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India shows startups' adaptability amid devastating COVID wave

Companies remodeled strategies during the first wave, entered the second stronger

Funeral pyres for COVID-19 victims in New Delhi on April 26. An accelerated digital transformation may bring online startups better growth opportunities than predicted under the second waves of infection across Asia.   © Reuters

TOKYO -- India's second wave of the COVID-19 pandemic has turned out to be far more devastating than the first in terms of the numbers of patients and deaths. Yet some startups are demonstrating the striking resilience they succeeded in building during the first wave last year.

Ritesh Agarwal, founder and chief executive of Oyo Hotels and Homes, one of the major Indian unicorns -- startups valued at $1 billion or more -- became a little emotional when he revealed that some of his co-workers at Oyo and franchisee hotel owners have passed away due to COVID-19.

"If it were two months back, I would have said my restructuring decision I had to make last year was the hardest experience during the pandemic. But in the last two months, we have had unfortunate losses in the second wave. I know many people around the world have lost their loved ones, but when it hits your own, you know, it becomes very real. That was the hardest moment," Agarwal recounted, speaking online on a panel session at Nikkei's Future of Asia conference on May 21.

Oyo's financial performance, however, seems to be faring better in the second wave.

When the first wave hit India in the spring, Oyo's gross margin rapidly dropped by 66%, and it started to bleed cash. Agarwal then decided to initiate emergency mode, in which the entire company focuses on "cash, cost and care," he said.

He focused on India, Southeast Asia and Europe as the three strategic markets, and scaled down in terms of the numbers of hotels and employees in China, the U.S. and Latin America. Those three focus markets already had better gross margins before the pandemic broke out.

Oyo founder Ritesh Agarwal speaks at Nikkei's Future of Asia conference on May 21. (Photo by Koji Uema)

He also decided to simplify Oyo's franchise contract menu into a single revenue-sharing model, getting rid of the minimum revenue guarantees that had caused many disputes with franchisee hotel owners.

Currently the total number of rooms in the Oyo franchise network stands at roughly 1 million, down from the peak of 1.2 million in December 2019, according to the company. And some of those 1 million rooms are on pause due to the pandemic.

This was a significant departure from the hyperspeed growth Oyo had been known for, but it enabled Oyo to enter the second wave with a more stable gross margin base and slower cash burn.

"We use the pandemic crisis to improve franchisees' and travelers' satisfaction. We are reinforcing talents where necessary, like in technology or human resources. We are using this downtime to redesign the company," Agarwal said.

In resonance with Agarwal, Teruhide Sato, founding chief executive of Singapore-based venture capital firm Beenext, pointed to the importance of creativity and agility in weathering the crisis and even taking advantage of it. In his portfolio, which centers on India and Southeast Asia, companies that made "flexible moves to repurpose products and services to match the new norm have not only survived the crisis but are thriving," he said.

One Indian example he cited is Bangalore-based NovoCura Tech Health Services, which operates a major telemedicine service dubbed Mfine. In the early stage of the first COVID wave, it added a cough checker to its mobile app, in which AI analyzes the sound of a patient's cough and suggests diagnoses to doctors on the other side of the session.

People wondering if their cough was a COVID-19 symptom but afraid of visiting a hospital rushed to Mfine, resulting in an increase in users of a few million.

Another example of a successfully repurposed business platform was shown by Bangalore-based Trell Experiences, which operates a local-language, mobile-based social commerce platform named Trell. The company was trying to catch the wave of sharing fun short-form videos last summer after the hugely popular Chinese app TikTok was banned in June, but it was not very successful among deep-pocketed competitors.

Then the team decided to switch their main business model to a social commerce service, in which so-called influencers post short videos of shopping advice and viewers can then buy the products shown. It caught attention of those who were staying home but eager to go shopping.

The accumulated total downloads of the Trell app has topped 100 million, with monthly active users reaching roughly 45 million today.

Sato pointed out that the pandemic "clearly fast-forwarded digital adoption in almost all sectors. Internet used to be a sector, but now it is an economy." He also said this acceleration of digital transformation has led the cost of customer acquisition to "dramatically drop" and enabled some his portfolio companies turn profitable earlier than planned.

As a result of that accelerated digital transformation, growth opportunities for online startups may prove better than predicted under the second waves of infection across Asia. Then the same agility and flexibility that worked in weathering crisis will certainly be effective in catching those opportunities after the pandemic.

"All entrepreneurs need to be cautious, of course. But also keeping an optimistic scenario in mind and having options ready at hand will be very important exiting the crisis," Sato said.

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