new projects to be created around what is happening right now.”

More from Fadell:

Tip number 7: Set rules for remote working

A policy setting the tone for how remote working will work at your company is a key part of any business continuity plan, LocalGlobe says.

In both cases, psychological well-being is coming out as the driving force for how to set up remote-working rules and habits.

First appeared on Sifted.eu

 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

New Report Shows Which Sectors Startup Investments Are Now Going To As Covid-19 Hits Startup Investments Globally

April 14, 2020
Philip Bahoshy, founder and CEO of MAGNiTT

Even though the Covid-19 pandemic started late in the first quarter of 2020, it is already beginning to have ripple effects on startup investments in the Middle East and Africa. A  new report by the Middle East and North Africa (MENA)’s largest startup data platform MAGNiTT, shows investor appetite has increased in startups covering grocery delivery, healthcare, e-commerce and edtech (or online educational startups)

Philip Bahoshy, founder and CEO of MAGNiTT
Philip Bahoshy, founder and CEO of MAGNiTT

Here Is More You Need To Know

  • A survey of over 100 startup founders participating in Magnitt’s weekly webinar series saw 59 percent say their business had already been impacted by the crisis.
  • Some 48 percent said revenue generation was their major concern and 25 percent pointing to fundraising as the issue that keeps them up at night; while 41 percent anticipate lower-than-expected revenue growth rates in 2020, with 29 percent anticipating revenue below 2019 figures.

“Some VCs have already raised funds and are looking to deploy the capital in the next couple of months and a lower valuation is good for the ecosystem. The pool of funds may be smaller but VCs are looking to invest where they can as part of business continuity,” Philip Bahoshy, founder and CEO of MAGNiTT said.

  • He said that profitability will be challenged as people are not investing as they used to and “we may see a flattening in the number of deals this year and a decrease in the total value of investments”.

“It wouldn’t be surprising to see some startups and SMEs finding challenges in their operations and close down as a result,” he said.

“Fundraising activity is moving online as startups and investors are quickly adapting to the new normal and startups are increasingly looking for alternative ways to fundraise during the current crisis,” he said.

This graph shows a major decline in startup investments contributed by the Covid-19 pandemic

Read also: Africa’s Biggest Company Naspers Is Looking For Online Education Startups To Invest $8 Billion In 

Startups In The MENA Region Saw A Decline Of 67% In Funding From January To March 2020

  • According to MAGNiTT, the number of investment deals in the startup space in the Middle East and North Africa (MENA) saw a steep drop of 67% year on year in March due to coronavirus outbreak, notwithstanding a 2% increase in year-on-year funding in the first quarter of the year.

“It is very challenging to know exactly how Covid-19 is going to be in the next couple of quarters,’’ Bahoshy said.

“We anticipate that investors will look into supporting their portfolio companies that may be challenged; there is going to be new opportunities that are going to arise out of the situation and investors that have cash are going to invest in opportunities; valuations are going to have a correction as people will not have high growth rates in this environment as they would have previously and this, in turn, is an investment opportunity for investors,” he added.

  • The report also says the number of investment deals in the first quarter of 2020 stood at 108, representing a major decline by 22% when compared to 138 deals recorded in 2019.
  • From the report, startups in the region raised $277m in the first quarter of this year compared to $271m a year ago with several startups raising large funding rounds in January and February, including Kitopi ($60M), Vezeeta ($40M), and SellAnyCar ($35M).

“Historical data highlights that investment rounds across Mena tend to take, on average, six months to come to fruition,” said Bahoshy.

“We will most likely not see the full impact of Covid-19 on the venture funding space yet for a few months. However, early indications have already shown a slowdown in funding announcements, as startups and investors re-evaluate their positions in this new environment.”

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

Are Startup Accelerator Programs Right for Your Business?

April 12, 2020
Alex Gold is the Co-Founder of Myia Health

Entrepreneurs think they’ll provide that extra “oomph” to their business. The opposite may often be true.

Shortly after I first moved to San Francisco, I was sitting outside Peet’s Coffee in Palo Alto and speaking with my then-co-founder about accelerator programs. We were eager to get into one of the most prolific accelerators in Silicon Valley because of the instant brand recognition and investor connections it would provide.

Alex Gold is the Co-Founder of Myia Health
Alex Gold is the Co-Founder of Myia Health

“If we can get into 500 Startups, it can really take us to the next level,” he said. “We can raise at least $1 million at a valuation over $6 million. We just have to give away 7 percent of the company.”

I responded bluntly: “Is it worth it?”

Read also:Applications Are Open For The 10th Edition Of The Orange Prize For Social Entrepreneurs And Startups In Africa and The Middle East

“If we get the results, then yes,” he said, before lobbing one more comment, somewhat anticipating my reaction: “It’s going to be worth it. It’s going to work. I think it’s going to work.”

I could not help but investigate further and started to discover that there’s a lot more to accelerator programs than meets the eye.

In the years since, accelerator programs have proliferated around the country and the world. Offering capital investment, crucial connections, advisory services, discounted resources and investor “Demo Days” where you can pitch your business to a group of investors all at once, accelerator programs continue to be in high demand. At last count, more than 1,000 such programs were in existence in the United States. Corporations like Nike and Disney have partnered with Techstars to create their own accelerator programs. Universities and even the Dubai government have done the same.

And yet, it still may not be the right move for every company. Yes, accelerators offer advantages, but they also come with some significant drawbacks, and it’s important to weigh the tradeoffs. These include both the cost of the equity you usually have to give away and the distraction created for your team and demands on their time.

The Valuation Increase May Not Be Worth the Equity

Accelerator programs like Y Combinator are world-renowned for launching companies like Airbnb, Dropbox and Stripe. There are thousands of other programs similar to Y Combinator around the world. Usually, each one takes between 3 and 7 percent of equity in a business in exchange for an investment sometimes no greater than $200,000. Founders will trade off what is usually an extremely low or discounted initial valuation for a premium from investors when they graduate.

The data backs this up to a point. For companies that progress through Y Combinator’s program, for instance, they can command a significant valuation increase over similar companies in the market or even those that went through other accelerator programs. Often, investors engage in pattern-matching, and the “rubber stamp” of having gone through a prestigious accelerator is viewed as a marker of potential success, even though the data doesn’t necessarily support this.

And yet, what about other accelerators that are not as prestigious as Y Combinator or even 500 Startups? The data gets a lot murkier as many of the companies graduating from those other programs struggle to raise capital, and when they do, have to do it at market rates.

Therefore, if you’re considering the “valuation bump” that may come with an accelerator program, please do detailed diligence. Understand the data from previous cohorts and founders — what they raised, how long it took them to do so and whether they would go through the program again. You may well find that the 3-to-7 percent equity isn’t worth what they provide in return.

Accelerator Programs Can Be Massively Distracting

A few years ago, I was speaking to another founder who had just entered an accelerator in Colorado. Despite its status as a nationally recognized program, the founder became exasperated at having to spend days in classes learning about subjects as elementary as incorporation, human resources and business development.

“They really go over the basics,” he recalled to me on the phone. “If I didn’t know many of these things, I wouldn’t be anywhere near where I am in my current business. They totally think we don’t get it, and it’s a massive distraction.”

Many accelerator mandate in-office time, attendance at programming and mentor sessions and days of meetings in order to graduate and complete their programs. While beneficial to some founders who may be just starting out, a large percentage likewise find this programming to be distraction.

In the early stages of a startup, founders need to be “heads down” and laser-focused on execution in shipping their product and testing their minimum viable product (MVP). Before entering an accelerator, please be aware of the time commitments required and the level of distraction the program may entail. Make the decision that’s right for your business.

Do What’s Right for You

Accelerator programs have fundamentally altered the entrepreneurship world over the past decade. Although many founders believe that they are extraordinary helpful or even necessary to launching their business, they should be aware of some important tradeoffs. Namely, that the valuation increase promised by accelerators may not be worth the required equity and the potential for distraction from core business functions.

Alex Gold is the Co-Founder of Myia Health, a next generation virtual care platform. Previously, Mr. Gold was Venture Partner at BCG Digital Ventures Copyright 2020 Entrepreneur.com Inc., All rights reserved. 

 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

COVID-19: American Giant’s Nike’s Secret for Surviving the Retail Apocalypse

April 11, 2020
Rob Walker, an American freelance journalist and the Author of The Art of Noticing.

Why struggling retailers should be studying Nike’s pandemic strategy in China

The fallout from the coronavirus pandemic is laying waste to a retail sector that was already shaky — from struggling traditional players like Macy’s and the Gap (now announcing massive layoffs and furloughs) to widely hyped direct-to-consumer startups lately exposed as far weaker than they appeared (which, like Everlane and Rent the Runway, have been adding to the layoff carnage).

Nike’s CEO John Donahoe
Nike’s CEO John Donahoe

So does any consumer-facing brand that’s not selling groceries or other essentials have a convincing plan for surviving this grim era? Maybe Nike.

In its most recent and keenly awaited earnings call on March 24, Nike reported surprisingly good numbers — despite the company’s heavy reliance on a Chinese market that had been walloped by the coronavirus. In fact, Nike’s CEO John Donahoe declared that, having made it through to “the other side of the crisis in China,” the company now has “a playbook we can use elsewhere.”

That’s a bold claim. And it may prove exaggerated. But the Nike Covid-19 “playbook” deserves the deeper scrutiny of pretty much any retail brand trying to figure out how to survive the months ahead.

Read also:South Africa’s Education Startup Play Sense Raises $458k To Pivot Online

The main lesson may be that a robust digital sales and marketing strategy isn’t an add-on. It’s a must. Traditional brands and retailers have paid lip service to that idea for years, but now they’re learning the hard way that half measures aren’t enough.

Here’s the short version of what happened with Nike: When the virus sparked store closures across China, Nike embraced a hard pivot to digital sales and marketing. It reopened physical spaces strategically as the crisis there eased, its decisions guided in part by sophisticated monitoring of its distribution and supply chain. While sales still took a hit, the company’s ability to tap into, and even build on, its robust digital channels eased the pain and, the company says, aided with a quick bounce-back.

Weekly active use of Nike’s fitness apps rose 80% in China.

The quarter that closed at the end of February included the most drastic economic effects of the virus in China, and the closure of, at one point, 75% of all retail stores selling Nike products in the country. Meanwhile, Nike’s digital sales rose 30% in China during that period. To be sure, there was still damage: The brand’s overall sales in China fell by a bit more than 5%. Still, as one Wall Street analyst put it in a research note: “The impact from the coronavirus in China was more muted than anticipated, and business there has begun to normalize,” adding that Nike’s rebound looks like “a good proxy” for recovery in Western markets.

Read also:COVID-19: What SweepSouth Is Teaching Other African Startups About Workers’ Welfare

A Nike spokesperson pointed to specific details in the company’s recent earnings call, which went into some depth on Nike’s playbook. The first step is “containment”: a given market essentially shuts down or reduces the hours of physical retail and the company must rely on, and heavily promote, digital alternatives.

That doesn’t mean just having a perfunctory online store. Nike pushed its fitness app and digitally connected “expert trainer network” to give Chinese consumers help staying active while cooped up; weekly active use of Nike’s fitness apps rose 80% in China, the company said. “The strong engagement of Chinese consumers with our activity apps translated into strong engagement with our Nike commerce app,” Donahoe said. Also important: Nike’s ability to divert inventory intended for physical stores over to direct-to-consumer distribution.

Rob Walker, an American freelance journalist and the Author of The Art of Noticing.
Rob Walker, an American freelance journalist and the Author of The Art of Noticing.

The second step in the playbook is a “recovery” period. As physical retail stores began to reopen, foot traffic returned gradually — but digital sales, in China, have remained strong, Nike says. (Executive vice president and CFO Andy Campion said in the earnings call that Nike’s Chinese digital sales are “approaching triple-digit growth” over pre-crisis numbers.) Donahoe said the Chinese market is getting back to normal, and he expects sales in the next quarter to be flat. The same pattern held in South Korea and Japan, he added.

In the U.S. — with many retailers closed — the brand has launched a “play inside” marketing campaign tied to its Nike Training Club fitness app, which it has made free. The premium version, offering 185 workouts, normally costs about $15 a month. And (like many brands lately) it’s offering deep discounts and free shipping on some of its products. Nike said usage of the NTC app has surged more than 100% in the U.S.

The catch is that Nike didn’t dream all this up in response to the current crisis. It has been heavily focused on digital for years, “building a massive digital advantage,” as The Motley Fool put it in April 2019, doing much more than “throwing up a website” or a basic shopping app. In addition to NTC, there’s a Run Club app, which lets runners track their activity and compete with other users. Another app, SNKRS, is designed to clue hardcore sneakerheads in to new Nike releases. Plus, Nike’s core shopping app can be personalized to offer “more tailored” experiences, creating “direct” relationships with consumers through custom product recommendations, as Nike’s Campion put it last year.

This was all the result of a deliberate shift to adding a more robust direct-to-consumer alternative to Nike’s existing relationships with traditional retailers. Embracing a “consumer direct offense” was, at the time, controversial, involving major budgetary shifts, narrowing its number of physical-retail partners, and even layoffs. Donahoe’s background includes running ServiceNow (a cloud computing giant) and eBay, and his ascendency to the CEO role last year — while perhaps marking an end to a more creative era in the company’s leadership — was seen in part as a doubling down on e-commerce.

While Nike’s global status helps in many ways, it also makes the company unavoidably vulnerable.

Clearly it’s much harder for a retail brand to make a major shift toward a deeper set of digital offerings and alternatives on the fly. And there are caveats here. Nike’s playbook is far from proven, as the U.S. and European retail markets differ from China’s, and the pandemic’s economic effects may differ, too. Moreover, Nike has a solid balance sheet, and one of the most recognizable global brands in the history of capitalism. It has classics (the Air Force One, introduced roughly two decades ago continues to be top seller) and it innovates (the Vaporfly is the most talked-about athletic shoe in years). And it has performed well in prior recessions. (Donahoe also noted Nike’s obligation beyond its customers: While closing stores, it pledged to continue paying retail workers, and the company is one among many design and manufacturing firms working on medical garments such as face shields.) Nike is also vertically integrated, with control over its supply chain and distribution partnerships, able to sell directly or through vendors.

These are company attributes that can’t be ginned up overnight; they’re built and earned over time. For legacy retailers that have been in denial about the implications of digital, it’s pretty late in the day to try to pivot. And for direct-to-consumer upstarts that postponed sound financials in favor of short-term growth schemes — it’s time to find out whether such brands really mean anything to consumers.

Finally, it’s important to underscore that even Nike’s playbook acknowledges that the company will absorb further hits to revenue and earnings. There is no way to simply sidestep a challenge as monumental, far-reaching, and life-altering as the coronavirus pandemic. And while Nike’s global status helps in many ways, it also makes the company unavoidably vulnerable; its share price has rallied lately, but is still down since the markets peaked back in February.

That said, at a moment when pretty much every retail brand looks precarious, Nike has a story to tell that’s pretty unusual: one that at least claims to point toward a better future. It may not be a perfect playbook, but it’s the best we’ve seen so far.

Rob Walker is an American freelance journalist and the Author of The Art of Noticing. 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

What Startups Should Expect During The Covid-19 Crisis — Startup Genome

April 3, 2020

A new report looking at the impact of Covid-19 said a funding drought could wipe out many start-ups but ‘crisis begets opportunity’.

Research and policy advisory organisation Startup Genome has published a report detailing the impact that Covid-19 may have on start-up ecosystems around the world, suggesting that up to $28bn in start-up investment could be lost globally in 2020.

The report, which is the first in a series, looked at the potential ramifications for business in the US, the Americas, Europe, Africa, the Middle East, Asia and Oceania.

Although the economic fallout from the pandemic could be very significant, Startup Genome’s report said that “crisis begets opportunity” and highlighted lessons that could be learned from previous recessions.

Learning from China

The report examined the impact that Covid-19 has had on China’s start-up ecosystem, as this is where the effects of shut-downs and reduced spending were first felt. In January and February 2020, China’s industrial output dropped by 13.5pc while retail sales decreased by 20.5pc year on year.

“Chinese VC deals have contracted between 50 and 57 percentage points relative to the rest of the world since the onset of the crisis, as our analysis shows,” the report said.

“If a drop like that happens globally, even just for two months, approximately $28bn in start-up investment will go missing in 2020, with a dramatic impact on start-ups.”

‘A six-month drought in VC deals could wipe out a large portion of start-ups’
– STARTUP GENOME

The report suggested that many new start-ups will struggle to raise new rounds of funding and that the first to run out of cash “will be those who started to fundraise in the last few months, nearing the end of their runway before the crash”.

“With start-ups needing to raise money every 12 to 18 months, with three to six months’ worth of cash at closing, a six-month drought in VC deals could wipe out a large portion of start-ups,” the report stated.

The impact could potentially be worse due to the reduction in customer purchasing power and disappearing suppliers caused by ongoing containment measures around the world.

VC funding in previous recessions

The report said it’s worth examining what happened in previous recessions. Although fewer dollars were invested, more companies got funded.

“This suggests that businesses that are able to become cash efficient might become even more likely to raise money following a recession, albeit at lower valuations and lower total funds raised. Even more importantly, these estimates based on the Chinese and Asian experiences as well as past history are not destiny,” Startup Genome said.

The organisation added that start-up communities and VC funds have the opportunity to actively change the outcome by improving the situation for founders and for the economy. It also suggested that a recession could offer new opportunities to start-ups as it may be easier to acquire talent.

Startup Genome said that more than half of Fortune 500 companies started during a recession or bear market, and that more than 50 tech unicorns were founded during the last financial crisis between 2007 and 2009, including the likes of Asana, Quora and Airbnb.

Employment in start-ups

The report also examined the significant number of people in the US seeking unemployment insurance in March 2020. With more than 3.3m unemployed in the third week of March, the figure is five times higher than the previous record from October 1982.

“As Covid-19 continues to trigger more lockdowns and quarantines, the economic toll, on top of the more dire human life toll, will be tremendous,” the report added.

However, it said that start-ups are a major engine of job creation in modern economies, so governments and business leaders need to act together to help workforces.

The report suggested that during recessions, large corporations tend to focus on cutting down staff while the companies hiring tend to be young firms expanding their operations and growing through particular opportunities coming from the crisis.

“There is reason to be optimistic about economic restarts following the shutdowns,” the report said. “China, the first place to be hit by the virus, is slowly coming back to work: offices are being used again and manufacturers like Foxconn (the maker of most iPhones in China) announced they will be back to normal productions schedule around the end of March.”

The report also highlighted that LinkedIn data from China is suggesting that the number of companies hiring is slowly rebounding, but is yet to reach its previous levels.

 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

In a Crisis, You Must Overreact

Scott Galloway, Founder @L2_digital @redenvelope @prophetBrand 

I’ve been through several crises.

1987: Dow crashes 22.6%. It was the first week of my first job after graduating from UCLA. A bunch of the analysts went down from the 44th floor to the trading floor on the 17th, at 1251 Avenue of the Americas — Morgan Stanley — to witness what our boss said was a “historic event.” A low-carbonated crisis, really, as I didn’t have enough to worry about losing anything. That night we went to The Tunnel (NYC club in an abandoned subway station).

Scott Galloway, Founder @L2_digital @redenvelope @prophetBrand 
Scott Galloway, Founder @L2_digital @redenvelope @prophetBrand

AIDS Crisis: I lived in SF from 1990 to 2000. I found out I had gay friends in college only after college. My freshman roommate — gone. Fear, suffering, and tragedy everywhere.

9/11: I had just moved to New York. I saw the second plane hit and both towers go down. I remember thinking, “I’ll never see anything like this again.” Rivers of people flowed uptown from the Financial District. A shocked, muted feeling the next two weeks in the city. Felt surreal, like watching a movie, but didn’t rattle me.

The Great Recession: I had something to lose. Instinct kicked in — felt responsible for my first son, who had the poor judgment to emerge from my girlfriend in 2007. Economic stress was, well… stressful. The markets bounced back fast, a speed bump. A big one, but a speed bump.

Covid-19: This is visceral on many levels. Being contagious without having symptoms. Hospitals already facing dire supplies shortages. Tests still unavailable. Doctors getting infected in large numbers. Ventilators being scarce. Younger adults accounting for 40% of hospitalizations. This being both a health and an economic crisis. Three years of a bull market wiped out in seven days. Unemployment claims up 30%.

We haven’t been tested the same way previous generations have. Poor leadership and the ability to outsource most crises to the young (the wars in Iraq or Afghanistan) has resulted in a collection of responses vs. a collective effort. Congressmen are telling you to go to the pub while young people are in ICU. The administration keeps giving V-Day speeches that should be D-Day speeches.

The Spanish Flu killed between 50 million and 100 million people but received little attention. David Brooks wrote that we are embarrassed about how we behaved as a nation and, as a result, we don’t speak of it. We were feral, selfish, and apoplectic, and there (again) was a lack of trust in our leaders — they tried to quell panic via censorship.

Primal instincts compel us to behave differently at times of panic. Yet how you act when nobody’s looking, under stress, or during a crisis, is the ink over the outline of your behavior when things are good. Remaining cool, calm, collected allows us to make strategic choices. During the Flu Pandemic of 1918, Philadelphia threw a parade despite the flu. Within three days, 117 people died. In contrast, St. Louis closed schools, churches, courtrooms, and libraries, and banned gatherings larger than 20 people. Death tolls were significantly lower.

A decent question: How do each of us want to be remembered, years after this crisis? Near all of us will talk about this in grand terms one day. This is historic. What will be each of our roles in this moment of history?

In my home state of Florida, this week, people were going to concerts, bars, and partying. It reflects a lack of comity of man. Admittedly, I’m not sure I would have behaved differently at that age. What I do know is that, looking back, young people will wish they were the concerned, uncool ones. The ones who decided any threat to the vulnerable and to our nation demanded an overreaction. I’ve been on three board calls in the last 72 hours, and I’m now “that guy” who may be having an outsized reaction. Fine then.

Crisis managementIn my NYU Brand Strategy course, I teach these three pillars of crisis management:

The reason Johnson & Johnson is one of the most valuable companies in the world is in 1982 they didn’t say the poisoning of the Tylenol bottles in the Midwest was an isolated incident. They cleared all the shelves of Tylenol across North America. Was it an overreaction? Yes. Did it assure the health of the public and restore the credibility of the company? Yes and yes.

A World Health Organization expert put it well: “If you need to be right before you move, you’ll never win. Perfection is the enemy of the good when it comes to emergency management. Speed trumps perfection. The problem right now is everyone is afraid of making a mistake.”

What’s difficult about overreacting is it’s disproportionate to the problem at present. It’s deeply uncomfortable because you are devising a solution to a problem that doesn’t yet exist and whose future scale you are guessing. Throwing vast resources at a guess is risky and hard to justify, yet if you wait long enough for the scale to unfold, it will be too late.

A key issue post-corona will be how our nation responded in a time of crisis. It’s unclear what the verdict will be. I’m still hopeful. We may be the people who got their act together and drove the virus from our shores. We may be the nation that finds and shares a vaccine or a cure.

Aim to be the daughter, boss, manager, dad, government employee who is action-oriented, organized, and disciplined during this crisis. You’ll be one of the people, calm under pressure, whose actions helped beat back this American generation’s biggest test.

Scott Galloway is a Founder @L2_digital @redenvelope @prophetBrand 

 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

What To Do If Your Startup Is Running Out of Cash

March 29, 2020
Dave Bailey, co-founder, venture capitalist, Angel investor

Startups that aren’t sitting on significant cash reserves are currently in a fight for survival

Over the course of just a couple of weeks, economic activity has slowed dramatically. Companies are freezing new purchases in nonessential areas. Consumer spending is slowing down. And investors are fearful as they watch their portfolios tank.

Dave Bailey, co-founder, venture capitalist, Angel investor
Dave Bailey, co-founder, venture capitalist, Angel investor

As business owners, these financial challenges mean we have some hard decisions to face, especially when it comes to retaining our staff and managing our dwindling cash reserves.

A lot of people are asking me what other CEOs are doing. While it’s reassuring to know how others are reacting, I encourage you to make decisions based on your specific situation. To that end, here are some of the essential questions to ask yourself in order to successfully lead your company through the coronavirus crisis and to regain control of your cash flow.

1. How much financial risk can you take?

When you spend more than you earn, your business can only exist for so long. The length of time you can survive while making a loss every month is your runway.

Estimating your runway is tricky since there are many unknowns. You’ll need to run some financial models that forecast what might happen in a worst-case scenario. For example, you should map out what would happen to your runway if:

  1. Revenues stay low for a period of three, six, or 12 months.
  2. You can’t raise more funding for six, 12, or 18 months.
  3. You reduce costs by 25%, 50%, or 75%.

For companies in the U.K., here’s a useful checklist that outlines ways to improve your cash flow and extend your runway, including the latest government measures available to small businesses.

A month ago, if you’d come to me with a six-month runway, I would’ve told you to start cutting your costs so you could survive longer. Now, I believe you should proactively reduce your costs if you have less than 12 months of runway.

Even truly outstanding companies will find it harder to raise funding in the next few months because virtually all companies, including their existing investments, are depleting their cash balances at the same time. The hard part is working out how much to cut, and then cutting it. The longer you wait to make this decision, the more you’ll have to cut just to stay solvent.

Reducing your costs is the financial equivalent of “flattening the curve.” Investors can’t fund all good companies at once.

2. How do you fire people in a crisis?

There are many ways for any company to cut costs, and you should investigate all of them. However, for most startups, people are the biggest cost.

There are some temporary options to consider first.

Many founders and employees may be open to taking a salary cut if it means the company can stay afloat and they can avoid unemployment. Another option is a furlough — unpaid leave — where staff stop working temporarily until they’re able to restart.

However, there’s a harder, scarier, and more permanent option that I know many of you will have to look at: laying off part of your team.

To put it bluntly: If your runway is short and if you don’t reduce your head count, you’re likely to face bankruptcy.

It’s going to feel like an impossible decision, and I truly feel for you. Laying off people you know and care about when they haven’t done anything wrong, during the biggest economic crisis of our time, can seem incredibly cold and insensitive.

However, if you’re facing a choice between layoffs and bankruptcy, you don’t really have a choice at all.

Psychologist Paul Bloom defines empathy as “feeling what other people are feeling” and warns us that empathy alone is a terrible decision-maker. He points out that empathy is innumerate (it’s easier to empathize with one person than an entire company), biased (we empathize more with people that look like us), and it can be weaponized (leaving you open to manipulation).

Moreover, Bloom warns that literally feeling other people’s emotions, especially during a crisis, can leave you exhausted and burned out.

Instead, Bloom recommends substituting empathy with compassion. When you act with compassion, you still care deeply about people, respect them, and sympathize with their situation. However, you don’t feel what they feel — for your own sake.

Ideally, if you reach the stage where you need to do layoffs, you should video call each employee individually to deliver the bad news. Explain the situation and the actions you’ve taken to secure the business. Be grateful, vulnerable, and proactive about the support you can offer. Pay them what they’re owed, maybe even with a generous severance if you can afford it.

3. How can you motivate the people that stay?

It’s a huge struggle to stay motivated during a crisis, especially when your co-workers are leaving. And this goes for founders, too.

A crisis is the true test of your company’s mission.

In nonbusiness use, the word “mission” is reserved for the most important and inspiring jobs. It would be weird to say, “I’m on a mission to do the washing up,” unless the magnitude of the cleaning was so large that you’d earn someone’s respect just for trying.

And that’s a good way to think about your company’s mission: It’s the most important thing you’re trying to achieve. After all, if your ultimate goal isn’t important, what’s the point in working hard?

If you’re looking to reformulate your mission to reinspire your team, start with this simple format: “We’re on a mission to help __[customers] __[achieve an important goal/outcome].”

You can’t have a business without customers, so this will clarify whom you’re serving and why you’re serving them. If your mission isn’t motivating, maybe it’s time to find a mission that is and work on that.

4. How can you support your team?

This isn’t just a global health and economic crisis. Each and every one of us is living our own mini-crises right now. And your team is no exception.

They have their own medical concerns, parents and grandparents to worry about, children to look after. They have food to buy, homes to run, and new, enforced routines to manage.

And you can count on one thing: You don’t know the half of it. As a leader, you’re often the last to know if your team isn’t happy. Don’t assume that they are “doing great” if you aren’t aware of anything in particular.

Try setting up a support group a couple of times a week. It may sound intimidating, but here’s a simple format that works:

  • Organize into groups of five to seven people.
  • Each person takes it in turn to share something that’s gone well, or something they’re grateful for. Start with the positives.
  • People are then invited to share a challenge that’s been difficult.

You may be surprised by how many different ways this crisis affects people — especially if you don’t know what it’s like to have kids at home. Listen to your team, acknowledge their challenges, and support them wherever you can — even if that means providing extra flexibility. It might make all the difference.

5. How much communication is enough?

With new measures and policies coming in on a daily basis, your team needs to know where they stand. However, if you’ve just started working from home, your communication levels are probably going down, not up.

Even if you finished planning your quarterly goals just a few weeks ago, it might not be clear whether priorities have changed. Indeed, it’s hard to imagine they haven’t changed, and in most cases, you’ll need to replan. And this needs to be communicated to your team explicitly.

The correct meeting structure is critical at a time like this. You should adopt meetings that minimize communication problems, such as:

  • Regular status updates
  • All-hands meetings
  • One-on-ones
  • Retrospectives

You can also create additional meetings and communication channels to support people that are new to remote working. But aside from setting up the right meetings, it also matters what you say.

Take the opportunity to repeat your company’s mission in every meeting, and clarify what’s most important right now. Share any context and information you have, so your team can act and plan accordingly.

It’s wise to work on your own fears and anxieties outside of team meetings. After all, emotions can go viral inside companies too. Before addressing the team, take a moment to ground yourself with some deep breaths.

If you can, find a way to laugh at yourself. Done well, humor can break the tension and increase people’s spirits.

Communication is about listening, not just speaking. Pay attention to your team’s questions, and answer them as honestly as you can. Their questions will give you an insight into what they really care about, and your honesty will earn their trust.

Now is the time for decisive action

There’s still so much we don’t know. No one knows how long this crisis will last. We don’t know how serious the economic, financial, and social consequences will be. And we don’t know how many people will lose their lives. We’re all in a period of great uncertainty, trying to do the right thing.

However, if you’re close to running out of money, now is the time for strong and decisive leadership. Decide which measures you must take to give your business the runway it needs, and act accordingly.

Many founders are driven by the idea of making an impact. But the biggest impact we ever make is on the people nearest us. Be kind to each other, and be kind to yourself.

Dave Bailey has over 10 years experience co-founding three VC-backed tech companies as well as investing in dozens of early-stage startups as a VC and Angel investor. 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

Lessons From Zoom, The Startup Empowering The Work From Home Policy Of Most Companies

March 24, 2020

Amid the coronavirus pandemic, Zoom is proving that there is not much difference between physical work places and offices existing on the internet. It was as if investors in the startup during its recent Initial Public Offering (IPO) saw this future on time. In the midst of the raging tumbling down of several stock markets across the world, Zoom Video Communication saw its shares rise almost 2% after the market closed. Earlier, the company’s stock rose 22% as investors went for stocks that could see positive developments as more people work from home because of the coronavirus. The stock was trading at more than double the price that it did at the end of January. Zoom’s success shows some deep insights about going to market in a crowded space and doing so well.

Eric Yuan, Founder & CEO, Zoom
Eric Yuan, Founder & CEO, Zoom

As a matter of fact, even before this time, Zoom made $7.5 million in profit in 2018 alone, making it the rare technology IPO that is profitable. 

Here are the reasons we think Zoom’s success story stands out.

1. Zoom is the Not The First Video Conferencing App

Before Zoom came into full operations in 2013, there are other video-conferencing app on the web-conferencing market. There is the BlueJeans which was founded in 2009; Lifesize which was founded in 2003; Adobe Connect, formerly Macromedia, which was released in 2012. CyberLink U Meeting, a Taiwanese multimedia software company, founded in 1996, even Skype among others.These companies are already players who have pitched their tents both in broad and niche industry areas.

2 Zoom Is A Simple Product

With Zoom, you can start or join a 100-person meeting with crystal-clear, face-to-face video, high quality screen sharing, and instant messaging — for free! The Award winning Zoom brings video conferencing, online meetings and group messaging into one easy-to-use application. Zoom platform offers a simple and consistent user experience across all meeting spaces whether it is on desktops, executive offices, open spaces, huddle rooms, and large conference rooms or on phones. This unified platform makes it possible for multiple use cases such as online meetings, large marketing and training webinars, business chat/instant messaging and presence, file sharing, and integration with third-party platforms to happen. Thus, Zoom’s strategy is to provide a product that can offer various similar services. Video conference is one, but meetings and webinars and others are another.

3. Freemium Helped Zoom to Spread Its Message Faster

With Zoom, Eric Yuan was out to test his product and it worked! Zoom’s video conferencing features are free for everyone to use. Pegging its 40 minutes conferencing limit is also as a result of intense research efforts. Zoom came down to the 40 minutes limits because it learned through the research that 45 minutes was the standard duration people are willing to go for in a video conference.

Even with the 40 minutes limit, people have gone ahead to use their freemium model. Apart from Freemium model, Zoom has also used reward for word-of-mouth recommendations from customers to power up their customer acquisition.

According to Eric Yuan:

In our case, we really want to get the customers to test our product. This market is extremely crowded. It’s really hard to tell customers, “You’ve got to try Zoom.” Without a freemium product, I think you’re going to lose the opportunity to let many users to test your products.

We make our freemium product work so well. We give most of our features for free and one-to-one is no limitation. That’s why almost every day there are so many users coming to our website, free users. If they like our product, very soon they are going to pay for the subscription.

This approach has resulted to:

Over 3 million people participating in a Zoom meeting in 2013 alone. The number increased to 30 million in 2014, 100 million in 2015, and over 1 million participants every single day.

4. With Zoom’s Success, Horizontal Saas Has Worked.

As a SaaS program, Zoom meetings are hosted software services, meaning it permits users access to the video conference software , to use the program over the internet instead of having to host the software program on the company’s own server. The horizontal model means that a lot of other similar services, across different industries could be provided using Zoom. In this case, it is the responsibility of Zoom to maintain and update the software, as well as maintain their server to host meetings. Zoom also provides security for this process and ensure that the software is executed regularly. This reduces the cost of hosting online meetings for businesses, and makes Zoom meetings ideal for hosting small business video meetings.

Zoom also makes it possible for the host to not to worry about the technical aspects of the software, and focus instead on planning and hosting the meeting.

Related: Beyond Eric Yuan’s Zoom: How He Went Out All Alone

Zoom’s success at its first IPO shows that horizontal Saas has indeed worked. Concur, the first Saas company to go public could not go beyond the crash of 2001.

5. Zoom is Empowering other AI platforms like Fireflies.ai

With Zoom, other AI platforms are becoming integrated to the whole video conferencing experience. Fireflies.ai recently launched a conversational AI web app that transcribes meetings, highlights portions worthy of keeping in your notes, identifies call participants, and even automates assignments doled out in a meeting. The Fireflies service is integrated with a number of workplace communication apps including Slack, Skype for Business, Zoom, BlueJeans, and Google Hangouts Meet, and it can log notes in CRM systems like HubSpot and Salesforce. Fireflies can be invited to join your calendar to automatically record calls, but can also transcribe and offer insights from prerecorded audio. It is not likely that these AI platforms would want Zoom, and other similar brands to go soon. They would have to join in blowing the trumpet.

These are reasons Zoom is an unrelenting product of the future.

 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

A Coronavirus Survival Strategy for Your Startup

March 19, 2020

With the Covid-19 virus now a worldwide pandemic, if you’re leading any startup or small business, you have to be asking yourself, “What’s Plan B? And what’s in my lifeboat?”

Here are a few thoughts about operating in uncertainty.

Impact

Social isolation and a declared national emergency have had an immediate impact on industries that cluster people; conferences, trade shows, airlines/cruise ships and all types of travel, the hospitality industry, sporting events, theater and movies, restaurants and schools. Large companies are telling employees to work at home. Large retail chains are shutting down their stores. While the impact on small businesses and workers in the “gig-economy” hasn’t made the news, it will be worse for them. They have fewer cash reserves and a smaller margin of error for managing sudden downturns. The ripple and feedback effect of all of these closures will have a major impact on our economy, as each industry that gets impacted puts people out of work, and those laid off workers don’t buy products and services.

It’s no longer business as usual for the rest of the economy. In fact, shutting down the economy for a pandemic has never happened. Millions of jobs may be lost in the next few months, as entire industries are devastated, something not seen since the Great Depression of 1929–39. I hope I’m very wrong, but the social and economic impacts of this virus are likely to be profound and will change how we shop, travel, and work for years.

If you’re running a startup or small business, your first priority (after your family) is keeping your employees and customers safe. But the next question is, ‘What happens to my business?”

The questions every startup or small business CEO needs to ask now are:

  • What’s my burn rate and runway?
  • What does my new business model look like?
  • Is this a three-month, one-year, or a three-year problem?
  • What will my investors do?

Burn rate and runway

To answer the first question, take stock of your current gross burn rate: How much cash are you spending each month? How much of that goes toward fixed expenses (those you can’t change, such as rent)? And how much goes toward variable expenses (salaries, consultants, commission, travel, AWS/Azure charges, supplies, etc.)?

Next, take a look at your actual revenue each month — not your forecast, but real revenue coming in. If you’re an early stage company, that number may be zero.

Subtract your monthly gross burn rate from your monthly revenue to get your net burn rate. If you’re making more money than you’re spending, you have positive cash flow. If you’re a startup and have less revenue than your expenses, that number is negative and represents the amount of money your company loses (“burns”) each month. Now take a look at your bank account. See how many months your company can survive burning that amount of cash each month. This is your runway — the amount of time your company has before it runs out of money. This math works in a normal market …

Unfortunately, it’s no longer a normal market.

All your assumptions about customers, sales cycle and most importantly, revenue, burn rate, and runway are no longer true.

If you’re a startup, you’ve likely calculated your runway to last until you raise your next round of funding. Assuming there was going to be a next round. That may be no longer true.

Your new business model

Since the world today is no longer the same as it was a month ago, and likely will be worse a month from now, if your business model today looks the same as it did at the beginning of the month, you’re in denial — and possibly out of business.

It’s the nature of startup CEOs to be optimistic, however you need to quickly test your assumptions about customers and revenue. If you are selling to businesses (a B-to-B market), have your customers’ sales dropped? Are your customers closing for the next few weeks? Laying off people? If so, whatever revenue forecast and sales cycle estimates you had are no longer valid. If you’re selling directly to consumers (a B-to-C market), were you in a multi-sided market (consumers use the product but others pay you for their eyeballs/data)? Are those assumptions about payers still correct? How do you know?

What are the new financial metrics? Receivables — get on top of them. Days of cash left?

You need to figure out your actual burn rate and runway in this new environment now.

Is this a three-month, one-year, or a three-year problem?

Next, you need to take a deep breath and try to gauge how long this problem will last. Are the shutdowns of businesses going to be a temporary blip in the economy, or will they drive the US and Europe into a long recession?

If it’s just three months (looking more unlikely by the day), then an immediate freeze on variable spending (hires, marketing, travel, etc.) is in order. But if the effects are going to reverberate in the economy longer, you need to start reconfiguring your business. You need a lifeboat strategy. That’s a fancy phrase for figuring out the minimum your company needs to hold onto to stay alive.

A one-year problem means taking a knife to your burn rate (layoffs and elimination of perks and programs to reduce your variable expenses), renegotiating what previously seemed liked fixed expenses (rent, equipment lease payments, etc.), and putting only the essential elements for survival in the lifeboat.

If you were selling online versus in-person, you may have an advantage (assuming your customers are still there.) Or you change sales strategy.

Whatever your product/market fit was last month, it’s no longer true and needs to change to meet the new normal. Does this open new value propositions and kill others? Do you need to alter the product?

And if it’s a three-year problem? Then not only do you need to jettison everything that isn’t essential for survival, you’ll probably require a new business model. In the short term, explore whether some part of your business model can be oriented around the new rules of social isolation. Can your product be sold, delivered, or produced online? Does it have some benefits if delivered that way? (See the advice from Sequoia Capital here.) If not, can your product/service be positioned as a lifeboat for others to ride out the downturn?

As a leader, you need to plan, communicate, and act with compassion.

Revise your sales revenue goals and product timelines, create a new business model and operating plan, and communicate them clearly to your investors and then to your employees. Keep people focused on an achievable plan they clearly understand. From the perspective of having lived through the last three crashes, I’ve observed the biggest mistake CEOs made was not making draconian cuts to expenses quickly enough. They dripped out layoffs and cuts, holding onto favored projects with magical thinking that somehow this was just something that would pass. You need to act now.

Read also : What Happens To Startups in a Recession?

If you’re in a large company considering layoffs, the first option should be to cut the salaries of the higher paid exec/employees to try to keep the people who can least afford to lose their jobs employed. (Good things will come to CEOs who first try to save everyone on the ship before they jump in the lifeboat.) If/when people need to be laid off, do it with compassion. Offer extra compensation. If in the worst case you see you’re running out of cash, under no circumstances run it down to zero. Do the right thing and have enough cash on hand to offer everyone at least two weeks or more of pay.

Your investors

One of the key elements of survival is access to capital. As a startup or small business you should realize your investors are also asking themselves how this pandemic will affect their business model. The cold hard truth is that, in a crash, VCs are running their own “What do I save in the lifeboat?” exercise. They triage their deals — first worrying about liquidity of their late stage deals, which have the highest valuations. These startups typically have very high burn rates and funding for those could fall off a cliff. You and the survival of your startup may no longer be their priority, and your interests are no longer aligned. (VCs who tell you otherwise are either naïve, lying through their teeth, or not serving the interests of their investors.) In every major downturn inflated valuations disappear and the few VCs still writing new checks find it’s a buyer’s market. (Hence the term “vulture capitalists.”)

Read also : South Africa’s Startup Accelerator Grindstone Raises $1.5m To Support Startups 

Some investors have only lived in a booming market when valuations only went up and investment capital was plentiful. But investors with grey hair can remember the nuclear winter after the past recessions of 2000 and 2008 and can offer some historical patterns of crashes and recovery to CEOs running early stage startups. Keep in mind,# that today’s circumstances are different. This isn’t a bear stock market. This is a conscious shutdown of most of our economy, trading jobs for saving hundreds of thousands of lives, that’s causing a bear market and a likely recession.

Data from the last large crash in 2008 had seed rounds recovering early, but later stage funding cratered and took years to recover. (The figure below — part of this post from Tomasz Tunguz — shows quarterly VC investments before and after the 2008 crash.)

This time around, the health of the venture business may depend on what hedge funds, investment banks, private equity firms, sovereign wealth funds, and large secondary market groups do. If they pull back, there will be a liquidity crunch for later stage startups (Series B, C…). For all startups in the short term, the deal terms and valuations will get worse, and there will be fewer investors looking at your deal.

As a startup CEO you need to know if your board is going to be screaming at you for not radically cutting burn rate and coming up with a new business model or, will they be yelling at you to stop being distracted and stay the course?

And if the latter, I’d want to know what skin they have in the game if they’re wrong. It’s pretty easy for VCs to tell you they’ll be right behind you when you need a next round, until they’re not. Unless your investors are matching their orders for “full speed ahead” with a deposit into your bank, now is not the time to be railroaded into a burn rate that is unrecoverable.

Prepare for a long cold winter. But remember no winter lasts forever, and in it smart founders and VCs will be planting the seeds for the next generation of startups.

Lessons learned

  • This is a conscious shutdown of our economy, trading jobs for saving hundreds of thousands of lives
  • It’s likely going to cause a recession
  • The Covid-19 virus will change how we shop, travel, and work for at least a year and likely three.
  • It’s inconceivable that you can have the same business model today as you did 30 days ago
  • Put in place lifeboat plans for three-month, one-year and three-year downturns
  • Recognize that your investors will act in their interests, which may no longer be yours
  • Take action now
  • But act with compassion.

Steve Blank is a retired serial entrepreneur-turned-educator who created the Customer Development methodology that launched the lean startup movement, which he wrote about in his book, The Four Steps to the Epiphany. Blank teaches Lean LaunchPad classes at Stanford University and Columbia University where he is a senior fellow for entrepreneurship.

 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

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