Covid-19 has significantly disrupted the global economy, and digitalization is being accelerated to cope with the new isolation-focused economy. Getting caught in the midst of the outbreak, Startups and SMEs have no choice but to adapt and re-invent themselves.
In the recently organized webinar by Action Community for Entrepreneurship (ACE) on 19th May 2020, “The New Normal – How can Asian Startups Survive And Thrive Beyond Covid-19”, Frank Lee, Tech JDI’s Managing Director, urged business leaders to implement several strategies to help them overcome the difficult times and conserve strength to grow and thrive in the post-pandemic world.
A “New Normal” Landscape For Businesses To Grow
In the new COVID-19 world, consumer behavior and business economics have shifted significantly. Cost-cutting measures are necessary during these tough times, and digitizing your business is essential for long-term survivability. Corporate leaders have the responsibility to understand this new business landscape and navigate their companies through these disrupted times by implementing appropriate strategies and work practices.
Many governments understand the severe impact which COVID-19 will pose to their economies and strive to control the outbreak through circuit-breaker measures, and minimize business impact through relief budgets. Specifically, the Singapore government has been setting up more business support programs such as grants for re-skilling of workforce and digitalization of business processes, and government-backed loans to revitalize the startups and SME business ecosystems.
Throughout this period, we also observed the interesting trend of Singapore tech companies and SMEs considering moving tech operations offshore to Vietnam in a bid to cut down their overall operating costs. This option allows them to maintain the same level of productivity to meet their customer demand, at a lower cost.
Cut Your Costs
It is necessary to undertake cost-cutting measures, even if you are not directly impacted by the landscape change. This is because you really have no idea on how long the instability will last, and when you will be hit by a secondary impact (like a defaulting customer), or collateral damage.
Areas of cost-cutting include external services (recruiters, business consultants), expansion plans (halt your plans to grow into new markets), salaries (don’t hire more staff, unless necessary), and even business lines (shut down non-performing business units).
Cash is king, and having a healthy balance sheet will keep your company alive, to grow again when all the instabilities are over.
Choose Your Customers
In an unstable period, a small number of companies are positively affected and are able to have an increase in business growth, and are able to better spend. More often than not, many businesses take conservative measures, including cutting spending and asking for longer/better repayment terms. There are also negatively affected businesses – these tend to take on more debt in an attempt to survive, have a possibility of defaulting on their payments, or even go into bankruptcy.
As such, we need to choose our customers by evaluating which companies are better able to pay for your product or services, and likely to survive or grow this period to give you more business in the future. Focus on these best customers and give them your best service and attention, as this is the perfect time to build a strong relationship with these customers.
Existing customers which are negatively affected and unable to pay outstanding debts can eat into your company’s valuable cash flow, and in turn put your company into a dangerous position. In the worst cases, defaults or bankruptcy by these customers can drag your company down the same path! As such, you need to limit your risk exposure to customers with outstanding payments – halt further service to them, if necessary, to lower further financial risks.
Having reduced your company staff to the minimum, your ability to service customers will inevitably be reduced. Choosing your best customers helps to focus your resources to provide the same (if not better) level of service to them, and retain them in the long run.
Before terminating any customers, we recommend leaders to carefully re-examine and work on your customer relationships through these 4 steps:
- Reassessing the customer’s ability to pay service fees
- Renegotiating the fees and come up with an agreeable payment plan
- Decrease level of support to customers with outstanding payments
- Terminating relationships if there is no other option
Focus On Digitalization And Innovation
Going back to the “old way” before COVID-19 is no longer possible anytime soon. As remote working becomes the norm and people are getting better at using digital tools than ever before, online businesses are booming. To survive and thrive in a dynamic landscape of social-distancing measures and quarantine orders, startups and SMEs will have to up their game with digital sales and marketing channels to reach out to potential customers.
That means actively implementing and digitizing your business processes. In fact, recent research shows that COVID-19 has pushed forward digital adoption in the past eight weeks, which would have taken 5 years! So do not stand idle, or you will find yourself left behind after the recovery!
On the other hand, hiring tech talent is becoming increasingly hard due to the high demand for digitalization. Unfortunately, local candidates are often too expensive for startups and SMEs from developed countries such as Singapore. Hence, many companies have chosen to offshore their software development processes to take advantage of an affordable but quality IT workforce from overseas.
Keep The Cash Flowing
Cash is the lifeblood of any business so when it stops moving, the whole system will shut down. Therefore, keeping cash flowing steadily is downright vital to surviving through the pandemic. While reducing costs and focusing on profitable customers can help significantly improve your cash situation, there is a high chance the company will still be in a position of net loss due to loss of business.
If investors are available, it is recommended to make some investments in for better cash flow, at discounted valuation if necessary. Although many investors will be defensive and choose not to invest during these uncertain times, you can seek help from external fundraisers to help you find suitable investors looking for a bargain.
If there are Government Grants or relief budgets available, they, too, will be very useful to tide the company over. For Singapore-based businesses, you can get your hand on development grants, including:
- Enterprise Singapore’s EDG (Innovation and Productivity)
- Enterprise Singapore’s EDG (Market Access)
which can give you financial support worth up to S$100,000 or more
The Singapore government has also made available Temporary Bridging Loan, Digital Business Loan, and SME Working Capital Loan amongst others, through the Resilience Budget 2020.
We Are In This Together
Business leaders are seeing the COVID-19 pandemic as one of the biggest disasters, but know that downturns can also produce a new wave of opportunities for those who can adapt.
Starting with a complete reform of business strategy, those who are able to stay ahead of digitalization will be the winner in this race.