How Small Businesses can react to Covid-19: Lessons from the Animal Kingdom
Coronavirus has been hugely disruptive to life as we know it. However, that does not mean that it has affected all sectors and companies equally. In fact, whilst the aggregate socio-economic impact is certainly negative, there are also opportunities that will arise, particularly for agile startups that are able to make quick decisions and pivot as needed.
Broadly speaking, businesses can be divided into three categories:
- Bullfrogs – Those that face a threat to their existence and are in survival mode;
- Giraffes – Those that have had divisions or elements of the business damaged, but have managed to compensate and sustain growth by creating new revenue streams and doubling down on their existing customers; and
- Starlings – Those that have seen increased demand all round. They are focused on strengthening and improving their infrastructure to deliver their product or service and to keep both old and new customers happy.
Almost all the businesses currently raising funds on Eureeca are Giraffes (don’t worry, we will explain the animal names shortly!) and there is a reasonable percentage of funded companies in our portfolio that are Starlings. However, whilst the majority of the insights here come from those companies who are playing offense as well as defense, it is important that we help those companies that have been hurt the most by recent events and we strive to do just that.
Bullfrogs
The African Bullfrog relies on moisture for its very existence. Without this, its skin dries out and it is no longer able to breathe. Unfortunately, this species lives in the African Savanna, which has a long, dry season that can last up to 7 months. Therefore, the bullfrog has learnt to bury itself 6 – 8 inches underground and create a membrane cocoon for itself, coming out again only once the rainy season returns.
In the same way, some businesses will need to bunker down, cut costs and see out this difficult period, before re-emerging when conditions have improved. Whilst this can come at great cost to shareholders, employees and other stakeholders and is not a decision to take lightly, it may be the best option for certain businesses in certain sectors. These businesses are likely to be in the hardest hit sectors and choose to aggressively cut costs across the board whilst they wait it out.
Before opting for this route, it is important that such companies consider all their options. Even businesses in industries such as travel and leisure can look for creative options. For example, many gyms are now offering online fitness classes to engage with their members and build brand equity.
Looking at things from an Investor’s perspective
It is clearly difficult for these businesses to raise funds in the current climate. Understandably, new investors want to fuel long-term growth, not pay the bills for the next two months. However, that does not mean that as an ecosystem we should abandon these entrepreneurs. It is heartening to see that there are already multiple initiatives in place from both the private sector and public sector to support such businesses. These include grants, government backed loans, deferrals on fees and also free clinics and support set up by professional service providers. Eureeca can help connect startups to some of these professional service providers and government schemes in certain countries.
Giraffes
They may be famous for their long necks, however giraffes evolved from a species known as Samotherium, which had necks that were barely half as long.
When the Samotherium found itself in an environment which had a scarcity of food near the ground, it discovered new food sources higher up and gradually adapted into the modern day Giraffe.
Small businesses today do not have the luxury of time, however where possible adaptation is critical. Much as the Samotherium looked for new food sources, so many companies are searching out new revenue streams and changes that they can make around those new opportunities.
Going Digital and Discounting Appropriately
Purely B, a Malaysian wellness business raising on Eureeca, has a large and loyal following of over 2 Million users. Prior to the outbreak of the virus, they had taken their first steps towards monetising that following by selling their own natural supplements. The initial signs were excellent, with the first shipment of their first product, Pegaga by Purely B, selling out in 10 weeks.
“Adapting their pricing strategy to protect their existing revenue stream. In exchange for paying cash upfront and waiting up to 3 months for a Pegaga by Purely B delivery, they have offered customers a 40% discount. Again, there has been a very positive response to this, with over 300 orders in the first two weeks.”
However, since that initial launch, Purely B have faced supply chain issues, with Malaysia on lockdown. They have adapted in two different ways:
- By launching a paid digital health programme called Natural Home Pharmacy, which helps people prepare natural remedies at home using their own ingredients and also provides members with responsive support. One week in and before launching any paid ads or raising awareness, there has already been membership take-up.
- Adapting their pricing strategy to protect their existing revenue stream. In exchange for paying cash upfront and waiting up to 3 months for a Pegaga by Purely B delivery, they have offered customers a 40% discount. Again, there has been a very positive response to this, with over 300 orders in the first two weeks.
Finding New Channels and Doubling Down on What Still Works
Fruitful Day are another business that have found a way to adapt. Their B2B division was growing well prior to the lockdown with several high profile corporate clients and they had recently moved into a new facility, allowing them to continue their remarkable growth story. However, the closure of offices temporarily cutoff their largest revenue stream.
“Impressively, 6 weeks into the lockdown and Fruitful Day have managed to completely patch that drop in Sales and are on course to post solid growth numbers vs H1 2019.”
Impressively, 6 weeks into the lockdown and Fruitful Day have managed to completely patch that drop in Sales and are on course to post solid growth numbers vs H1 2019. They did this by:
- Doubling down on home deliveries through raising awareness of the benefits of fresh fruit and highlighting how little they handle fruit compared to fruit that is bought in supermarkets. This has been the single largest driver of change for Fruitful Day. After a tough start to March, their weekly B2C numbers are up 300% as of end April.
- Adding extra value to their B2C clients by waiving delivery fees in Dubai and adding immunity boosting produce such as ginger to all their baskets.
- Offering B2B clients the option of sending fruit baskets directly to the homes of their employees. This simple gesture has been great for employee morale in a difficult time for everyone, and has also been a major boost for Fruitful Day’s revenue.
- Being creative with their other revenue streams. They recognised that the lack of physical proximity has encouraged people to connect with each other in other ways. Therefore, they enhanced their gifting range and have reaped considerable benefits.
Both these businesses have also doubled down on their existing customers and looked to give back to the community in authentic ways. Fruitful Day have always done a lot of work to be as environmentally sustainable as possible and have continued these projects, whilst Purely B have extended their pre-existing community outreach to giving away 10 Malaysian Ringitt from every sale to vulnerable members of society and emergency workers at the front line of the health crisis.
Love Your Customers
On the subject of doubling down on existing customers, it is also worth highlighting the case of Bundleboon, a kids’ fashion e-tailer that recently concluded its raise on Eureeca. Whilst e-commerce as a whole has not suffered during the pandemic due to the substitution effect of physical retail stores closing outweighing the income effect of households reducing their spending, this is not true in most luxury segments, including fashion. This chart, produced by commonthreadco, shows how different e-commerce categories have been affected.
Bundleboon’s co-founder, Nelli Jeloudar, notes that “We realised that the only way we could keep traction up and influence people to try our service, was to focus on our existing customers and the best performing acquisition channel.” In practice what this meant was that they increased engagement by organizing giveaways for customers and also asking them to post unboxing videos on social media and to act as brand ambassadors for them (rewarding them with referral discounts), whilst increasing spend on influencer marketing, which was producing excellent ROI. Moreover, given the current climate, they were able to negotiate preferential terms, paying bigger influencers with clothes rather than cash.
“We realised that the only way we could keep traction up and influence people to try our service, was to focus on our existing customers and the best performing acquisition channel.”
Bundleboon’s co-founder, Nelli Jeloudar
The end result of this focused response has meant that March 2020 was a big success for Bundleboon. Nelli and her co-founder, Monique, were able to post on their Eureeca proposal that “Our stylists are currently styling 8 boxes/day pr. stylist, which is a big increase since last year, where they styled 5 boxes/day pr. stylist. As soon as some relevant features are improved in our system, our stylists are able to style and ship 10 boxes/day per stylist”
All three of these businesses have adapted, growing new revenue streams and doubling down on the revenue streams that have shown potential. What is very encouraging is that for the most part, the new customers they acquire cheaply now are likely to still purchase from them when economic recovery begins and previous customers are able to resume normal levels of activity.
Starlings
An eccentric project in 1890, saw Eugene Schieffelin, president of the American Acclimatization Society, release all 40 species of birds mentioned by William Shakespeare into New York, including 60 European Starlings. Most of those species did not successfully proliferate within North America, however the Starling certainly did. Those 60 birds released in Central Park have given rise to a Starling population of over 200 Million in the US today!
Much like those 40 species of birds, there are certain companies that have been presented with a new opportunity and market as a result of an unexpected external shock. One of these sectors is online grocery ordering and delivery. Social distancing inside supermarkets is proving difficult and supply chain issues have made it hard to know what is going to be in stock and what isn’t.
Keeping Up with Demand
“The companies that get their service offering right and look after customers are likely to see lasting benefits and exponential growth”
This is both a big opportunity for companies in this sector, but also a huge responsibility, with many residents relying on them for essentials. The companies that get their service offering right and look after customers are likely to see lasting benefits and exponential growth, much like the aforementioned Starlings, whilst others will fail to adapt and rise to the challenge.
The impact on El Grocer’s growth
“just within the space of those 14 days, they saw an increase in orders of 100%”
Eureeca veterans, El Grocer, have noted as much. They have already experienced success to date and investor validation, recording consistently high growth and raising their Series A on Eureeca at almost 4x their seed valuation, which they also raised on the platform. In the last two weeks of March, this growth accelerated rapidly and just within the space of those 14 days, they saw an increase in orders of 100% as well as many new registrations and downloads of their app. Moreover, they have seen their basket size increase by approximately 60% vs February 2020.
“Our focus will be to continue to provide an excellent consumer experience across our platform and delivery services, which will be critical to retain users post COVID-19.”
El Grocer Founder and CEO, Nader Amiri
However, to ensure that they fulfill their responsibilities and maintain a high level of customer satisfaction, they have had to make adjustments behind the scenes. Founder and CEO, Nader Amiri, remarks “Our focus in the last 2 weeks has been upgrading and training our new staff in operations and customer services. We have seen a massive increase in orders and new users on our platform, and we have been adjusting our operations and systems to cope with the increased demand. Since the situation will continue for at least a few weeks more, and with Ramadan starting at the end of April, our focus will be to continue to provide an excellent consumer experience across our platform and delivery services, which will be critical to retain users post COVID-19.”
Understand Your Opportunity and Leverage Your Strengths
Another key sector that is experiencing change and high demand is digital content. With residents being confined to their homes, there is a great demand for new content to keep them occupied. Looking at the MENA market specifically, primetime MBC audiences jumped 59% between the first week of March and the third week of March. Moreover, new filming has been severely disrupted, so there is an opportunity for content producers to gain new distribution. As Nick Grande, founder of mena.tv puts it “live studio-based programming and live sports are no longer available, so content buyers are having to move fast to buy alternative programmes.” Mena.tv themselves are a in a strong position to assist those content buyers and have offered vendors better terms in order to get them listed on their B2B content distribution platform, with many large distributors now being onboarded.
Much like El Grocer, mena.tv’s focus is on ensuring a positive customer experience, leading to long-term retention as current events accelerate the migration of B2B content buying from offline trade shows to online platforms. They are doing this by enticing vendors onboard via discounted listing fees and have then earmarked a large portion of their current Eureeca fundraise for upgrading their technical offering to offer a premium experience.
Don’t Lose Sight of Your Mission
These are three clear categories of early-stage startups during the current pandemic, and understanding where a startup sits in this hierarchy can help investors formulate questions before making a decision as well as helping startups themselves decide on what they should be prioritising. However, as with any categorization, there will be some that don’t fit neatly into these boxes. One such examples is Teysha Technologies, a pre-revenue startup with strong defensible IP that is attacking a very large market (plastics), predicated on essential everyday items. Demand for their product will depend less on the external situation and more on making the argument to existing producers of plastic products that they are offering a better solution. Moreover, as they are pre-revenue, there is minimal disruption to their operations (they are not shipping product anywhere). They have already been particularly successful in making the case for their new material, Aggiepol, to customers and investors alike, having raised over 2M USD to date and with multiple LOIs and pre-orders from large customers.
Covid-19 is certainly a dramatic and disruptive event, with the health and safety of people and communities being of paramount importance. However, that is not to say that it is necessarily a wholly negative event for all companies, and as ever in startup world, those companies that best adapt, adjust and evolve will not just survive but can even thrive.
This article was written by Siddarth Dalamal | Eureeca’s Head of Investor Relations.