Kenneth Kwok: How To Ride Out COVID-19 Related Turbulences
As most of you would have realized by now, the coronavirus situation has had much longer lasting impact on not only the wider economy but also the startup ecosystem.
Since mid January 2020, I have conducted interviews, coaching sessions and budget reviews with founders of startups, including those within our portfolio. As part of the wider Global Citizen Capital initiative, especially in the impact business space, our mission is to give the most relatable and viable advice to first time or otherwise in-need entrepreneurs to ensure their businesses are resilient against unexpected turns.
Below is a summary of key recommendations made to first, help rise above the turbulence and second, as we say, make the most nutritious and demanded lemonade out of lemons.
1) Team Unification
It will be extra difficult to maintain a sense of mission for a company if the co founders and core management team are not strong and united. This can happen with reduced visibility.
Take the time to allow each core team member express their views and perspectives through necessary team building exercises. Joint decision making via empowering all to have a day has helped some companies gain their footing (professional and psychological) again.
2) Cost Cutting
As with most economic downturns, cash and liquidity often becomes an issue, especially for those businesses with higher cash upfront costs or longer cash return cycles.
Apart from cutting off any and all non urgent expenses, some cofounders have ceased drawing down salaries. For key management team members, an ESOP structure was established and shares are awarded in lieu of cash, with a partial reversal mechanism once the financial situation stabilizes. This way, majority control can still be retained by the co-founders once the wave is ridden out.
3) Business Model Pivot
For some businesses whereby the coronavirus situation deals a direct hit, such as hospitality, F&B, events and marketing, retail and more, there is often a sense in the startups that there is a light at the end of the tunnel.
While positivity can be useful, based on latest forecasts, it is not expected for the overall crisis to ease before May. That means a term of three more months where the company’s current business model will not suffice. Think of the most efficient way to reach out to existing customers just to stay cash flow neutral. Customer loyalty programs tailored to the nature of coronavirus has shown positive impact for select startups I interviewed.
4) Legal Review
Contractual commitments are often ongoing unless specific clauses precluding events such as a virus outbreak. Generally these are standard clauses, but many startups have avoided using proper lawyers to save costs and hence did not receive such legal protection.
If that is the case, be pro-active and speak with those companies under contract involving a cash outflow within the next three months. See if any leeway can be given. Even in the case where your company has the preclusions, it is best to have a conversation earlier than later to remove any and all uncertainties.
5) Bridge or other Short Term Loans
For those already funded with friends and family, angel or even pre-seed rounds, the option is on the table for a small event-driven fundraise. From what we have witnessed, majority have chosen either a bridge or revolving loan.
As an impact investment fund, Global Citizen Capital has set aside funds to come to the aid of startups without prior capital raising experience. This is part of our CEO-for-a-Quarter program which bridges the gap for startups needing an in-house advisory team to get the ship ready for sailing (into the capital markets). Please enquire at www.globalcitizencap.com.
In these difficult times, let us all stay strong and support each other to create a more sustainable world, one where we all come together as global citizens to protect our one world.
Founder and CEO
Global Citizen Capital