#COVID-19 Blues: 74% of Startups Will Have to Let Go of Full-time Employees- Report

David Afolayan
#COVID-19 Blues- 74% of Startups Will Have to Let Go of Full-time Employees- Report

The emergence of the Corona Virus Disease 2019 (COVID-19) pandemic across the globe has many attendant consequences. Second to loss of lives, the most devastating impact it brought is on personal and macroeconomics across the globe.

A report by Business Insider shows that a third of the world population is currently under some form of lockdown.

The biggest lockdown is currently being enforced in India, where 1.3 billion people were ordered to stay inside for 21 days. This lockdown exceeds the size of those that happened in China even at the height of its own epidemic.

Consequently, quite a number of businesses that cannot transit their operations to the virtual model and deliver value virtually using technology have been the most hit this period.

And the numbers have been staggering. I will attempt to embark on a bit of deep-dive on what may be the lot of global citizens as a result of the COVID-19 crises in the coming weeks. This discourse will derive from a survey by Startup Genome following research involving industry actors from about 45 countries across the globe.

Let’s go:

65% of all companies, 34% of Series A+ startups, have less than 6-months worth of run rate:

Cash, they say, is the lifeblood of the business. The survey conducted as part of this research shows that less than 40% of companies across the globe have less than enough cash to sustain them for the next 6 months if this continues.

Ideally, it isn’t really a bad thing if any company doesn’t have enough cash to last it for the estimation of the firm’s future performance based on current financial status.

The truth is that a significant portion of entrepreneurship is the function of faith and doing. The company may survive almost from hand to mouth if the prospects (under normal circumstances) are bright.

In this present case, however, no one knows how long this will last. Many of the present founders, like everyone else, haven’t been through a pandemic too. The two likely ways out: increase sales or cut cost. Since the pandemic has shut down sales, the only available option is to cut costs.

And, the implications are manifold… as you will see below.

74% of startups have had to let go of full-time employees, with 26% of them having to let go of 60% or more of full-time staff

Last week rounded off with a stream of stories of layoffs, possible layoffs and other gloomy news. Recall that IROKOtv, a Nigerian Video on demand (VOD) platform recently announced that it will be cutting the salaries of 49 employees and furloughing another 83 employees in Nigeria.

This was followed by a leaked video that indicated that the Nigerian banking giant, Access Bank is in for a massive staff cut.

The implication of these on the economy will be massive! Many homes will lose incomes. Those who still have will have to support many others. This is not made better by the fact that the easing will be accompanied by pending essential bills (rent, school fees, utility bills etc.)

Perhaps you are wondering which jobs will be lost? According to Austin Okere, Founder, CWG Plc:

“The earliest casualties will be those people that this pandemic has proven that their skills could be done away with without any consequence. The next group will be those who have vital skills but are unable to transit to the new normal of working remotely. We should never live under the illusion that things will ever return to normal.”

By implication, anyone can be affected. As long as your role can be considered as redundant, as long as you cannot be deemed to be working until you show up at an office space, you are not safe!

12% of Companies Enjoyed Revenue Increase by 10% or more During this Pandemic

People, it has not been bad news all around. Some companies enjoyed some growth during this period. The burgeoning sectors are food production and processing, e-commerce, logistics, telecommunications and technology.

Some examples:

Facebook, in its Q1 2020 report, announced that it generated $17.74 billion in revenue. The result bested the $17.3 billion revenue estimated by analysts, following the outbreak of the pandemic.

Facebook announces new privacy tools, #COVID-19 Blues: 74% of Startups Will Have to Layoff Full-time Employees
Facebook generated huge revenue in Q1, 2020

Microsoft Inc also reported a revenue generation of $35 billion, up 15% from the same period last year. Buoyed by the increasing demand for internet-based software and cloud services, the results bested analyst’s forecast of $33.7 billion.

In fact, the almighty Bitcoin witnessed an upsurge to $9,300, its highest since late February.

Government Needs to Intervene with a Well-Designed Funding Policy

The prevailing opinion is that Players in startup ecosystems around the globe have spent far too much time and invested far too many resources to watch the COVID-19 crisis wash it all away.

To avoid this fate, an aggressive emergency policy response is required. According to founders and startup executives that responded to the survey, the top two most helpful policy responses government at every level can provide would be:

  • #1 Provide grants to preserve company liquidity (29% of respondents)
  • #2 Instruments to boost after-pandemic investment (18% of respondents).

This will be especially significant in Africa where foreign investment had hitherto played a huge role in the growth of local economies. Governments can do this by cash injections, tax cuts, lowering of interest rates etc.

It is time for decisive actions and fewer talks. Of course, everyone stands to gain.

Governments stand to make money by injecting six months worth of cash in startups. And, if we assume a negative 10% return on the equity, the cost per job saved will be 41% lower and the economy will have a significant opportunity to leap back.

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