Startups are taking steps by cutting back on fixed costs and marketing expenditures and diversifying revenue sources in a bid to become profitable while they are planning for extended winter funding. Many companies have shortened their growth plans, and tailwinds for online adoption are helping to produce competitive sales in the short term, as investor pressure rises. Some of the measures helped a few start-ups achieve profitability in the June quarter at an EBITDA level. Instamojo, the technology platform for MSMEs, said it became profitable for EBIDTA in May, with its gross margins jumping from 35 percent to 60 percent during the June quarter.
Sampad Swain, co-founder, and CEO, Instamojo said that by the end of March they undertook several cost-cutting measures. Salary cuts have been enabled for two-thirds of their employees. They even made some negotiations and reduced their office rents and focussed on digital advertising. The pandemic has pushed offline merchants to switch their businesses online, resulting in more sign-ups, with Instamojo now acquiring 1500 merchants a day, compared to 1200 in pre-COVID days, Swain added. Online travel aggregator ixigo, which recently reinstated its staff salaries, re-negotiated contracts with vendors, and cut its digital marketing budget to reduce fixed costs. When travel bookings took a massive hit in April and May, ixigo worked on automation to reduce customer redress costs and boost per-unit profit.
Aloke Bajpai, co-founder, and CEO, ixigo said that COVID-19 has taught them to be more efficient by reducing their costs especially the marketing and operational costs. They were able to retain more than half of their active user base even after cutting their marketing expenditure completely. Investors, who have been pressuring portfolio companies to save cash and concentrate on earnings, claim that short-term wage reductions are not real long-term productivity and counterproductive. Point-of-sale (PoS) solution provider Innoviti Payment Solutions said they concentrated on cost-cutting automation-helping its customer support team fix complaints to the nearest retailer in their locality; and extending existing value-added services to all merchants, that gross margins per PoS terminal.
Growth has taken a clear hit as startups focus on turning profitable. Growth is not feasible in some COVID-impacted markets, therefore there is a shift towards cost control. Anup Jain, managing partner, Orios Venture Partners said that the most important thing right now is to increase the runway. Despite registering profits, mid-size startups including the wellness platform, HealthifyMe, which had an international footprint, are turning their focus back to India.
