How a Singapore-based startup made the quick decision to pivot and evaluate new partnerships when business dried up.
The coronavirus pandemic has brought the global economy to its knees. Experience managing a tight cash flow in both good and challenging times has forced small businesses and startups to learn when and how to quickly pivot when plans don’t pan out as expected. What are startups doing differently in the face of the current volatility, uncertainty, complexity, and ambiguity? What are the lessons for bigger companies to ride the waves of growth post-pandemic?
In this article, I share how Sharent, a startup based in Singapore that I invested in, pivoted to a different business segment due to the pandemic, and the thinking behind the shift.
Businesses that see a drying pool of customers due to the pandemic can reassess their target consumer without changing their core offerings. In this re-examination process, businesses might discover new customers in the unlikeliest of places, such as converting suppliers into customers when pivoting from a business-to-consumer (B2C) to a business-to-business (B2B) model.
Pivoting to a different customer segment
Sharent, founded in 2018 with 12 employees, designed a business to create a sharing economy of everyday items. The company started in the customer-to-customer (C2C) business segment, where individuals can rent or share underutilised assets, such as a baby pram or an evening gown. The transactions are done via an app with inventory management and billing functions. In addition to providing value to the parties to the transaction, the creation of a sharing economy serves the purpose of reducing waste, consistent with the company’s environmental values.
Unfortunately, the C2C business ground to a halt due to the ongoing lockdown and social-distancing orders, as both owners and renters are expected to transact the items on their own. The founder, Eric Tan, realised he needed to pivot quickly. He decided to shift to a B2B model about a month into the pandemic.
Within weeks, the startup found business helping a thermal disinfection machine manufacturer rent out its machines to businesses in Singapore. With many offices unprepared for the sanitising work required to keep employees safe, business has been brisk, with a 70% jump in transactions, helping the startup stay afloat during this difficult time.
Measuring failures and making quick decisions
What is the key factor that allowed Sharent to pivot so quickly? The core in its decision-making process was the ability to measure failure.
Inherently resource-hungry, especially in cash, startups have acquired an ability to quickly recognise whether a strategy or business model is failing. Sharent identified its “failing indexes” very early on, before the pandemic. Some criteria are:
Number of owners with popular items. A critical number of sign-ups by owners with in-demand items, especially electronic gadgets such as GoPro action cameras and drones, is important to attract sufficient traffic from potential renters to the platform to sustain the business.
Number of renters seeking premium items. A critical number of sign-ups of renters with demand for high-priced items is critical for revenue generation and to encourage more owners to list their assets on the platform.
Number of items catered to events. Items such as evening gowns and props for event organisers are ideal for the C2C model, as events are periodic and many choose to rent instead of making a permanent purchase. A fall in the number of rentable items for events is detrimental to Sharent’s business.
These data points were constantly monitored, and once they fell below the critical numbers, the pivoting exercise kicked in. When the COVID-19 crisis began, some of these numbers, especially items catered to events, declined, driving Sharent to change plans quickly.
For larger companies, reaching such decisions with similar speed could be more challenging. One solution is for company leadership to assume a more sales- and customer-facing role. It’s crucial for leaders to be close to the pulse of their customers and sensitive to the vicissitudes of the marketplace. This will also help the leadership team develop a startup mindset, which enables the organisation to be nimbler and able to pivot more quickly.
New partnerships and developing a win-win
The success of Sharent’s current pivot is also due to its ability to form a new partnership with the thermal disinfection machine manufacturer. Similar to Sharent’s appeal to individuals who own very expensive assets, the startup convinced the manufacturer that it could help safeguard and generate revenue from its assets.
However, prior to establishing a trust between both parties, the crux of a strong relationship is based on “common wealth”. Both parties must have an equal profitable gain from the end customer; in this case, the renter. Therefore, it is important to constantly think like the prospective partner (“What is in it for them?”) and to offer a proposition befitting the other company’s “personal win”.
In the case of the thermal disinfection machine manufacturer, it was seeing a decline in orders as most companies have pulled the plug on capital expenditures due to the ongoing pandemic. Secondly, the manufacturer was unfamiliar with the rental business and technologically unprepared to run it.
In this scenario, Sharent was able to offer its technology to support a rental business for the manufacturer. The startup was also able to turn buyers into renters. The startup team spoke to companies with financial means, asking them to refrain from “panic buying” and suggesting that they rent to minimise capital expenditures. For companies with a tight cash flow, a similar cost saving can be realised by renting the machines.
This partnership works because both parties are in a win-win relationship where they are able to rely on each other’s strengths and know-how.
A first step for companies looking to form new partnerships is to examine the resources or market access they possess that may be of interest to prospective partners. These potential value propositions need to meet the “common wealth” criteria for both companies. The key is to be able match one’s strength with the other party’s weakness and vice versa.
Maintain value proposition and values
Another key to pivots is to still offer value to customers. In Sharent’s original C2C case, the startup offered value to owners by helping them generate income on an idle item whilst giving renters an opportunity to use a product that would be an expense beyond their means to purchase. The same scenario must also play out in the B2B model.
It is also important that, when deciding to pivot, companies don’t abandon their roots. Sharent stayed true to its commitment to make the world greener — albeit by serving another segment of customers.
Create a long-term view
In its search for new customers in the B2B segment, Sharent also introduced an “urgent and high potential” criterion into its decision-making process. The industry targeted to be a renter had to have an urgent need and the potential to offer more rentals after the urgency subsides.
In the current pandemic situation, Sharent has chosen to move into essential services industries such as healthcare and logistics. For example, Sharent now rents mobile disinfection terminals — a full body disinfection facility placed at building entrances — to a large healthcare retail chain and the Port of Singapore. There is an urgent need due to the pandemic, but these industries are also recession-proof.
The founder is preparing for a post-pandemic business environment by looking into specific industries that meet these criteria. He is cautiously optimistic that corporates will reduce capital expenditures, favouring a leasing model instead. He predicts that the rental business for B2B will take off in the coming months and years.
A long-term view is a must for any pivot to be sustainable.
A final word: While the race for a COVID-19 vaccine is underway, there is no way to foretell the end of the current crisis. The tactics deployed by this startup could also be useful for larger companies that need to rethink their target consumers and product offerings to survive and thrive.
— Ivan Yong Wei Kit is an angel investor in early-stage startups and has over ten years of experience mentoring startup founders. He is also the founder of Nanyang Angelz and the author of Department of Startup: Why Every Fortune 500 Should Have One, a book on how large corporations can adopt a startup’s culture on innovation. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at Alexis.Seetho@aicpa-cima.com.