It’s only April 2020 and to quote a popular TV show, it looks like “winter is here.” Figuratively, of course.
No thanks to the COVID-19 pandemic, a global recession is looming and startups around the world are set to take a big hit as an estimated 80 percent of startups are in danger of going under due to the ongoing pandemic and its aftershocks.
Even in good times, running a startup is hard. In Africa where infrastructural and policy deficiencies can be a huge stumbling block, it is harder — even on the good days. Running a small business in Africa in such troubled times is, thus, the hardest.
For startup founders in Africa, surviving the economic downturn and not becoming a statistic is the most important thing in these tumultuous times. And one way to achieve this is by putting necessary measures in place to ensure that the business has enough fuel to outlast the pandemic. Fuel, in this context, just means money.
Shortage of funds remains the biggest threat to the existence of startups, it’s still the number one factor behind the closure of most small businesses in Africa.
As revenue prospects diminish in various industrial sectors due to the impact of global COVID-19 containment measures, the best bet for startups that are looking to survive the storm is to trim expenses and outgoings as much as possible. And doing this without letting people go and disrupting productivity is the ultimate survival hack.
Actually, in these uncertain times, trimming the wage bill by letting some employees go is a tough call that founders all over the world have had to make inevitably and are still making in the interest of their business. But there are others in these parts who have found another, equally pragmatic and quite effective way.
‘Bosun Tijani, co-founder and CEO of Co-Creation Hub, also known as CcHUB (which many now consider the largest tech innovation hub in Africa especially since it acquired iHub last year), recently tweeted about how he and the team managed to reduce CcHUB’s monthly outgoings by USD 46 K (around NGN 17.7 Mn).
Tijani had advised startup founders to generate a comprehensive list of all expenses outside of personnel cost and then identify which expenses can be suspended so as to cut costs, extend runway and slash burn rate in these uncertain times. According to him, this is pretty much how CcHUB is now saving no less than USD 46 K monthly.
Startup founders, if you are yet to do this – generate a comprehensive list of all your expenses outside of personnel cost and look at what can be suspended at a time like this. I managed to reduce our monthly outgoings by $46k. Share notes on what you find. Let’s compare notes.
— ‘Bosun Tijani (@bosuntijani) April 1, 2020
Now, that sum may not sound like a whole lot of money to some people. But in these parts, the cumulative monthly savings for an extended period can keep a startup going for a very long time and realistically outlive the current crisis. Those savings might as well be the difference between life and death for many an African startup.
With that in mind, WeeTracker had Tijani and his team at CcHUB share tips from their playbook on how they have been able to trim their outgoings significantly.
Since it officially opened in August 2011 as a platform for incubating, nurturing, and accelerating the development of technological ideas in Africa, CcHUB has expanded beyond Nigeria and now has operations in both Kenya and Rwanda with a staff base of just under 100 people across the three countries.
To deal with the economic uncertainties spelled by the pandemic, the team transitioned to remote work over four weeks ago (just like many other startups) and it became very paramount to rethink monthly outgoings to keep the business cashflow healthy.
Interestingly, CcHUB didn’t go about this by cutting some employees loose. If anything, the company actually added several new hires quite recently.
Abiodun Ajanaku, who is Director of Finance at CcHUB, told WeeTracker that non-essential office running costs were ruled out and suspended because they are not required for remote work. And eliminating non-essential costs have been key to the savings recorded.
As revealed by Ajanaku, the following are the costs that were deemed non-essential and suspended:
On the other hand, the essential business expenses outside personnel cost that were retained for remote work includes the following:
Commenting on how the expenses are tracked at the moment, Ajanaku said:
“The tool we currently use to keep track of the business expenses is a combination of our accounting software (containing the comprehensive list of all our expenses) and financial projection models we developed to monitor and evaluate both the best and worst-case scenarios during this extraordinary period.”
He added: “In addition, we have weekly review meetings to evaluate actual spending against the initial projections; and make necessary decisions if there are any deviations.”
Apart from helping the venture save a significant sum every month, Ajanaku said the measures have ensured that, in the last four weeks, only essential expenditures that enhance employees’ productivity in this period are now spent on.
“This ensures we do not spend more than we are currently earning. It has also helped us boost our cash holding positions to be able to keep covering personnel costs in the coming months and assisted us in maintaining healthy cash flow in the face of a decline in revenue during these times,” he enthused.
Social isolation and a declared global emergency have taken its toll on industries that put people in the same space; conferences, trade shows, airlines/cruise ships and all types of travel, the hospitality industry, sporting events, theater and movies, restaurants and schools.
Large companies are telling employees to work from home. Large retail chains are shutting down their stores. While the impact on startups, small businesses, and workers in the “gig economy” hasn’t been that well documented, there’s sort of an unspoken consensus that it will be worse for them.
Startups are inherently small businesses that have fewer cash reserves and a smaller margin of error for managing sudden downturns.
The knock-on effect of all of the pandemic containment measures will have a major impact on the economy, as each industry that gets impacted puts people out of work, and those laid-off workers are less empowered to pay for products and services. And small businesses, in particular, face a torrid time.
To survive, startups would have to, before anything else, keep as much cash in as is possible without hurting productivity. Financial interventions and palliatives from the government and other institutions are secondary.
This is a sentiment shared by the CcHUB finance director. “Many businesses are currently experiencing a decline in revenue,” he said, “it is vitally important to trim costs in order for the business to keep going.”
“The ability of startup founders to initiate cost-cutting measures is what will ensure healthy cash flow in the coming months. It is also important to trim costs in such a way that it does not affect the productivity of the workforce. Startup founders need to only spend on essential expenditures that support productivity,” said Ajanaku.
He added: “The sustainability of any venture entails shaving off non-essential expenses when required, and adopt cost control measures that boost cash holding in the face of declining revenue or tight cash flow.”
Featured Image Courtesy: CIO East Africa