The startup scene of Bangladesh in the throes of Covid-19

The novel coronavirus outbreak has been pervasive, intense and detrimental to the economic wellbeing of Bangladesh. Though the country had been experiencing significant economic growth in recent years through its vibrant economic activities, the optimism with which a bright future for Bangladesh was envisioned is waning in the wake of the pandemic.

It is crucial that the Small & Medium Enterprise (SME) particularly, the startups of Bangladesh, are not decimated by this outbreak. In this country, the economic downturn and financial losses accrued to SMEs and nascent businesses owing to Covid-19 are not covered fully or partially.

SMEs, and more particularly, the startups that were lauded by the private and public sectors alike for their impressive forays into new areas of wealth creation, and predicted to be the future economic powerhouses to the nation, were left completely by these deliberations. Despite the institutional attention (that was publicised), it was easy to assume that the startups would be hit hard.

Research may provide some insights regarding the financial crisis that such firms are going through due to Covid-19. Though there can be some limitation of the study. To that end, Brac University's (BracU) Centre for Entrepreneurship Development (CED) undertook flash research with the collaboration of Startup Bangladesh – conducted in between 30 April and 20 May 2020, the period of heightened lockdown – on 50 startups mostly Dhaka based assessing the deleterious impact of the ongoing pandemic.

The Business Incubation Centre (BIC) of  BracU run by CED was in a unique position to conduct the telephonic survey owing to their experience with startups, and of acquaintance with a startup network which responded with fidelity to the research queries that were placed before them. With a brief but effective questionnaire scheme, the survey was done conforming to the protocols of flash research. Here are the salient findings of the study.

Revenue status during Covid-19

According to the survey, approximately, 44 percent of the respondents reported that their revenue had fallen due to order cancellations and indecisive buyers who withheld order placements, 41 percent respondents confirmed that their revenue dropped by more than 50 percent,  whereas 96 percent of respondents claimed that they have not received any compensation when the order was cancelled.

Consequently, 33.3 percent of the enterprises were involved in export and among them, 96 percent of respondents' orders were cancelled and no compensations, from the customers' end, that could be obtained.

Expenditure status during Covid-19

The study reveals that at least 31 percent of the startups fully stopped their operations due to the lockdown, and 37 percent operated their functions from home-office. Among these entities, 15 percent of enterprises were not able to pay their employees in the first month of lockdown.

Conversely, they are projecting or already had decided to lay off their employees for cost optimisation. Additionally, 69 percent were unable to pay interest on their loans.  Fixed costs and salaries were impossible for the businesses to cover in the coming months, the respondents asserted.

Sector-wise gap analysis

The finding depicts that around 71 percent of the total respondents are from the service sector; the rest owned manufacturing units. Responses towards crisis management differed sector-wise.

The natures of operation, labour and capital intensity, and emphasis on consumer behaviour create a divergence between these two sectors. About 75 pecent of the service businesses (among the respondents) changed their business model, which is 15 percent higher than the manufacturers.  

Effects of lockdown

Assumptions of longer periods of lockdown meant that the businesses would deplete all working capital, and the dried-up cash flow would surely result in the shutdown of the business in a few months.

Operating expenses

The pie-charts titled as "Operating Expenses" portrayed above shows that manufacturing startups were facing difficulties to pay their employees and workers, while the service businesses were ahead in clearing the payroll of their employees and workers.

Low operating cost, no usage or low usage of raw materials, online operation facilities, less labour and capital-intensive setups make room for service-based entrepreneurs to run the payroll system in April 2020, the second month of lockdown.

Unfortunately, both of the segments were planning to or laying off their startups, though the ratio of the layoff, or about to layoff, is lower in the service industry.

Probability of grant and fund receiving opportunities (sector-wise) 

A total of 10 percent of the respondents from the manufacturing industry confirmed that they got a waiver for their loan interest due to the stimulus package offered by the government, which was absent in the service segment. Such packages will help them survive in this crisis moment.

Many areas of the service sector are not included in the stimulus package list. As a result, the manufacturing enterprises are still in a better position compared to the service sectors. The pie-charts above graphically elucidate the points.

The Outlook

As the government makes significant interventions in response to the coronavirus crisis, the businesses are also concurrently adjusting to the changing needs of their customers and suppliers, while navigating the financial and operational challenges of paying their employees and keeping their operations afloat.

Over time, the economic impacts of Covid-19 will prove to be costlier than expected, but some untapped opportunities may be opened up due to the changed consumer behaviour, and reprogrammed business operations.

Changing business models may also lead to innovation as well as new entrepreneurial activities within the startup scene of Bangladesh.

Comprehensive area-wise surveys may give us a clearer picture revealing a more accurate effect of Covid-19 on startups.

As this study was conducted on a limited number of startups based on two incubation centres,  further in-depth research is required to inform the government and non-government organisations that may help the government develop needed policy to support the startups, and make other stakeholders interested in sustaining their businesses.

Afshana Chowdhury, Deputy Director, Shamim Ehsanul Haque, Senior Research Fellow, Md. Mofazzol Karim, Assistant Program Manager and Sabrina Nourin, Research Associate at Centre for Entrepreneurship Development (CED), BRAC University, Communication: ced@bracu.ac.bd