It is no longer news that despite being slow to catch up to the COVID-19 pandemic, African countries from Nigeria to Egypt to South Africa are now having to deal with increasing cases of COVID-19 , with resulting varied responses from airport shut-downs to lock-ins and the rest.
So what does this mean for the growing startups across the continent who will no doubt be affected? As an investor with a portfolio spanning several African countries , and diverse sectors, I do have some companies that are either directly impacted by the pandemic, such as companies which focus on supporting travel, events, and other gatherings, and many that will be indirectly impacted . I also have some startups that have found a huge positive spike especially those in the online learning and pharma space.
What is clear and which I am prepared for after having spent the last few days speaking to over 30 portfolio companies is that companies with short runways will likely die, and even more jarring, companies that operate in certain industries could fold because of a “foundational collapse” caused by these shocks.
Earlier today, I spent some time with some high-level entrepreneurs across Africa who are part of the Harambeans Family and who are also speaking to startups in their portfolios, fashioning a COVID-19 outlook and strategy.
Here are 10 takeaways for startups/small businesses.
1. This pandemic will likely last at least 6 months to 2 years (from an economic perspective). Do not believe the lie this is going to end soon; If you wait and don’t act soon, your business may die. This is serious.
2. Investors will tighten wallets for two reasons: (a) Response to coming recession (b) Many African countries are not equipped for this and some are in recession E.g. SA has been in recession. Nigeria, SA, Egypt, Ethiopia, and Kenya = top countries that will be heavily compromised when we come out of this crisis
3. Non-critical businesses will have to make tough decisions (e.g. let people go, etc.) Many African countries will be closed for at least another month and borders closed to supplies too.
4. Figure out how your business is aligned for a COVID-19 response. Thought exercise: what existing assets do you have and what does it give you ability to do. Shift the use of these assets. For next couple of months, you need to help people stay alive (make money, eat, entertain them selves or learn while locked in, move food/material logistics etc.)
5. Need to be cash flow positive for next several months. If you have a deal or cash on the table, you need to hoard it now. Cash is king. Conserve what you have. Hold onto your cost of capital as much as you can.
6. Cut expenses completely that are not directly related to the bottom line. Cut them now. You will have to redefine what is essential.So you can react wherever the market goes.
7. For entrepreneurs: first priority should be to raise just enough capital if you need it to extend your runway and freeze non-essential expenses at this point. It’s not easy to raise capital at this point, but it does not mean you cannot raise. Look at “venture debt” = not for everyone, but raising debt financing on the back of having raised equity on the back of VCs. Provides collateral against debt financing.
For employees, being laid off is not the end of the world. View it as a new opportunity to retool and refocus. Identify which of your skills are needed in a different space. Perhaps, there’s that project you’ve been thinking of working on or you’ve not had enough time to explore, this might be that golden opportunity to put that idea to test while you explore other employment opportunities. My advice to you will be, time is of the essence and you can’t allow the event or situation overwhelm you because your productivity and abilities are beyond being unemployed.
8.This is a moment where the world is reshaped. It’s a pandemic and financial crisis at the same time. It will be a new normal.
9. Moving forward, build a continuity plan. No one anticipated this and so ask “Is my business equipped for the fallout”?
10. When we come out of this, there will be huge local opportunities, as countries now realise you cannot rely upon China or anyone for all your strategic needs, starting from food to basic medical supplies. Expect a boom in support for local manufacturing, healthcare and similar key needs as new supply chains are formed. Also, there will be new startups that come out of opportunities arising from the crisis. I remember Andela for formed in 2014 around the Ebola crisis, and Flutterwave in 2016 when Nigeria had a recession!