COVID-19 and the age of the Cockroach Start-up

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COVID-19 and the age of the Cockroach Start-up

That the COVID-19 pandemic will bring about tectonic shifts in the arena of start-ups is an inevitability. And though spaces like Health Tech and Ed Tech will be lesser hit, the ripple effects of this event will be felt across the length and breadth of the universe of businesses, both mature and budding.

In can be hypothesized that a start-up bubble of sorts has been building up for more than half a decade now. For several years, the allure of “build a user base now, monetize later” has attracted an inexorable stream of both foreign and domestic capital across market segments. Many of these beneficiary companies had unjustifiable unit economics, as can be evidenced by the fact that their growing toplines more often than not resulted in proportionately high degrees of cash burn. As a co-owner of a bootstrapped, mature start-up myself; I often found myself wondering when the mood would turn risk-off and this heady, funding driven party would end. I believe it just has.

It would be an exaggeration to say that risk capital for early stage businesses will dry up in the face of COVID-19. I personally believe that the money tap will remain open, but the type of entity that would attract this funding will change – for a long time to come, I dare say. Start-up owners looking to weather this storm should look at remodelling their businesses on a war footing.

A narrowing of focus is in order. When capital is free-flowing, innovation abounds. Unfortunately, a lot of this product innovation isn’t really value creating in the long-term. Too many Founders suffer from the well-known cognitive bias known as self-attribution – the tendency to take personal credit for ideas that fly, while blaming the ‘lemons’ on external factors. Running helter-skelter and throwing your focus all over the place when threatened by competition is never a good idea; however, it’s a strategy that seems to have won favour with venture capitalists in recent times, since it projects the impression that a business is willing to ‘do something and think out of the box’ to gain ground! A lot of companies have milked this tendency in recent years. To survive the aftermath of COVID-19, businesses will need to define – and refine – their core proposition, while brutally letting go of experimental endeavours for the next couple of years. Digital spends will require microscopic scrutiny; especially those outsourced to third-party agencies. Businesses will have to return to the grindstone of seeding quality content to increase their digital footprint, and circle back to old school methods for customer acquisition, with the first and foremost being word of mouth.

Old-school business values will make a resounding comeback. Gone will be the quixotic business ideals that involve only back-of-the-envelope planning followed by a lightning fast go-to-market strategy. The brave new clique of Start-up Founders that emerge in the aftermath of COVID-19 will have to be willing to work long hours with little or no salaries for several years; with no fancy offices, thousand-dollar coffee machines or flashy marketing campaigns. The unsparing business environment that we’ll witness for the next couple of years (or more) will favour quiet sacrifice over flamboyance and bravado, and will extract its pound of flesh from every warrior! Business owners will necessarily be forced to don multiple hats themselves and get their hands dirty. They’ll need to focus on unit economics and customer level profitability. They will also need to work a lot harder on their retention and upsell strategies, as their captive customer bases will prove to be their most valuable treasure in the times that follow. Businesses absolutely cannot afford to operate with leaky buckets in the post-COVID-19 world.

In the new normal, we’ll witness a definitive paradigm shift from ‘growth at all costs’ to ‘sustainable growth’. The very definition of growth itself will change. Bizarre, unfounded metrics such as contribution level profitability will be thrown out of the window, as more investors – and resultantly, Business Owners – focus on realizing actual cash profits on their P&L. Growth will become slower, more incremental and iterative. Funding milestones will shift away from airy goalposts such as number of app downloads or number of free users, to the actual number of paying customers, along with tangible top line and bottom line growth. There will be a healthy degree of scepticism about launching anything new within the organization, and multiple heads will get together and hotly debate pros and cons before signing off on any new cost. Investors will become a lot more stringent about demanding solid proof of concept before loosening their wallets; so start-up founders should be willing to start small and put their own skin in the game for an extended period of time, before tapping external capital.

Customer experience will take absolute precedence going forward. Constrained in their bandwidth to distractedly hop into new markets, businesses will have to make service excellence one of their guiding tenets – not just in theory. Extremely robust CRM processes and metrics will need to be put in place to ensure that every single customer is treated like a King or Queen. Communication must be streamlined and issue resolution TAT’s must be brutally monitored and enforced. For the post COVID-19 start-up, customer delight will take precedence over new client acquisition.

There’s and old wives’ tale that the ungainly and much reviled Cockroach can survive even a nuclear apocalypse. COVID-19 may just have ended the era of the euphoria-fuelled Unicorn and ushered in the age of the Cockroach Start-up! To survive the new normal, business owners need to evolve their propositions from being just great ideas to being great businesses. The age of the Cockroach begins, now.

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