South Africa’s coronavirus-induced lockdown has left its mark on companies, both big and small.
The pandemic dealt a final blow to an already struggling SAA when it halted international and domestic travel, and has forced small businesses around the country to lay off employees, cut salaries or shut down.
But what effect has Covid-19 had on South Africa’s burgeoning startup ecosystem? Conversations with startup founders suggest it depends on the company.
Greg Chen, chief executive of Mobiz, a marketing startup that enables companies to target users with personalised mobile campaigns through SMS, said the pandemic has yet to disrupt the company’s business.
He said that because of the company’s flexible platform, their clients have been able to shift messaging campaigns rapidly to respond to Covid-19.
“I think brands understand that even though you can’t do business immediately, it doesn’t mean you have to stop talking to your customers, because that’s the worst thing you can do,” he said.
Many South African companies learned important lessons about communicating with their customers by observing the 2008 financial crisis in the United States, according to Chen. Companies that maintain consistent communication with customers during a crisis have a better chance of bouncing back after the crisis.
SMS is ideal for maintaining a channel of communication with customers, Chen said. He noted that since many South Africans are not working during the lockdown, they aren’t likely checking email, so SMS is the most effective way to keep contact with customers.
Although Mobiz added new clients in the early weeks of the pandemic, Chen said a persistent pandemic could be damaging to the long-term health of the company.
“If [the pandemic] happens for much, much longer — three, six, 12 months — there is not going to be any consumers and, therefore, there’s not going to be any businesses, so there’s no more B2B for me to do as well.”
For now, Chen said the company is “luckily” still growing, and that strong relationships with their investors leave him confident Mobiz will weather the Covid-19 storm.
Digemy, a startup that produces online education modules for businesses, has taken a different approach to navigating the pandemic.
Kobus Louw, the founder and managing director, said the ed-tech startup’s first business-to-consumer product in response to Covid-19 is an online learning platform in the form of a game to help users understand and protect themselves from the virus.
Digemy’s online lessons focus on building and retaining knowledge among users. To do this effectively, Louw said, the lessons first measure a user’s “perceived knowledge”, the knowledge users think they have, versus their “base knowledge,” their actual knowledge.
This allows Digemy to tailor lessons to individual users, something Louw said is particularly useful with the Covid-19 platform.
“We can identify what people think they know about the virus, and what they actually know about the virus, and we can identify the risk and then do something about it,” Louw said. “Organisations can use this platform as a risk management tool by using knowledge management as risk management.”
From a business perspective, he said Digemy is in decent shape. While many of their current clients are putting projects on hold, Louw said the pandemic demonstrates a need for schools and companies to begin to adopt online learning tools for the long-term.
“The … post Covid-19 world looks great for us,” Louw said. “We just have to negotiate a few stormy seas in the short term.”
Other startups such as SmartSentials, an online grocery store and delivery service that works in the business-to-business space in Johannesburg, have faced difficulties while trying to scale-up their businesses during the pandemic.
Managing director and co-founder Lebohang Likhojane said the startup has not been able to raise the capital to pivot into business-to-consumer grocery deliveries, an industry that could thrive during the pandemic.
The big challenge, Likhojane said, is that many of the company’s current corporate clients pay on a monthly basis, leaving SmartSentials strapped for cash at certain times each month. This means the company doesn’t have the capital to service large waves of orders, because it doesn’t have the cash to buy the groceries they would be delivering.
He said that raising capital from an outside investor would help mitigate these cash flow problems and allow SmartSentials to expand its business.
Keet van Zyl, partner and co-founder of Knife Capital, a growth equity investment firm in Cape Town, echoed this sentiment. He said “immediate cash flow” was one of the primary challenges facing South African startups amid the pandemic.
Van Zyl added that venture capitalists “need to now consider keeping a bit more ‘dry powder’ investment funds behind to continue backing current investee companies with solid business models that may need additional funding as a result of Covid-19”.
“There will also be some good investment opportunities emerging from this crisis,” he said. “So in evaluating companies to invest in currently, one needs to consider the effects of Covid-19 on the business, as well as its action plans to survive, re-imagine the business model and thrive in the aftermath of Covid-19.”
In the short term, Van Zyl said “startups will really just need to extend their runways” and prepare for the difficulty in raising capital in the next three to six months.
“Startups in many sectors could be in a great position to thrive,” Van Zyl said. “They are nimble, innovative and quicker to adapt to the new normal and have a low cost base [compared to corporates].”
Jack Kelly is a graduate journalism student at Northwestern University in the United States. He visited South Africa as part of his studies