A significant number of Indian organizations are battling uncertainty about their future, the reason being the pandemic due to COVID which has resulted in a severe economic slowdown. As indicated by an industry study called 'FICCI-Dhruva survey' by FICCI and Dhruva Advisors, it has been observed that the Indian organizations are going to face some tough times due to COVID-19 due to which the organizations would be further decreasing their staff.
Ashish Luthra who specializes in Private Equity and Mergers & Acquisitions and is an Investment Manager at Peepul Capital Advisors which is a private equity investment firm investing in high growth potential, mid-sized companies in India, advises about administrative practices to adopt in order to ride out through the economic slump.
FICCI, in a recently conducted industrial survey, said that “The survey clearly highlights that unless a substantive economic package is announced by the government immediately, we could see a permanent impairment of a large section of the industry, which may lose the opportunity to come back to life again.”
Manage your people to manage resources better
Ashish puts forth a very important point saying that the most important resource for any organization is its ‘people’. “The companies or entrepreneurs who can carry their people well in these times will have long-standing support of their employees. One can consider imparting training to them, which have generally been talked about but always deprioritized in real life. The companies may encourage brainstorming sessions amongst their employees to come up with innovative ways to expand the business, beat the competition, and rationalize cost,” he says.
Another important resource is ‘cash’. In today’s times ‘cash is the king’ and hence, it is important to conserve it. “Companies should rationalize their spending power and make a wholehearted attempt to expedite collection and optimize payments. An entrepreneur who can manage this process efficiently will emerge as a winner,” he says.
Re-look at business strategy
The current pandemic and the lockdown has posed substantial challenges for all the businesses to keep their financial wheels rolling. However, the impact on startups has been much larger, considering their limited cash reserves and smaller margins. “In my view, it’s a time for them to relook at their business strategy, focus more on curtailing expenses and preserving cash. Also, the plans should be towards identifying value creators so that they can attract capital investment at a suitable time,” he says.
Entrepreneurs have got this time to reflect on their journeys
According to Ashish, entrepreneurs should now be enterprising, solution-oriented, and not grumble about the changing situation. “Every cloud has a silver lining, similarly any ‘challenge’ can be seen as an ‘opportunity’ to look for innovative ways to overcome that challenge,” he says.
Since this pandemic is not expected to disappear in a short-while, Ashish suggests that this is a great opportunity for entrepreneurs to reflect on their respective journeys by:
- Identifying the weak links in their systems
- Assess the feasibility of their existing business model
- Consider recreating them in keeping up with the realities of Covid-19 in mind
- Create best, worst, and most likely financial scenarios for their company
- Scrutinize the cost structure; etc
The future lies in the ‘digital’
Ashish believes that the future lies in the ‘digital’. “Covid-19 crisis is likely to significantly accelerate the shift to digital and hence in order to remain relevant there's a need for businesses to quickly adapt to this changing business landscape,” he says.
Ashish finds the Action COVID19 Team (ACT) to be a great initiative to support and help people working towards building solutions to reduce the impact of this pandemic either by developing a vaccine or a molecule or by reducing its spread. “I would urge recipients and applicants to not confuse this initiative with an opportunity to seek investments, this support or grant is largely extended to help the entrepreneurs manage a portion of their operating expenditure in their attempt to come up with unique scalable solutions,” he says. According to Ashish, this successful venture will get benefited in the following ways:
- The social pride of saving millions of lives and associated recognition
- An opportunity to demonstrate its unique capabilities and differentiate from the crowd while seeking growth capital at a suitable time
Ashish explains with utmost clarity how this financial Tsunami of COVID-19 is a good time for investors to invest in start-ups, SMEs, etc. He distinguishes the investors into three categories as different investors work with different objectives:
- Institutional investors, who focus on investing in public markets. There’s certainly an opportunity for them to invest, as there are many picks available in the market where fundamentals are robust however the valuations have corrected to a fair degree.
- Small retail investors- They would not advise a significant allocation towards equities, given the volatility in the market.
- Investors who provide growth capital- They invest with the long-term growth potential, keeping in mind the underlying business which generally does not sway with much turbulence.
He also mentions that the best buying opportunity for these investors is not dependent on ‘low entry price’ but identifying the right team, who can efficiently utilize the growth capital in creating a long term sustainable business and thereby enabling a significant ‘exit value’ for its investors.
“Yes, to some extent, times like these will certainly help investors in two ways:
(i) Moderate founders’ and entrepreneurs valuation expectations; and
(ii) natural elimination of companies with weak fundamentals or unit economics.
In the near term, most Private Equity and Venture Capital funds will remain focused on their current portfolios to ensure business continuity and be in the wait and watch mode on new investment activity,” he says.