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The Silicon Dreams
Impact of coronavirus on startups & Economy
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[00:00:34] Hey There, welcome to the second episode of the Silicon dreams with RJ Shara as we speak markets are definitely in turmoil as Dow entered the bear territory on Wednesday. What is the bear territory? It’s when any index Falls 20%below its intraday high with the volatility induced by coronavirus indexes have been on a roller coaster on Monday. They plummeted by 7% but they regained ground by five percent on[00:01:04] Tuesday and that gave the analyst some hope unfortunately on Wednesday plummeted by another 5% as putting an end to the 11-year long bull market that we have had that has been the longest Bull Run in the history of US Stocks. Now since our podcast is focused on startups entrepreneurs and Investments. Let’s talk about what does this market mean for the startup ecosystem just last week. I was reading an article published by Sequoia capital on medium remember Sequoia[00:01:34] is One of the biggest investment firms in the world. This article was an email that they had written to their portfolio companies. The article was actually published on February 3rd. And in this article that refer to coronavirus as the plaques one of actually began. Now. What is the Black Swan in the world of Finance? The Black Swan event is any event that is Extremely [00:02:04] negative but rare some examples of previous Black Swan events could be the recession in 2008 or the market turmoil that we signed is because I felt like that article was applicable to businesses of all sizes not just startups and definitely not just a sequoia startups in today’s episode. I will talk about what businesses can do to combat the effects of Coronavirus. [00:02:34] And I will talk about this article in particular but along with that I will speak about a few different data points that I feel are very applicable to the situation at hand.
I think it is worth mentioning that people are panicking right now. They are not just panicking for their lives, but they are also panicking about what’s going to happen to their jobs what will happen to their businesses what will happen to their livelihoods will the world slip into recession all of these are valid question. [00:03:04] and I understand folks cannot be optimistic all the time. However, I do want to mention that Panic only breeds more Panic while I understand the importance of planning for the worst. We also should not assume that we are definitely going to keep going downhill from here plan for the worst. But at the end of the day you have to keep marching forward. So just focus on that most startups and Enterprises have already started seeing a decline in their business activity. Well, of course, there are companies that actually stand to benefit[00:03:34] Some situations such as the coronavirus are Corvette 19 as we are referring it to however majority of the businesses are impacted by pandemics. We all know that the virus was built in Wuhan one and Guangdong are two provinces in China which promptly our production houses for the entire world. There is a good chance that there are at least some items in your house that were manufactured in one of these two provinces are maybe they come from And [00:04:04] both of these provinces so it is quite reasonable to see that the supply chain has broken down for a lot of companies and it is going to stay that way for a while because we cannot be absolutely certain when exactly coronavirus will be contained. I definitely feel like there is a lesson to learn here, even though we cannot act on it immediately. I’m pretty sure that after this incident many companies are going to go for elastic Supply chains, which means there would be redundancies in[00:04:34] The manufacturing processes. However, the even not rely on a single country for all their production needs to be honest looking for multiple production sources is not a bad idea. It doesn’t have to be a contingency measure guys. It can be smartly embedded into the business proceedings of any business that is scaling up sure that might mean that you would end up spending a little more in trying to support those multiple production houses.[00:05:04] However, the benefits far outweigh the costs businesses that produce physical Goods have to look at alternate options. You have countries like Vietnam Mexico countries in South America India and so on that are able to support some if not, all of the production needs besides the companies that are producing physically Goods. We also have companies that produce Goods like software. The biggest challenge for these companies is to ensure that the employees are Able [00:05:34] to maintain the productivity that they expect from them even while employees are not traveling to office and they are taking the right precautions right? Because most of the governments are saying avoid public places and which is that one public place that we all end up commuting to every single day. It’s our office. Now those of you who have worked in an on-site offshore model, which is where you have a team here in the US and then you have another team in some other location in the world that’s called an offshore. Your [00:06:04] team these people already have good experience with remote collaboration and work and because the small has existed for decades.
Now, there are many tools out there in the market that would make your life easier when you want to collaborate with each other without meeting each other in person. You have tools like Zoom, which is great for audio video conferencing and the free version of Zoom will allow you to take calls that are 40 minutes long. In fact in the wake of Recent [00:06:34] events. Even Google CEO Sundar recently announced that they are going to allow people to use the pro version of Google Hangouts for no cost and between all the startups that have come up recently. There are just so many tools out there that can easily allow you to collaborate and get your work done. Now if you’re not aware of these tools, of course Google as your best friend, but if you want to ask me a question, then drop me a note at facebook.com/ RJ H. RR dot Biz, that’s ours [00:07:04] har a DOT bi Z or tweet at me at our g-shot Abbas or send me a message on Instagram and I can be found at our G sharp is on Instagram. So continuing with our conversations. Let’s talk about what can the companies do in order to deal with situations like the drop in business activity the disruptions in their supply chain, and also lot of the companies are impacted by the travel bans being imposed. Most [00:07:34] by so many countries across the globe the federal government has already cut reads. It has also decided to inject 1.5 trillion until the economy to help businesses. Stay afloat in the past. We have seen how we can Ami’s react viruses like SARS and zika SARS was at its peak in 2003 and it definitely slowed down the Asian economy. However, in 2004 who declared it as contained and from that point onward there Konami started bouncing back. And [00:08:04] it actually came back stronger. In fact, it was in the Year 2005 when Jerry Yang invested a billion dollars in Alibaba and we all know how that played out or for those of you who don’t know about it. We would probably cover that story in a different podcast episode a similar situation was observed with the zika outbreak of 2015in South America. In fact, when who declared the zika a global Health Emergency in q1of 2016 private Market funding was just 25% of its peak Level [00:08:34] in q1 of 2015. However, the year after the emergency was called off private funding in South America reached a record high of 2.9 billion. So, what we can take from this is that even though the economy might see a Slowdown in near future it will bounce back. However, the question to ask is are you prepared for the slow down? So if you run a company you have to ask yourself, do you have enough cash Runway to sustain the next few quarters given the uncertainties that the market in general is? He’s facing [00:09:04] now.
If we are being very honest and not necessarily pessimist, then we also need to realize that any fundraising that was will be converted might probably not move forward, but that is not the end of the world. In fact, some of the best companies do they were forged in the darkest times. Airbnb Square stripe are more recent examples of companies that were formed during the global financial crisis. Now seems might take a hit, but you can only invest more in marketing in order to reach out to Potential [00:09:34] customers and you also need to focus efforts on ensuring that you are able to retain existing customers by providing them with the best customer service experience. Remember, even your customers are going through difficult times. So if you are able to provide them with a good experience during these trying times you will be able to retain their business for years to come now might also be a good time to rethink any capex and OpenX plans that you had for the rest of the year. Years [00:10:04] and at the same time also evaluate whether your existing opex is reasonable and be honest and transparent with not just yourself and your clients, but also your employees’ salaries are one of the biggest operational expenses. And if you are planning to go through around of attrition in order to regulate your costs better then clicked on surprised your employees. Everyone is an adult they understand the situation Give Them Enough notice to cope with it and have [00:10:34] definitely not in the middle of the financial apocalypse guys the market might slow down. But remember it will bounce back up. There is always light at the end of the tunnel. In fact, if we are being honest and we will accept that a lot of the companies on the stock market were overvalued. The prices were inflated like never before and people were pouring in money like crazy. So don’t let the ups and downs of the stock market and back to you. You have a business to look forward to you have to constantly Only keep [00:11:04] thinking of contingency plans because if not coronavirus and you might have to react to something else tomorrow. So keep your head up high and keep your mind in the right place because opportunities are not born in a booming economic Market rather opportunities are created. So instead of focusing your energies on things that you can’t control route those energies to create opportunities for yourself and enable your business with that note. This is me RJ Shara signing off until next week. Week [00:11:34] Don’t Be Afraid guys keep marching forward and we will see you soon.