News / 18 April 2020

For start-ups, pivot or die

My Say by Dzuleira Abu Bakar (CEO of MaGIC)

Next to prudent cashflow management, pivoting is one of the most common pieces of advice given to businesses, including start-ups, to navigate themselves out of the tight spots caused by the Covid-19 pandemic, which has left its mark on almost every country in the world.
While start-ups are designed to be agile and many would be able to reposition their businesses, unfortunately, not all business models are designed to do so quickly and easily.

When the Malaysian Global Innovation & Creativity Centre (MaGIC) conducted a survey at the start of the Movement Control Order (MCO), we found that 83.5% of start-ups and social enterprises were concerned about the decline in sales and the inability to operate. Their fears were not unfounded.

In a follow-up survey more than two weeks into the MCO, 64.1% reported that their sales or revenue had dipped by more than half. Only 7.1% were not impacted by the MCO.

Two weeks may not be a long time but many start-ups here and across the globe have felt the blow as societies made adjustments to ‘flatten the curve’ in the fight against Covid-19 through social distancing, which impacted economic activity and jobs in unprecedented ways. Simply put, flattening the curve, to a large extent, flattened the amount of knowledge we have on how the market behaves and acts. All the textbooks we have written thus far can be thrown out the window. Now, we have to observe and figure out what is the market’s new norm.

Cash Crunch

As cash is the lifeblood of any business and our survey results showed that 62.7% of start-ups had sought financial assistance. Some 37% of participants indicated they needed RM100,000 or less to sustain until December, while 10% needed more than RM1 million. The larger percentage of start-ups would need an average of RM500,000 until the end of the year. We also found that the amount of cash needed is proportional to the size of the workforce of the companies.

The reality is that funding entities – especially the type of funding needed to fund start-ups – such as venture capital (VC) and private equity (PE) are either depleting or unavailable right now. Private VCs and PEs are not isolated from the economic crisis, resulting in very little funds available for new investments. As paradoxical as it sounds, some have in fact indicated that they would like to see cash flow of at least six months provided by the target company before they can approve any new investments.

The recent move by the Malaysia Venture Capital & Private Equity Association (MVCA) – launching a joint initiative with several funding institutions to provide advisory support to start-ups during this period of crisis – is timely. We hope this public-private sector VC players collaboration will significantly increase the odds of start-ups getting the right support and funding during these uncertain times.

In addition to funding, the ecosystem could be boosted by increasing corporate engagement with start-ups. Corporates can play an important role in ensuring the continuity of the start-ups. This is the time corporates can “give back” to the ecosystem by providing opportunities and solutions for local start-ups, just like what is typically provided by the more established and larger (foreign) tech players. Overcoming regulatory hurdles, including fast-tracking licensing or approvals for loans, would be helpful too.

MaGIC, in this case, will continue to facilitate and connect start-ups with the necessary assistance and support, including seeking credit and funding facilities with the right stakeholders as well as leveraging government stimulus packages.

Surviving COVID-19

Across the world where lockdowns have been imposed, many businesses switched to e-commerce as a means to prevent cash flow bottlenecks. Food and beverage outlets connected with delivery partners to bundle-in a variety of offers, whilst others offered new credit terms or chose to sell out their ingredients to reduce wastage and minimise stock holding costs. A clear winner in this game of pivot was StoreHub, a retail solutions provider for SMEs.

It launched Beep Delivery to help save F&B stores by allowing people to order online directly and have food delivered to them without the high fees of larger food marketplaces.

MasalaWheels, a social enterprise, a “pay-it-forward” model, kicked in as it raised funds to prepare and deliver food packages to medical frontliners, at-risk and marginalised communities, orphanages and senior citizen homes where regular volunteer services were disrupted. It has raised funds to provide more than 16,000 meals to date in the Klang Valley, with contributors and beneficiaries in Penang coming onboard next.

But the harsh reality is that some business models are not designed to pivot, not so easily at least. There are various macro conditions at play in every business, ranging from the type of industry to supply chain. Some start-ups may need to “rip and replace”, instead of tweaking the existing business model to suit market conditions.

With this in mind, MaGIC strongly supports the ecosystem with capacity-building through various accelerator programs and bootcamps, making available our best-of-breed mentors and most sought-after coaches in various areas of specialisation to assist start-ups that are reaching out for assistance. From marketing to business design and operations, we deliver content curated by MaGIC with input from our partners and the industry.

Particularly during the MCO, we are also making many of our courses available online, covering Design Thinking, eCommerce and digitalisation of businesses to help start-ups diversify their business models or product markets. These frequent webinars, MaGIC’s Digital Business Academy, workshops and more, tackle topics such as on business resilience, technology, marketing and mindset.

That said, getting our entities back on track and building resilience through targeted capacity-building, alongside bringing in the necessary intervention and facilitation will be MaGIC’s priorities in the next 6 to 12 months.

Ctrl+Shift and recovery

While many start-ups struggle to see the light at the end of the tunnel because of a looming global recession – only 2.9% of those surveyed were confident of surviving beyond 12 months if current conditions persist – we must remain optimistic instead of hitting the delete button too soon.

Interestingly, history has shown that more than half of the companies on the Fortune 500 list were founded during a recession or bear market. In fact, over 50 tech unicorns were founded during the recession years of 2007-2009.

Video conferencing app Zoom, for example, has already experienced an exponential increase to 200 million users daily – from its previous daily record of 10 million – in 3 months as it leverages how we have changed the way we work and socialise.

Within weeks, many technology companies have also stepped up to improve the testing, tracking and treatment of Covid-19 . Telehealth is said to be one of the hottest emerging areas from this flurry, with more than 1 billion Google searches a day related to medical advice since March.

Two Malaysian start-ups are making headway during this time. Biji-Biji Design Sdn Bhd, for example, developed face shields within five days with 3D printing to help our medical frontliners at a time when personal protection equipment was short in supply.

DF Automation & Robotics, meanwhile, is developing an autonomous mobile robot to help frontliners carry out disinfection, food delivery and delivery of medicine in hospitals. These digital solutions serve to prevent the healthcare system from being overwhelmed.

An increasing number of opportunities in mental well-being, logistics and consumer solutions could also emerge from this pandemic. Market watchers, for example, have identified up to nine new personas in Southeast Asia that have been born from Covid-19.

No doubt, the crisis can serve as a validation of a start-up’s business model. Businesses driven by innovation and enabled by technology will emerge stronger, more differentiated and better positioned to capture new markets. Investors, be it existing or potential, will be watching how the most agile and resilient will navigate the crisis.

For the past three years, Malaysia has seen a quick growth of start-ups, delivering an economic impact of RM409 million, based on MaGIC’s data, as more than 20,000 individuals were trained and 690 new jobs created. Whilst we may not enjoy the same level of growth this year, MaGIC will continue to support for start-ups in bouncing back from the MCO and the economic slowdown that follows.

Going forward, it is important for us to realise and appreciate that we will live in fundamentally different times. It is imperative that we establish forces that will help us navigate what is to come. In simple terms, creativity and innovation along with enabling technologies are the essential building blocks toward realising potential and progress. But are we ready?

Note: Dzuleira Abu Bakar is CEO of MaGIC, a government agency entrusted with enabling and fostering the sustainable growth of start-ups (technology) and social entrepreneurship in Malaysia. MaGIC’s core functions are to facilitate capacity building, enhance market access, facilitate funding and assist in navigating the regulatory framework.

 

–end–

This article was originally published by The Edge, 18 April 2020 pages 35 & 38

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References

[1] What COVID-19 Means For Startup Ecosystems—And What Can Be Done

[2] Zoom’s Daily Users Jump to 200 million in 3 months

[3] Tech’s role in tracking, testing, treating COVID-19

[4] The Healthcare Innovation Opportunities Out Of The COVID-19 Crisis

[5] 9 SEA consumer personas born out of COVID-19


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