How to jumpstart a startup

I’m not sure about these real estate predictions, about how values and leased spaces will hold up, because I also get a lot of consult from the lessee side on the validity of a permanent flexible workforce arrangement, paying people based on deliverables rather than time, how to make employment contracts consistent with new rewards and compensation policy, and how data consumption at home can be charged as company expenses. To state what they don’t directly say, many employers are seeing cost efficiencies and increased productivity in making their people work from home.

It’s like a tech startup’s business model of crowdsourcing, operating without an office for people. Except that in the case of traditional business models, it’s better because the current base of employees need not go through a virtual hiring process, they are quality tested, and their productivity can be benchmarked against previous performance. Thus, the only pieces missing in the “crowdsourcing model” where the crowd is paid based on results is the system and the behavior. The first casualty could be the traditional need for office space.

I now segue to our main share this Sunday about how to heed our tech startups that enabled our businesses and improved our quality of life, via ride-hailing apps or real estate sharing or otherwise, pre-pandemic, in a major way. Startups ride on pain points like kicking wild horses that they tame and train to run races for epic wins.

Just before the onset of the quarantine, in February, PwC partnered with the Department of Trade and Industry (DTI), QBO, IdeaSpace and the Management Association of the Philippines for a startup event at the Tower Club to share data from the latest startup survey. The event was brimming with great shares, crowd participation, livestreaming experience, wine toasts all around, mask-less intimate conversations around the hockey stick performance of several startups’ revenues. All upbeat, all no-way-but-up, and then COVID-19 happened.

All of a sudden, that February survey became obsolete. During this pandemic time, another survey was conducted by PwC, with DTI, QBO and IdeaSpace. It disclosed that 60 percent of the tech startups were reeling from the revenue impact of  COVID-19 and less than 20 percent of them have enough cash to sustain their business for the next 12 months. They are enablers, in areas of automation, e-commerce, and fintech, but they have immediately been handicapped along with businesses they serve that were disabled by the quarantine.

All MSMEs need support, and a huge stimulus in the hundreds of billions is being made available. But our tech startups, our game-changers, since there are only less than 500 of them active, deserve a dedicated fast lane. They are not brick-and-mortar businesses but the return on government stimulus for them will have a high multiplier effect. They have lean structures, are highly skilled and agile, making many of these startups good bets.

There is Investagrams, the stock market investment and trading tool that got hit when the Philippine stock market crashed by around 50 percent in early April. They had to reduce their workforce and work days. With founders not receiving salaries, they revamped their products during the ECQ, and even introduced the global stock markets to Filipinos to give them more options. There is Insight Supply Chain Solutions that shifted from serving multinational companies to serving government agencies such as USAID, Department of Agriculture, and the DTI by crafting an integrated digital agri supply chain platform. Yet they, too, reduced the compensation of agreeable and sacrificing employees by as much as 80 percent. There is Style Genie, a personal styling subscription business that quickly pivoted during the ECQ by launching GrocerGenie, an online grocery marketplace that delivers groceries to people who cannot go out.

Startups feel they can easily normalize operations but more than 60 percent of them say they need five million pesos in funding to address the new normal requirements after the ECQ. The thing is, it doesn’t have to be loans only for the startups, and the DTI can have a big role to play.

For example, the DTI can help find MSMEs that need help in digital transformation to survive and find the startups that can enable that. Then, the DTI can subsidize the cost of these tech services for MSMEs hitting two birds with one stone.

The Startup Grant Fund provided in the Innovative Startup Act (RA 11337) should give grants even to existing startups that are essentially starting again in COVID-19 time. The Special Venture Fund in the same law should be activated to help entice investors by lessening their risks. Under the law, the government fund can match their investment, thus reducing the private investors’ exposure to half.

Loans to startups can also be subordinated where amortizations including interest can be based on income earned by the startup. Amortizations need not be due without the income.

True, the spirit of the startups is their greatest asset. They dream and live their dreams,  pandemic or not. We can choose to watch them and hope they survive the quicksand. Or we can throw them an urgent lifeline, strong enough to tame the wild horses of change in a post-pandemic race, where the rest of us try to find our own footing in a new normal.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the Chairman of the Integrity Initiative, Inc. (II, Inc.), a non-profit organization that promotes common ethical and acceptable integrity standards. Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.