The Year That Was: How startups survived 2020 with resilience, pivots, hope

“Hustle and break things” – a phrase often used to describe the startup life – acquired a new meaning in 2020. The Coronavirus (Covid-19) pandemic, which unfolded in March and continues to depress lives and businesses, forced thousands out of jobs, shuttered start-ups, forced workers to relocate and put a substantial to strain on mental and physical health.

Despite the setbacks, 2020 is a reminder of the undying spirit of resilience. Workers and businesses adopted to the new reality. With survival at stake, firms adopted virtual collaboration tools and trimmed office space, while individuals, who were laid off, made headway with freelance gigs, and some even used the stay-at-home opportunity to re-connect with the family and turn fit.

In the start-up world, the Covid-19 pandemic was an eye-opener. The highly-funded and well-paying start-ups were in fact the first to let go of their employees. On the other hand, those with a strong revenue funnel – like some in the software space – fared better. Investments and M&As, depressed in March-May, forged ahead in the remaining part of the year, while the government’s effort to provide help through fiscal stimulus fell flat.

In all, resilience, pivots and hope were the hallmarks of start-ups in 2020. Here’s a granular look at the macro themes that defined this extraordinary year:

A work-from-home revolution

If there is one take-away from 2020, it is the fact that remote work is possible. Businesses of all kinds – even the ones that deal with sensitive data like the fintechs – tried and succeeded at remote work. The first two months were about figuring out a home-work routine, necessary equipment and a demarcation of work space and home space. Then, the fatigue set in. Workers complained of working ‘all the time’. The third leg, which is currently underway, showed that hybrid setup – when people go to office once in a while or some teams work from office and others remotely – is perhaps the right structure.

The jury is divided on what is the best approach. An online poll by Ixigo founder Aloke Bajpai showed that 49 per cent (of 700 respondents) preferred work from home, while the remainder said it won’t work in the long run and it was time to get back to offices. Another more exhaustive survey by Bain and Co, of HRs, employees and heads in Germany, India and US, noted that half of the people said they were “at least as productive” as they were before the Covid-19 pandemic struck.

To be sure, remote work isn’t available to all, particularly the frontline workers, factory workers, and many service workers. Given this scenario, some businesses unfairly gained from the transition, while others were hurt. All online non-tangible services – video, music, education, e-health, payments, news and communication- recorded an uptick in usage and revenue. On other hand, service lines like travel, hotels, cabs etc were depressed. Oyo, struggling with sales, slashed its hotel network by 16 per cent, while Ola’s revenue dropped 95 per cent in the first two months. Both laid off, or furloughed, several hundreds of employees.

Big Tech under attack – public policy roles in focus

Even before 2020, Facebook, Twitter and Google were in a soup for allegedly abetting political miscreates, and hoarding truck load of data on users. The federalist scrutiny only intensified this year.

In the west, as Facebook CEO Mark Zuckerberg went about appearing before the US Congress, in India, the Competition Commission of India opened an investigation against Google for allegedly abusing its dominant position for promoting its own services. Also, an investigation by Wall Street Journal revealed that Facebook was consciously passive in removing malicious posts and groups related to the ruling Bharitya Janta Party. It led to the departure of Facebook India’s public policy head Ankhi Das, who was replaced by former Carnegie India Managing Director Shivnath Thukral. Parallelly, a border clash with China all but halted activity by Chinese investors and digital firms.

It has become increasingly important to quantify and hedge against political risk, industry participants say. A case in point in the example of WhatsApp, which took over two years to secure a payments license.

Given the tectonic political landscape, tech companies and investors have responded by beefing up their public policy apparatus. For the first time top VC firm Sequoia Capital hired for public policy - veteran journalist Shweta Rajpal. Even small start-ups have hired for policy roles in a bid to push their agenda with the government.

This is particularly important as the government is expected to move forward on key tech policy proposals like the Data Protection Policy, E-commerce Policy and the intermediary guidelines.

VCs didn’t miss the crisis

The maxim ‘never miss a good crisis’ was at display in the venture capital space this year. Even though the Covid-19 pandemic shuttered firms and halted the regular course of work, investments kept a strong trajectory in most of 2020.

In FY20, Foreign direct investment (FDI) gross inflows were $76 billion, the highest achieved in any year, according to data from Care Ratings. Indian companies too, were active in making overseas investment which were around $13 billion. It was only the second year after FY13 of double-digit oversees investments.

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In the start-up world, total venture capital investment in the year stood at $13.4 billion, just shy of $14.2 billion in 2019 but highest in any other year. The biggest VC deal was Reliance Jio's $4.5-billion fund raise from a clutch of investors including Facebook and Google. Byju’s, world’s biggest ed-tech, too raised $1.2 billion in the pandemic year.

It was a classic case of firms in the top tier gaining, and those at the bottom losing out. The Covid-19 pandemic also tilted the scales in favour of digital-product companies, such as Byju’s, BigBasket, Flipkart, Cred, Freshworks, Hotstar, etc.

Stress in the business landscape also promoted consolidation in the start-up space. Reliance snapped up Netmeds and PharmEasy and merged the two to beef up its e-commerce play. While in India there were smaller M&As like Flipkart’s acquisition of Med Mocha, globally 2020 will be known for some of the biggest seen till date, namely Salesforce acquisition of Slack and S&P’s $44 billion acquisition of IHS Markit.

  

Job-cuts, pivots and re-skilling

As businesses shuttered in early March, what began was a blood bath. The year 2020 has seen an unprecedented amount of job-cuts and business reorganizations as firms try to stay afloat.

Ironically, some of the most-funded start-ups cut the most flab. Oyo, Ola, Swiggy and Zomato laid off people by the thousands. Certain others went for salary cuts. Despite business activity recovering in H2 2020, what has emerged is a big pool of employees looking for their next job.

Job loss
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Various analyses on the job market say that workers have taken to freelance projects, which in turn has given a fillip to the gig economy. Freelance graphics artists, writers, products managers, security experts, etc are landing gigs. The model is also favourable for firms which are getting just-in-time talent at lower costs. A section of laid-off workers is also focusing on upskilling though online courses and planning for further education.

Start-ups moved quickly to survive the downturn. When gyms where shut, CureFit started streaming classes on video. Grofers, the e-grocery start-up, launched fashion as a category seeing the spike in sales in the segment. Hotel firm FabHotel re-packaged its offering to position its hotels as work-from-location offerings. Several personal care brands and small-scale sellers also moved to online platforms like Flipkart and Amazon.

Surprisingly there haven’t been any major shut downs. However, analysts say some could be around the corner as consumer spending hasn’t recovered.

“Consumption has been significantly impacted in the very near term and is expected decline by 10-12 percent in this fiscal. Recovery will hinge upon how Covid-19 can be sustainably managed. We estimate that it may take 1 to 2 years to get back to pre Covid trajectory – consumption in 2022 (post Covid) may reach where 2020 pre Covid would have been,” said Abheek Singhi, managing director and senior partner, BCG.

Accelerated digital adoption

With remote work, the adoption of digital tools both at an individual as well as the company level has been unprecedented. The biggest gainers were video conferencing platforms like Zoom, Microsoft Teams and Google Meet, which were used by almost every employee on a daily basis through the Covid-19 pandemic. As an extension, online webinar platforms like Airmeet have also become mainstream.

At an enterprise level, firms across the board have adopted online collaboration tools. Technology solutions were also adopted by super-marts and restaurants for things like contact-less check-ins and payments. For instance, ordering by scanning a QR-code at restaurants is now a given.

Given this, the year has proved to be a stellar one for Saas (software-as-a-service) start-ups. “The tech adoption by companies this year was accelerated, so much so that the it has leap-frogged by two-three years,” said Jayant Paleti, co-founder of HR tech start-up DarwinBox.

It’s also been a break-through year for IT firms. “The pandemic has greatly accelerated the need for companies to complete their Industry 4.0 transformations with solutions that allow them to have more flexibility, visibility and efficiency in their operations. We’ll see an acceleration of adoption of solutions companies look to become more flexibility, visibility and efficiency in their operations,” said Christine Boles, VP, IoT Group at Industrial Solutions Division at Intel.