Measuring the costs of the pandemic shock among local startups

More than 70 percent of Romanian startups were impacted by the pandemic crisis in the past year, and founders have had to make hard decisions for the future of their companies, including cost cutting, hiring freezes or delayed investments. Tech companies in some industries have flourished during the pandemic, while the rapid recovery of the Romanian economy will provide an impetus for startups that have decided to reposition themselves or for entrepreneurs who have scaled up their companies against all odds.

By Ovidiu Posirca

The pandemic poses a higher risk for stagnation or even degrowth for some local startups

Enterprises of all sizes have had to adapt to the new economy and for startups, this meant financial expansion, access to finance, and investors willing to fund their operations. The limitation of activities amid the pandemic brought with it a series of opportunities by generating adaptation strategies and repositioning market tools, suggests Cristiana Bogateanu, executive director of the Romanian Tech Startups Association (ROTSA). sitioning have done things like freezing the hiring process, cutting salaries, and reducing administrative costs while experimenting with new prices on the market for a more efficient repositioning. External repositioning targeted medium-sized companies that chose to freeze bonuses and salary increases, conduct layoffs, and postpone investments. The scaling-up process has given larger companies a chance to change their organisational strategy and marketing position. Most small startups, mainly operating in areas like FinTech, Automation or HealthTech, pushed the deployment of their products by expanding their tech teams by one or two members and increasing their marketing budgets,” Bogateanu told BR.

Some 70 startups in the ROTSA survey, conducted among 117 entrepreneurial firms, had a balancing strategy once the health crisis emerged.

The study revealed that over 70 percent of the startups confirmed that COVID-19 had affected their business to some extent.

From the very beginning of the health crisis, Cristian Munteanu, managing partner at Early Game Ventures (EGV), held talks with the founders of startups in the fund’s portfolio and agreed on immediate and radical measures to contain the damage of the pandemic.

“All measures were implemented on the spot, whether it was freezing new hires, postponing large marketing expenditures or shifting focus from opening to markets to R&D. The priority at that time was to limit the damage, preserve the runway, and buy

time to assess the impact of the pandemic,” Munteanu told BR.

On one hand, startups from the ondemand economy and delivery services, e-commerce, e-health or gaming proved their ability to scale up very rapidly over the past year. Meanwhile, companies in the POS payments industry, travel tech, restaurant booking services or mobility bore the brunt of the crisis.

“I think that startups in these industries are the ones that proved their resilience by surviving a significant reduction in demand. And you must understand that I’m talking about early-stage startups – in other words, companies at an age when they are most sensitive to market fluctuation,” adds the EGV managing partner.

Like most startups, tech startups should plan for cash-flow rather than profits, says Marius Ghenea, managing partner of Catalyst Romania. From this perspective, they were more prepared to face the potential revenue downturn associated with lockdowns, for instance, especially if they had recently finalised investment rounds.

“Startups that were just about to close investment rounds had a big problem, because lockdowns and investor pushback might have put them into financial jeopardy, particularly early stage firms with significant cash-burn and small revenues,” Ghenea told BR. He added that some startups were luckier than others, and that therefore we should not blame or consider less worthy those businesses that were directly hit, such as those in travel, hospitality, events, and others.

HOW STARTUPS PERCEIVED RISKS DURING THE PANDEMIC

The inability to finance operations, the loss of market cap due to growing competition, and the challenge of attracting talent are some of the risks founders mentioned in the ROTSA survey. The research shows that startups in the HealthTech, FinTech and Automation cohorts have managed to grow from a founding team to an average team of 10 employees, but also that the pandemic clients they have or reach new ones. In terms of decision-making processes, local startups have had different approaches depending

poses a higher risk for stagnation or even degrowth.

“The market cap they have managed to acquire is threatened by rapid changes in the

market and human behaviour in the context of the pandemic,” according to the ROTSA report.

Meanwhile, startups with an average yearly income of just over EUR 100,000 and teams of three employees on average were most threated by lockdowns and dwindling cash flows. The research notes that for this cohort, there is no risk of accessing human capital or loss of market cap. They are small teams, and that means they are nimble and better positioned to pivot quickly to keep the on their size. For instance, startups with an average of 14 employees looked for advice internally, from the management team. Meanwhile, startups with up to five employees relied on internal knowledge as well as on that of mentors and peers from other companies. “Entrepreneurs need funding to limit existing risks, whether the funding is public or private. We identified three categories of startups and named them Independent, Vulnerable, and Rebound. The first group apprehends the threats and chooses to rely on their own experience to assess future risks. The latter two both need coaching and mentoring from their peers and other possible programmes, but the Vulnerable startups can only access public funding due to their revenues, while Rebounds are looking for private funding to expand and grow faster, including on international markets,” the ROTSA executive director explained.

25 years of excellence on the HR software market

UCMS by AROBS is celebrating 25 years on the Romanian market. What does this mean in terms of achievements and results?

Our company has undergone many changes during these 25 years, and it was constantly shaped and improved in order to meet our customers’ sophisticated business demands. It started with the dp-Payroll application in 1996, which covered the basic needs of financial departments, followed by the development of True HR in 2002. In 2019, AROBS Transilvania Software acquired UCMS, thus adding a new business line on the HR solutions market. Our True HR and dp-Payroll software solutions are being used in more than 500 businesses. Over time, the reliability of the products have been improved continuously as to meet the needs of the industries we work with: banking, IT, medical services, automotive, production, retail, etc.

How important is the digitalization of HR departments and what can you tell us about your company’s HR and payroll software solutions?

departments, as companies have faced novel situations where employees had to work remotely or in a hybrid manner. Our company offers comprehensive digital solutions for HR and payroll through True HR and dp-Payroll. True HR is one of the most complex and complete professional solutions for HR management in the country, designed to digitalize and transform the entire HR process, from recruitment to offboarding, including time & attendance data. The solution is always kept up to date with legislative changes, so all reporting to authorities can be carried out through the application.

What are the main advantages of the UCMS by AROBS software products on the local market?

True HR & dp-Payroll are innovative software solutions that have been recognised and implemented by both corporate and enterprise clients in Romania, to provide services internally and externally. True HR is the only Time Management and HR software product to be developed in Romania and successfully implemented outside the country’s borders. The application covers the management of Ionut Gherle, the CEO of UCMS by AROBS, talked to Business Review about the company’s biggest achievements in its 25 years of existence, and explained why digitalization became a necessity once the pandemic started.

By Anda Sebesi

all business processes: recruitment, administration, evaluation and training. dp-Payroll simplifies and automates financial processes. We are supporting our global customers in standardising, centralising, and consolidating their HR operations in CEE.

How has the growth in remote work changed your target market?

Studies show that remote or hybrid work has led to increased employee productivity. More and more companies are looking for the best ways to make remote work as efficient as possible. Our solutions help optimise this type of work, and it works very well for companies that have adopted a hybrid work model. They were designed to streamline processes and save time for HR specialists, leading to better communication between employees and HR or between employees and management.

What are your plans for the coming years?

Over the next few years, we plan to invest heavily in technology, business verticals, product development and team growth. One key aim for the company is to further improve user experience for our products, enhance response times during implementation and applications through state-of-the-art technologies. The team's vision and efforts are aimed at a complete shift from traditional, manual HR procedures to automated digital processes.