The Funding, Hiring, Firing phenomenon is on. Growth, scale up, funding, million dollar startup – these terms may sound very alluring but there is also a crude reality of job uncertainty in startups. While some claim that most of the Indian startups are overvalued, others believe that blindfolded funding has led to reckless hiring.
After the dot-com crash in the year 2000, is it time for the start up bubble also to burst? Hundreds of layoffs from companies like Zomato, TinyOwl and Housing.com may provide some hints.
It has become increasingly difficult to judge whether growth is really happening in the country or not. Will these startups stand the test of time at all or are they just solving problems temporarily relying on investors’ money? Will the exit point for investors also prove to be an exit of these startups from the market? Or will we see major acquisitions in the future which will finally result few startups to exist in a particular domain?
Let us explore the situation by taking instances from some recent layoffs.
1. In September, TinyOwl, a food-tech startup gave the pink slip to nearly 100 employees which was followed by a much expected drama at its office. The staffs refused to leave after they were fired. TinyOwl co-founder Tanuj Khandelwal said, “The layoffs at certain positions are done at a strategic level to increase productivity and efficiency and we see this development as a positive move towards growth.”
After this incident, one employee added anonymously, “I joined TinyOwl four months ago and it was growing quite rapidly. This was not expected. I will never work for a startup again.” And those who were not fired were asked to “pull up their socks” and work harder not to face the same situation.
2. This was closely followed by the layoff of 600 staffs out of the existing 2,600 by Housing.com, a Mumbai based real-estate portal. They said they were “restructuring the company” and also refused to confirm the layoff of employees
3. Foodpanda also fired 300 of its employees in India which accounts to 15% of its workforce in the country.
4. Other startups like Localbanya, an online platform for grocery and Townrush, an on-demand delivery platform also fired staffs due to fear of shutdowns as funding slowed down and the startups lost their focus on reforming their business model for the better. The same thing happened with Yebhi when it failed to raise further capitals.
Are the layoffs an indication to an end? Let us explore the reasons as to why most of the major startups are resorting to providing pink slips to their employees.
As mentioned earlier, many Indian startups are overvalued. For example, Flipkart is valued at $16 billion which is even more than the Indian giants like Mahindra and Mahindra Ltd, Tata Motors Ltd and Indian Oil Corp Ltd. Snapdeal is valued at $6.5 billion which in fact is more than Yes Bank, Titan Co. Ltd, Vedanta Ltd etc. These valuations may seem justified but in the world of business, investments affect the valuations of other companies and startups directly.
The Indian startups are raising money recklessly and that has to be spent somewhere. Even the investors themselves suggest to hire employees at a massive scale just after investments. Now, after a lot of cash burn, when the funding rate has slowed down, startups are resorting to restructure their team. Also, crashes in the Chinese markets are also a major reason why startups need to cut down on their costs for which they need people only at the major positions.
Let us see what Paras Adenwala has to say. According to him, “Investors are not seeing at the sector objectively. They have become dependent on a few success stories and are overlooking others in the same manner as they did in the dot-come era.” He says that once the United States’ central bank starts to work on the basis of interest rates, investors will also start to rethink and investments will not be so easy and generous. This is going to make the situation worse.
The next thing about the uncertainty prevailing in the startup atmosphere is cofounder’s lack of experience. While it is said that age is not a barrier to handle people and take decisions but experience is something which doesn’t come with an alternative. With more and more funding being poured rigorously, the startups are never out of money. Let alone the bursting of dot-com boom which occurred in the year 2000, these startups haven’t even experienced a financial crisis. For example, the TinyOwl co-founder who was taken hostage by the employees is just 24 years old.
Moreover, some Indian companies are having a headcount even more than their global counterparts’ right from their commencing. For example, Bengaluru based online taxi-portal TaxiForSure had 1800 employees while Uber, with its presence in more than 50 countries had barely half of that. While TaxiForSure took a deep breath and saved itself from the charge of layoffs by collaborating with Ola, layoffs are a harsh reality which has become very prevalent nowadays.
This scenario can be found at the e-commerce level as well. While China-based e-commerce Company Alibaba had a workforce of 34,081 in 2014, Indian e-commerce giant Flipkart hold a record of 33,000 staffs.
Jack Ma commented, “The more people you have doesn’t mean the better.”
Another major reason that can be thought of is automation in processing orders. This has resulted in the requirement of less people for various operations.
The headlines are hitting regularly with the news of firing which has raised the concern among masses. Is it wise to join a startup? –This has become the most debatable topic of this era. The firing saga is not just limited to India; it has become an increasingly global phenomenon. But the story for India is different altogether in many respects. If someone is fired, it is taken to a personal level. Along with ego, relatives come in to fan the fire. Hence, it is a very delicate issue which founders need to deal with very carefully.
Startups should shift their attention from massive hiring to customer acquisition and adding value to their products. In the end, it is profits that matter. But with the existing models in hand and the hiring-firing saga, profits seem to be unattainable. Also, the work of employees in startups should be flexible unlike the big MNCs. Startups need to reform their planning quite often as almost all of them are at their initial years. These bitter truths about entrepreneurship may encompass enough potential to hold you back from your dream of becoming an entrepreneur.
Seed-funded startups have fewer employees, typically 15-20 as compared to Series A funded startups which consists of more than 50 employees. Companies like Snapdeal have more than 3000 employees. So, it is often noticed that if small startups shut down, the members help each other to find jobs as they are emotionally bonded. Startups are no less than a family. This may not be the case with the biggies because the market itself is not ready to absorb so many people at once.
It becomes quite difficult to find another job as competition is independent of potential. While some of the startups fire incautiously, most of them give an indirect notice right from the beginning which is actually right. They ask their employees to start looking for another job and they can leave once they find one. Some companies also give them one months’ salary as severance and help them to find another job.
Instead of hiring employees at a massive scale and keeping them in the dark, it is better to form a temporary bond with them. Otherwise, in the long run, it is very likely that their employee base will become a liability and again a major portion might be asked to leave. This will be certainly bad for nurturing the start up ecosystem.
What do you think the future has got to offer? Is firing “restructuring the economy” or will it prove to bring a bleak future for the working section of the society? Let us know your views by commenting below.
