Turning crisis into opportunities

At the business conference Technologication, hosted last week by PM.HUB, our Investment Manager Elena Mazhuha told how Genesis Investments portfolio companies turned crisis into opportunities and how the fund itself has changed its investment strategy.

Technologication Business Conference, PMHUB, 2020

After the conference, in her article for MC.Today, Elena shared her ideas on how a business can find investor's money in a crisis and mentioned important points that the VC's began to pay attention to. In her speech for the Technologication, she talked more about innovation in crisis.

Some COVID-19 driven trends

This spring COVID-19 pandemic shocked the world: big media outlets produced articles with forecasts, statistics, and horrifying headlines about infected people and the dire economic impact of the pandemic. More than 14 million people have contracted coronavirus (only confirmed cases), and more than half a million have died:

WHO Coronavirus Disease (COVID-19) Dashboard, Data last updated: 2020/7/21

Besides these disheartening statistics, COVID-19 affected the lives of millions of people in different ways too. In the course of the pandemic, some new trends have emerged:

  • Online shopping. McKinsey survey shows that 75% of online shoppers, who made their first online purchase during quarantine, decided to continue ordering online after the pandemic. In addition, online B2B sales will be a huge thing in the future — 66% of decision-makers say their businesses will continue to sell through online outlets.

  • Household budget spending.  It decreased by 5-10% depending on the level of family income. This decline is pretty much organic because it happened mainly due to the fact that people do not travel, do not eat out, and do not do a lot of shopping and entertainment.

Trends emerged in the course of COVID-19 pandemic, McKinsey, 2020

  • Remote lifestyle. Not only individuals have predominantly gone online and remote, but also musicians, artists, governments, and big businesses. They were forced to transfer all their activities online — from team meetings to large sales deals.

Paradigm shift, triggered by global online transfer 

This switch to remote life has triggered a huge paradigm shift in the minds of many people around the world. They were forced to look at the studying and working opportunities from a different perspective, to change the pace of their career development, to switch children to homeschooling, and maybe even to start their own business purely online.

And these online shifts caused some cost savings — not only for individuals and households, but also for businesses. For example, some of our portfolio companies have decided to switch entirely to a remote job, make sales without traveling, and save money on all officeholding and relocation activities.

➕ The positive side of the pandemic is that it forced managers to make decisions and take actions very quickly. Companies admit that without such extreme conditions, a similar process for them could take a much longer time to happen. Also, the situation has forced many people to use new technologies and software.

➖ The negative side of the situation is all about stress and mental breakdowns. Media activity, panic, and high speed of changes led to numerous burnouts. Many people began to experience anxiety, uncertainty about the future, and fear. This has caused an upsurge in the demand for mental health services.

During the pandemic, all of us had many questions about our health, families, budgets and businesses. It was important to adapt and find immediate solutions, and now it is equally important to draw conclusions for the future. 

The 5 cases of our portfolio companies and our fund point out at a couple of lessons that we can learn from this situation to avoid severe stress due to the next pandemic or crisis.

Case 1:  New product launch brought 6x revenue growth

Our EdTech portfolio company launched a new product during the coronavirus quarantine because they needed to create an additional revenue stream to grow faster. Between April and May 2020, the new product's profit has grown sixfold. This decision was not made from scratch — first of all there was a market force that made the founders think about such a product a long time before the pandemic started. And secondly, this startup already had this solution on its product roadmap with ready-made sketches and promotion plan. That's why they were able to launch it so quickly and enjoy the result even in the extreme conditions. The lesson here is simple: you need to know your market, listen to your customers, and develop solutions that can be launched at any suitable moment.

Case 2:  Bureaucratic issue turned out to be a chance to improve

Another portfolio company has postponed its marketing activities due to bureaucratic barriers caused by the coronavirus pandemic. Founders encountered problems with access to their cash and their marketing expenditures plan failed. People who could help them did not have access to the office because of quarantine, so the issue solving was paused, and our startup was left without access to its money for an uncertain period. The founders did not give up and acted according to the product development roadmap: they focused on mobile optimization, improved algorithms,  and launched new features. When the team finally got access to their money, they implemented their marketing plan to promote a much better product than they had before. This is another example of how a company used a pre-built roadmap. In this case, they implemented it not exactly when it was planned to do so, but when there was a suitable opportunity to devote to it as much time as possible.

Case 3:  The power of the relevant network 

The third case is the most widely spoken about in media outlets — even the European Sifted mentioned it in Startup's Initiatives article. In the midst of quarantine, our portfolio company Liki24 partnered with Uber, Ukrposhta, and other companies to deliver pharmacies to the remote corners of Ukraine for free. Beforehand, they already had in mind that they could contact these companies, but when pandemic came, these ideas very quickly and to the point came to reality. The main lesson remains the same: you should have different plans in your pipeline and prepare in advance. Moreover, you should build a relevant and warm network of contacts, especially if you are a B2B business. When the right opportunity arises, you can successfully implement what is most appropriate for the situation.

Case 4:  Competitors' weak budget and 3x profit increase

Our next portfolio company from the Mobile Apps segment enjoyed ROI after increasing their marketing budget. The team noticed that the Customer Acquisition Cost on Facebook became lower when many competitors reduced their marketing expenditures. Startup's decision-makers planned their new campaign carefully and were psychologically ready to spend much more money than before. As a result, they got a 3x increase in their monthly subscription revenue between April and March — it proves that an opportunity was used very reasonably. And again — that's great, that the team was ready in advance.

Case 5: No budget cuts and more precise focus

The final case is a story of what happened with Genesis Investments over the past few months. In fact, when the quarantine policies came into the effect, we thought that we would need to cut the investment budget and close fewer deals in 2020. But watching the situation as it evolved, we decided to stick to our initial budget and number of deals planned for 2020. 

We decided to focus more on  founders and companies with very good planning and forecasting skills that have the potential to become very profitable in the nearest future. One of the strongest signals of the company's future profitability is a positive unit economy. Also for us it's vital to know if the profit generated by one сustomer covers the cost of attracting this сustomer. We look for self-sustainable companies that are well prepared for various business scenarios. Cases show that being prepared in advance allows decision-makers to find effective solutions even despite the pressure of unpredictable surrounding conditions. That's exactly what we expect to see in our future portfolio companies.

Some important lessons for us to keep in mind for the future crises and pandemics:

1) Train planning and forecasting skills. This applies not only to startup teams, but also to individuals separately — we all must learn to plan very effectively, have several different strategies and never rely on Plan A alone.

2) Practice controlled anxiety. In any situation, imagine what will happen if everything goes wrong. Think about how your decisions affect the final result and imagine how it feels to take a wrong path. Realize impending consequences and plan who will you contact first if this happens. Your business is constantly in danger in the market and working with this in mind all the time might be stressful.  Nevertheless, practicing different outcomes of situations in your mind will help you to better prepare for taking real actions.

3) Don't rely on someone else's  money.  You should spare money wherever you can. Don't rely on successful fundraising only. Don't think that you will end up in a market full of money. Just keep in mind that the chances for all that happen are low enough, and make establishing a self-sustained company one of your highest priorities.

4) Be prepared for a crisis. Remember that the economy fluctuates. Crises are very cyclical and if you look at the statistics, you will see that crises actually happen every 5-10 years:

Moreover, it takes more than 7 years for every successful company to achieve a so-called “liquidity event”, which can be either IPO or merger/acquisition. Since it takes 7 years, every successful company has gone through at least one crisis. We've never heard of Google or Facebook making the drama of the recession, and hence a really successful company should be ready to overcome it. When decision-makers remember that crises happen all the time, they have time to carefully plan actions.

5) Remain positive. Emit confidence and calm instead of seeding stress and depression. It is especially important if you are a top-manager or team leader.  If things go wrong you have to admit that you have certain difficulties at the moment and ask your team to help you solve these problems. Don't forget to support them and communicate that you really perceive your team as a bunch of the best people in the market.

The full Technologication Even Recording is available on PM.HUB YouTube channel. Click on 2 hours 40 minutes timecode  to jump directly to the Genesis Investments speech section.

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