COVID Reflections is a series by Capillary’s CEO & Co-founder Aneesh Reddy where he shares the challenges faced by the company during the COVID pandemic and how Capillary dealt with them. We hope the learnings will give other founders and businesses the courage, hope and resilience to navigate this crisis successfully. This is the 3rd post in the series, read Part 1 and Part 2
I previously spoke about the downside of being a cash positive business during a crisis, the impact of Covid-19 on Capillary, and the hard calls we had to take to stay afloat. This will be the last post of the series and I wanted to wrap this up by sharing some of the things that leaders can do to ensure everyone involved with the business is treated well.
Keeping your team going
A pay cut and a deferred bonus after what was a pretty transformative year is not what you expect as a team. I felt it was really important to have constant communication with the folks and give them updates about the company and the overall business outlook. We have run 50+ all hands, one every week for the whole company and an all-hands with me in smaller groups of 15 – 20 Captains over the last 3 months. On Zoom, we have had a 75%+ attendance on an average for the all-hands, we never saw such high attendance even during the physical town halls! We have had the pleasure of having Rajan, Alok and KK addressing the teams over the weeks and sharing their experiences from past recessions and what the breakout companies did differently. We did an employee NPS survey in Jan and another one at the end of April – to our surprise, our rating was better in April than in Jan! It’s been amazing to see everyone rally together to navigate these tough times. We had to enforce a no-meeting lunch hour, remind people they can take leaves and decline meetings during WFH. We are now announcing a 4-day company-wide shut down from July 2nd to July 5th to give everyone some forced downtime!
Doing the right thing for your customers
Given that our customers have been badly hit by the Covid-19 crisis, the first response could have been to avoid any communications for the fear of dealing with discount/renegotiation requests. But we chose to do the exact opposite and offered a 4-week fee waiver spread over the year to all customers who were impacted by the lockdowns. We have spoken to every customer at least twice a month, shared data on our learnings from China and built a WhatApp CRM-Commerce product similar to WeChat CRM-Commerce that worked in China even during the lockdowns. We are currently charging for this solution on an outcome linked basis. We have extended payment terms for every customer. We have also offered some of our other products (especially our ecommerce stack) on an outcome linked pricing and are helping customers to go-live with an online store in about 4 weeks.
Treating vendors well
Unfortunately in India, vendors get squeezed the hardest during an economic crisis, and being a B2B company ourselves we felt the pinch here as well. All finance folks feel they have an unsaid KRA of holding money for as long as they can, I wish this changed in India. When the crisis started in March, our first response was to hold back payments and we did; it’s not something I am happy about but I don’t think we had an option. In April we prioritized clearing the payments for all our smaller vendors. The larger vendors were paid in May and June as our cash flows improved and the funding also came in. We are now at a normal to slightly stretched 60-day cycle. I must thank our cloud providers, system integration partners and SMS providers for being patient with us. Again, I think it’s important to have honest and transparent conversations with vendors and give them clarity on whether you can pay or not. The worst thing to do is give wrong payment dates and upset their cash flow planning or worse, just avoid taking their calls. I still think Capillary needs to improve in this aspect.
Where are we now?
It’s been good to see things coming back to normal. On an average most of our customers are at ~50% YoY, our Chinese customers are at 95%+ YoY. While the data is optimistic, I still believe that the new normal on an average across Asia is probably going to be 85%. Our May and June cash flows have been at 80% of normal, and we have decided to pay out the FY20 employee bonuses with the June salaries. We hope to reverse the pay-cuts in the July quarter as well. We are likely to sign-up as much new business in this quarter as we signed up in OND 2019, and we are taking as many customers live as we normally did. Considering the ground we have covered, I also feel Capillary stands a good chance at being cash positive for the remaining three quarters of FY21 as well.
I think it would be prudent to wait for another quarter before saying that we are out of the woods, but I think we can all safely say the worst of Covid-19 is behind Capillary. I definitely think we have been fortunate to have avoided descending into the downward spiral of doom, but as the adage goes – fortune favours the brave. Also, one post facto realization – it’s better to take the hard calls early and prepare for a worst-case scenario in unpredictable times, rather than living in constant stress and uncertainty and reacting to every negative news. I feel you think with more clarity when you have a reset and not stressed about every negative trend that comes out. I think we moved fast and moved hard and it helped us to channelize our efforts in doing the best we could for our past and current employees as well as our customers.
COVID Reflections is a series by Capillary’s CEO & Co-founder Aneesh Reddy where he shares the challenges faced by the company during the COVID pandemic and how Capillary dealt with them. We hope the learnings will give other founders and businesses the courage, hope and resilience to navigate this crisis. This is the 2nd post in the series, read Part 1 and Part 3.
In my previous post, I spoke about how being cash positive can become a double-edged sword for businesses during crisis situations and how the lockdowns meant low cash flows, which in turn drastically reduced our runway. In this blog, I wanted to share what we did to deal with this situation and the aftermath of it.
Once we decided to reset costs to a worst-case scenario, the first thing was to create a plan around it. We got help from Saiki at xto10x to put together a worst-case plan. Even after delaying the usual bonus pay-outs and vendor payments, we needed to cut costs by a large percentage to bring our cash burn to a point where we could extend the runway to 3-4 quarters with our existing cash reserves. We had three options :
- Take an outsized salary cut – ask vendors to take an outsized cut, and wait for things to recover
- Take a sustainable ~25% salary cut, put a large percentage of the team on furlough/ leave without pay and take them back when things recovered
- Take the hard calls now – take salary cuts to a level that is reversible if business recovered to 75%+ levels, and get the rest of the savings from letting go of employees and vendors you couldn’t afford.
After some serious thinking, we decided to go with Option 3, which meant we needed to take the hard calls now. Our decision was made based on the analysis of current market scenarios and probable recovery period :
- Our higher exposure to offline retail and to markets like India and the Middle East which weren’t in the pink of health even before Covid-19 hit. Early recovery in these markets seemed highly unlikely.
- If we had gone with Option 1 or 2, this delayed recovery would have resulted in a lot of employees going without pay or having deep pay cuts for an extended period of time without any clarity on when things will get back to normal.
- If we choose Option 3 and retrenched early, it would give our affected team members the highest chance to get placed in other companies and access to any remaining jobs, before other companies reacted and started laying off. I had a hunch that we could leverage the goodwill Capillary had in the B2B SaaS ecosystem and run a successful outplacement process to help the affected folks.
Luckily for us, we had the support of our existing investors Warburg Pincus, Sequoia Capital, Avataar Venture Partners, Qualcomm Ventures along with some of our early angels Venkat Tadanki and Steffen Naumann. They set aside all other fund life considerations and decided to back us up with an interim funding round – all committed in 1 week. Our Venture debt backers Innoven also agreed to our request to reduce our principal repayments by half for the next few months, until things recovered. I must say we have been very blessed on the investor front.
With a 17% average salary cut (no cuts for the entry salary tier, 15% for the mid-tier, 25% for the management tier and me going on no pay) and with a low double-digit percentage of team retrenchment, we would be able to tide through a worst-case scenario and have money for at least the next 12-18 months. We decided to act and took the cuts on March 27th.
Given the lockdown, we had to do the retrenching remotely through video calls. There was a lot playing on our minds. Most of the impacted folks would have been confined to their homes, nowhere to vent, no friends to meet, and face the discomfort of telling their parents or families that they were let go. We had to let go of quite a few folks – some of them who have been with us for more than 10 years – and we had to do this over a video call during a lockdown.
I would not have signed up to be a founder or starting up if I had the foreknowledge of a day where I’ll have to do something like this. Those four weeks have been the hardest of my life, and I have woken up with nightmares on several days during that month. We decided to do this in the most humane way possible and leave no stone unturned in supporting the affected folks. Here is what we did :
- For the employees being retrenched, we decided to make sure they would be financially supported at least in the near term. We paid the annual bonus, encashed leaves and gave a minimum notice of 2 months, even for contractors. The average employee got a 4-month notice pay and folks who were with us longer got 7 months of pay. We actually didn’t have the cash so we decided to pay the notice as 4 months of salary over 4 months. Some of the folks we retained complained that the folks being let go were being treated better!
- We extended insurance till the end of H1 (September for everyone) and set aside INR 1Cr for any medical emergencies which the insurance might not fully cover.
- We brought on board YourDOST to coach the 30 teams that were going to run the exit process. The script for the exit meeting, the wording and the FAQs were closely scrutinized by them to make sure there was no word which was used that would make it harder for the impacted folks than it already was. YourDOST further trained the 30 teams on how to look for any clues of emotional vulnerability. We created a WhatsApp group where a panel member could send out a message if a conversation wasn’t going as expected and we would have the YourDOST team and someone from the senior management reach out to the employee immediately. The respective team manager would then be asked to keep in constant touch with these employees for the next few weeks, we also fast-tracked their outplacement.
- We further retained YourDOST to call up each impacted employee at least 2 – 3 times over the next few weeks. The impacted employees could reach out to the YourDOST team and get counselling sessions in case they were feeling low. A lot of impacted employees later wrote back to us acknowledging the support they got from YourDOST. I think the YourDOST team did a fantastic job over the next few weeks and I am very proud of being an angel in the firm. I am sure they have positively impacted the lives of many people.
I must thank all the panel members for their patience and sensitivity in handling the retrenchment; it was a long dark day and everyone gave everything they had to make the entire process as humane as possible.
We then had the hard task of running an outplacement service. We chose 6 folks to form a dedicated team to run an outplacement service. Every leadership team member contributed by getting companies to participate. I personally wrote to over 50 founders, basically anyone who has ever reached out for advice on participating in the outplacement.
Although I wouldn’t want to name anyone here, I am very thankful to all the support I got from the startup ecosystem and other founders who helped us out by hiring our folks. The Leadership Team and the Outplacement Team probably spent the next 8 weeks and weekends doing all they could to make this project successful. It was nothing less than running a well-oiled campus placement cell. We got 102 companies to participate, sourced 600+ open positions, and enabled over 2500 interviews.
We matched profiles and sent CVs for 99% of impacted employees; 80% of the folks had at least one interview opportunity and more than 60% had at least two interview opportunities, a few had 35 interview opportunities. But it’s been tough, and there has been less than 10% interview-to-job offer conversion. And quite a few good folks are yet to be placed. A large percentage of the openings froze halfway, where the companies would suddenly stop hiring at the last stage of the process, many even at the salary negotiation stage.
By end-April – mid-May, new openings/ pace of hiring really slowed down. Thankfully, we had a head start, and as of mid-June, more than 60% of the impacted folks have already joined new companies. In hindsight, I think our hunch of moving early definitely worked out. For folks who are yet to be placed, we have offered to fund 75% of the fee for any online upskilling courses they want to take up.
This entire episode took an emotional toll on all of us. It hit us especially hard since we have always strived to nurture a great culture at Capillary – one that is as employee-focussed as it is customer-focussed. In times like these, it’s vital to be humane in your dealings, over-communicate, and do the right thing for everyone involved with your company. I have written more on this in the next post – Doing the Right Thing for all Stakeholders
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COVID Reflections is a series by Capillary CEO & Co-founder Aneesh Reddy where he shares the challenges faced by the company during the COVID pandemic and how Capillary dealt with them. We hope the learnings will give other founders and businesses the courage, hope and resilience to navigate this crisis.
A bit of context on Capillary for those who might not know about us: We are an Asia focused SaaS company. More than 90% of our revenues come from retail customers and with the lockdowns, retail has been one of the most badly hit sectors, probably next only to travel, hospitality, real-estate and restaurants. As a derivative business to retail, we were badly affected as well. So here is a detailed blog on how it has played out for us till now and how did we circumnavigate through the crisis.
To start off, I think Covid19 has hit cash positive/ profitable businesses hardest because when you are cash positive and profitable, your cash reserves would typically never be planned for zero cash flow scenarios. For startups that guzzle cash, most expenses get paid from investor funding so business cash flows aren’t very material, and they typically have a lot of cash reserves. FY20 (April 2019 – March 2020) has been a monumental year for us. We went from a ~40% EBITDA loss/ Negative cash flows in Q4FY19 to our first ever EBITDA and Cash Positive Quarter in Q4FY20 (JFM). We were cash positive even after paying Venture debt principal and interest and working capital costs as well – cash positive to the dot.
We actually celebrated being cash positive on March 15th after we crossed that milestone. Given we were turning cash positive, we were comfortable with our cash reserves as our burn rate was consistently coming down. We were also working with our banking partners to extend our India working capital limits to cover our international receivables.
Apart from this, we were in the process of raising another $10mn of debt to further create a cash buffer. We had received term sheets for both and were a week away from a big four auditor team putting the final touches to their diligence report. I want to highlight the fact that this was not venture debt which was coming as an extension to an equity funding round. This was debt coming on the back of a strong P&L. It was a great feeling that we had finally come to the stage of being a ‘going concern’ and we’re seeing acceptance from stringent risk-averse folks like banks and debt investors.
And then the lockdowns started
Things were going well for us until the mid of March, and then Covid-19 happened and one country after another went into lockdown. We thought we had a small advantage in that a part of our business came from China. But data for the month of Feb indicated a ~75% reduction in cash flows. And China wasn’t showing any great signs of recovery even by mid-March.
In the middle of March, when India and a bunch of other countries in the Middle East and SEA announced lockdowns, we knew that the worst was upon us. We prepared for a crunch in cash flow without any visibility on the kind of churn we would see. Would some of our customers go bankrupt? Would we have big write-offs? We spoke to many people but no one had seen a nosedive like this ever.
When you make a plan, you keep a 10% – 15% buffer to compensate for the misses and plan for that much extra cash. However, in the worst case when the 10% cash burn climbs to 75%, it spells disaster for the business. For instance, if you had a runway of 12 months at 10% burn, you would have less than 2 months at 75% burn! (Looking back now, our cash flows in the 6 weeks from March 15th to May 1st fell by ~75%).
So we had just 2 months of runway in the new 75% burn world, and I pinned my hopes on the working capital extension and the $10mn debt coming in as both were a week away from closure. I called Rajan (Rajan has been an angel and a board member in Capillary and his experience has almost always translated to good advice), and he advised against assuming any of that debt coming in and put sense in me to take the hard calls and take them in one go. As you would have guessed by now – after dragging the decision to mid-April – neither the working capital extension nor the $10mn of debt came through.
In moments of crisis, it’s important for businesses to assume the worst and take hard calls rather than hold onto false hopes.
A sure way to take a company down (besides running out of money), is to run out of energy. And one thing which would have definitely depleted energy and team morale is taking small cuts every week as bad news trickled in. We definitely didn’t want this to happen and hence decided to take the hard calls in one go. I will talk more about this in my next post – Taking the Hard Calls.
Retailers once had it easy. Little competition, loyal customers and easy sales. Then came an explosion in retail; great for consumers but not so good for retailers! The days of easy sale were in the past and retailers now had to work hard to build and retain a loyal base.
The first wave in retail was all about the data. Collecting data, analysing data, and using insights and campaign tools to personalize engagement and create a group of highly loyal customers. Next up was the shift to online. E-commerce and a connected experience both online and offline became a must have to be able to provide consumers with the experience they expected. This continues to play out and is often dubbed ‘going Omni-channel’.
While getting Omnichannel right is critical for survival, we are now seeing consumers evolving to the next wave.
The reality is that over 94% of sales still happen at brick and mortar stores.
While consumers are able to have a great personalized experience online, physical stores are woefully behind. Retailers have next to no data on what is happening in their stores. Who is the customer walking into the store? What has the customer browsed through but not purchased the last time? What does she like?
Having this data is a foundation to both provide the personalized experience consumers expect in stores as well as to maximizing operational efficiencies in a store.
The key to enabling this kind of data augmentation is through smart use of computer vision and natural language processing, artificial intelligence, we can create the tools to start getting the rich data and personalization available online, in offline stores.
I see this playing out in three stages
The first stage is to have accurate and real time data on visitors to your stores; and then integrating this with transaction data to be able to get insights on store staff effectiveness, power hours at your store, conversion rate, campaign effectiveness etc. I can’t emphasize enough the importance of accuracy! If the data is not accurate and reliable, the team will not trust the data and no action will be taken. Getting this level of accuracy and doing this cost-effectively is possible with smart use of AI and computer vision. A leading apparel brand saw over 5% incremental sales being generated by doing just this – getting accurate conversion data and working on improving this. Click below banner to read the entire story.
Next up is to understand how customers behave in store. Again AI, Computer Vision and Natural language processing based people counter and footfall counters can help you generate heat maps in store and answer questions like
- Where do the customers tend to spend the most time in a store?
- Which are the most popular sections and products in a store?
- Which sections have poor conversions and how can those be improved by altering the store layout?
- What paths do customers take in the store and how does the traffic flow through the various sections of the store?
- Analyzing customer – store staff conversations using NLP to understand which products did customers ask for but unavailable at store or to understand how many customers asked for a discount or didn’t find their fit.
Once these are in place, it opens up doors to truly exciting and revolutionary applications of AI. With computer vision, Natural Language Processing and deep learning, we can now start doing amazing stuff. Imagine these:
- Use AI to identify attributes like age, fit, clothing style and expression to get rich data on customer behavior and experiences in store. Do they like the item they browsed in store? How did they react to the store staff engagement?
- Use Natural Language Processing to identify conversation trends, of course in a non-personally identifiable way. Are customers asking for black shirts? How many folks wanted a looser fit?
- With their permission, and tagging customer IDs, you could identify your customer as soon as they walk into the store through facial recognition and have the store associate get instant information on the customer profile and their preferences, with clear suggestions on how to personalize the interaction and offerings. This would be a truly personalized and easy experience for the customer.
This is the power that retail technology is giving stores today, and it is amazing!
Capillary VisitorMetrix™, built on our AI platform Capillary Zero™, helps you unlock growth with accurate store performance insights such as conversion ratio, store power hours etc. so you can improve sales and optimize marketing. Visit link below to sign up for an exclusive pilot with Capillary VisitorMetrix™ at your stores.
At Capillary, we strongly believe that we’re known by the company we keep. So we consider ourselves highly fortunate that our ecosystem includes over 150 world-leading brands such as Adidas, Benetton, Nicole Miller, Puma and Tennis Express; major partners like Blue Label and Abrar Telecom, who are helping us drive business in our newest market—South Africa; and marquee investors including Sequoia, Norwest, and Qualcomm, who are backing our vision of becoming the #1 provider of Intelligent CRM solutions to brands across the globe. All these stakeholders know what it’s like to compete at the top of their respective industries and this pushes us that much harder to deliver solutions that bring real value to the multi-channel retailing space.
With this in mind I am thrilled to welcome the latest partner in our journey: American Express Ventures. American Express Ventures joins our existing investor syndicate and I am confident that we will be pushed to scale even greater heights as a result of this partnership.
As part of this news, I also want to acknowledge Harshul Sanghi and Rohit Bodas of AmEx Ventures. Over the past few months, Harshul and Rohit took quite a bit of time to understand our business and vision and took equal time to make sure that we understood AmEx Ventures’ values and their unique investment model. After drilling down, it became clear to all of us that Capillary Technologies fits American Express Ventures’ investment philosophy and that AmEx Ventures was a great strategic fit for Capillary—both in the U.S. and around the world.
We look forward to great things from the partnership with American Express Ventures and know that they expect great things from us in 2014 and beyond!
We’ve got more in store for you, so watch this space!
Aneesh Reddy, CEO
Last year, as some of our customers in Asia know, we conducted a pilot program with American Express to introduce our suite of intelligent CRM solutions to mid-sized and larger AmEx merchants in Singapore. The goal was to test whether American Express merchants would be interested in learning more about Capillary’s capabilities. Much to our delight, the backing of American Express—with its strong brand and focus on helping their merchants drive increased sales—was the warm introduction we needed to introduce our solutions to some top retailers in the Singaporean market. Many of these discussions turned into pilots and then grew into full-scale deployments. Most importantly, the retailers that implemented our solution suite saw strong increases in sales through both in-store and online channels and a very quick payback on implementation. It was a win-win-win for our customers, for Capillary Technologies, and for American Express.
With our sights set on the U.S. as another major growth market for Capillary—and one where American Express has a significant leading presence among all types of merchants—we began discussions with AmEx about partnering in the U.S., especially given the positive results of our joint marketing efforts in Asia.
Today, I’m thrilled to announce that we have formalized our partnership with American Express through a Joint Marketing Agreement targeting select mid-sized retailers across the U.S. You can read more about the partnership here.
The AmEx partnership is a very important one for us and a huge vote of confidence from one of the world’s most respected services companies. When we think of taking the U.S. market by storm, there’s nothing in my mind that could put the stamp of approval on our suite of solutions for retail marketers more than “American Express”.
We’re already hard at work with the Client Relationship Managers in American Express’ Global Merchant Services team to identify suitable retailers to include in the first phase of the program and are already off to a flying start. Once AmEx lets a client know that we can help drive business across their in-store, social media, mobile, e-commerce and online channels, merchants become very, very interested in opening up a dialogue. We already have discussions going with leading retailers in the gifting, sporting goods, fashion and home goods categories as a result of American Express referrals.
Of course our recent successes in the U.S. market also help speed up the discussion:
•Tennis Express Aces Customer Segmentation
•Nicole Miller Fashions a Rewarding Omnichannel Experience
If you’re an American Express merchant in the U.S. and consider yourself a mid-sized retailer—and are interested in hearing more—please contact your American Express Client Relationship Manager and they can help arrange a meeting, consultation or demo. And, of course, if you’re an American Express retail merchant in Asia, Australia, South Africa or the U.K., you can contact us directly and we’ll make sure to start up a discussion right away.