Startups trade near-term pain for customer loyalty in pandemic

Singapore

COVID-19 may have sent businesses scurrying to hoard cash, but some startups are willingly taking a hit to their revenues by rolling out relief measures for enterprise clients and partners.

These startups told The Business Times that their measures, such as fee waivers and discounts, will help to retain clients. Some were silent about how they would fund the initiatives, but most others are relying on budget revisions or fresh funding to absorb the financial impact.

Artificial intelligence (AI) sales assistant provider Saleswhale, for instance, is offering its enterprise clients in the hospitality, aviation, events and education sectors a complete waiver on fees for periods of between three and six months.

"For us, it's about being a good long-term partner to our customers in times of need. We have made the executive decision internally to trade off fees to focus on retaining as many customers as possible by supporting them through 2020," said its chief executive Gabriel Lim.

Saleswhale has budgeted for the resulting hit to sales. When the virus began to spread globally in late January, the startup pulled back on hiring and expansion, revised forecasts, and shrank budgets, allowing it to absorb the financial impact, said Mr Lim.

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Some other startups have entered the downturn with fresh funding in hand, enabling them to quickly react to the Covid-19 outbreak with relief measures.

For instance, Malaysia-based used car platform Carsome has waived 50 per cent of handling fees for car dealers in Malaysia, and also introduced low interest rate inventory financing for dealers. The startup has implemented similar measures for dealers in Indonesia and Thailand.

Carsome had raised US$50 million in debt and equity last December, giving it some breathing room to roll out the relief initiatives. "On top of that, we have always observed a tight control on payment terms and our commitment towards regional business profitability," said its chief executive Eric Cheng.

He sees the discounts as being worthwhile given expected growth in the used car market amid a downturn. By helping its dealers stock up on used cars in advance, Carsome hopes to win their loyalty.

Energy management startup SensorFlow is operating on a similar philosophy. The startup is adjusting its billing model for hospitality clients, moving from a fixed monthly fee for its wireless energy management system to a new "floating" model, where it will instead take a cut based on the hotel's energy savings each month. "By doing so, we expect to see not just a higher level of retention amount existing clients, but a higher demand for our solution as well," said SensorFlow's chief executive Sai Ranganathan.

Like Carsome, SensorFlow has recently raised fresh financing from investors, giving it the bandwidth for such a move.

Some startups however have shied away from the question of how they will fund their relief measures.

For instance, human resource tech platform Swingvy told BT that it is offering all new clients six months' free access to its product, but declined to comment on how it will fund the initiative.

Others would only say that their product is inherently economical, such as cyber security startup Horangi, which is offering two enterprise solutions for free for six months. When asked how it will fund the initiative, the startup said that its cloud-based software taps into serverless technology and can be scaled cost-effectively, but did not elaborate further.

Startups may mean well in rolling out relief measures for other businesses, but the question of how they will finance the measures is still pertinent. To top it off, these loss-making companies need to factor in the existing impact that Covid-19 will have on their businesses.

Acknowledging this reality, Fave chief executive Joel Neoh said that his startup balances between spending on merchant initiatives from its own funds, and managing its budget efficiently .

While it has set aside funds to subsidise some of the cost for merchants during this time, it has also made plans for an inflow of sustainable revenue for the services that it provides to merchants, Mr Neoh said.

The goodwill that arises out of these relief measures can be beneficial. For startups that have mostly relied on an asset-light model to grow fast, gaining the trust of their network - be it merchants, riders or corporates - is key to its business, said Tan Yinglan, founding managing partner of Insignia Ventures Partners.

"While these initiatives make sense from a retention standpoint, they are also inherently beneficial for the ecosystem at large, and can encourage other players to do the same," he said.

Mr Lim of Saleswhale echoes this, pointing out that it costs six times more to acquire a new customer than to retain a customer. "Having a customer paying you $1 or even nothing in these tumultuous times is better than losing the customer all together," he said.

"This crisis won't last forever - whether it's six months, 12 months or 18 months. When the crisis ends, you have a book of loyal customers that can start to pay you full-freight again. Isn't this better compared to having to rebuild the book of customers from scratch?"