December of Discontent for Startups

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The chill of the funding winter is truly starting to set in, with Indian startups going through steep hiring cuts. The hiring of permanent employees has dipped by a significant 61 percent in the last 12 months as of November, according to a report from Razorpay. As the changing dynamics of the startup ecosystem start to take root, startups across the board are feeling the heat this winter.

Hiring Gone Cold

New hires of full-time employees are down 61% compared to October 2021. Employment declines are seen across tenure, with CXO employment down 93% over that period. Indeed, some startups that raised millions in recent years are now being “restructured,” “downscaled,” or “automated,” and there will undoubtedly be choppy waters to navigate before its smooth sailing. For now, we are seeing layoffs and hiring freezes take place as just some of the measures needed for companies to cut costs and live to fight another day. Funding in Indian start-ups has nearly constantly declined since the start of 2022. Having raised $4.6 Bn in January, Indian start-ups could only raise $810 Mn in September.

This has been seen in the past, after funding peaks in 2015 and 2016, when job cuts and similar cuts were made across the startup ecosystem. The problem is one of plenty, ironically. With too much capital, startups and optimistic founders are testing all avenues of growth and throwing everything until something sticks. Even seasoned companies such as Apple are instituting a hiring freeze to rationalise staff, while Twitter and Meta too are not immune from the need to trim the fat. Hiring full-time employees are declining, but gig workers seem to be the preferred option for startups. Payouts to gig workers have increased by 153% since October 2021, and the total number of companies that have moved to a semi-gig workforce model increased by 15%.

A Mumbai-based early-stage investor recently was quoted as saying, “No founder openly fears that a new initiative will go awry. The founders’ mindset is that there’s always a way to win. Employment is down across all sectors, but tech employment appears to be largely unaffected. Tech jobs increased their share of the total workforce by a merger 4%, while overall employment trends have slowed.

Wage Trends in Focus

Contrary to previous trends, salaries at various levels increased by an average of 12%, but not exponentially. Salary growth, however, varies greatly depending on the size of the gig worker. Average salaries for these workers have increased by only 19.9%, while salaries for the 99th percentile of gig workers have increased by 58.3%.

A warning sign was on the horizon last December. Profitability, global selling pressure, and the ensuing stock market crash have proven to be harbingers of catastrophe to come. And while private startups may have felt safe in the face of the damage done to public companies in the second half of 2021, that feeling has been replaced by fear, panic, and rationalization.

Cycles of highs and lows are not uncommon in business. Ripple effects of highs cause lows, and those who survive the lows build the next highs. In this sense, the business world mimics the survival of the best-fit schools. But unlike the natural world, where evolution more or less empowers the surviving species, the cycles of business ups and downs seem to erase the collective memory of entrepreneurs, founders, and employers. While peaks inspire unbridled enthusiasm for business expansion and job growth, layoffs, and life disruptions are inevitable in the troughs and then the cycle begins again.

The India Scenario

Between October 2021 and September 2022, the onboarding of new permanent employees went down by 61 percent, while CXO hiring dropped by 93 percent, according to the RazorpayX report, which analysed payroll data across more than 1,000 startups.

So far, 15,216 employees have been laid off from 44 Indian start-ups including unicorns BYJU’S, Cars24, Ola, LEAD, Meesho, MPL, Trell, Unacademy, and Vedantu. As the new quarter began, Unacademy announced that it had laid off 600 employees after already cutting over 325 part-time workers and educators from its rolls, while e-commerce unicorn employees, seven months after last raising funds.

Edtech will see the most job cuts, followed by consumer services and E-commerce. So far, a total of 27 start-ups have laid off 13,179 employees in his three sectors. That means 9 out of 10 of his laidoff employees worked in either consumer services, e-commerce, or educational technology. Edtech in particular is under intense scrutiny across the country. Not only have 14 edtech start-ups laid off 6,898 employees, including 4 of the 7 edtech unicorns, but the industry has also closed 3 start-ups in 2022.

A start-up that has recently made headlines for its severe cutbacks is Byju’s. India’s most valuable and well-known startup laid off 2,500 employees from its workforce, citing its push to achieve profitability by the end of FY23. BYJU’S laid off employees across product, content, media, and technology teams. Another ed-tech unicorn that has followed in the same footsteps as BYJU’s is LEAD. Edtech Unicorn LEAD laid off about 100 employees as part of a performance review process. The dismissed employees belonged to several divisions of the Edtech unicorn. Unacademy too has sacked some 350 employees in what has been its third round of job cuts in a year.

Even E-commerce unicorn, Meesho has laid off 300 people. Meesho shut down the majority of its Superstore business, according to Inc42 sources. This has resulted in around 300 people being laid off as Meesho rolled back Superstore to only two cities, after expanding to six states in a short amount of time.

One of the main reasons for the cuts is that startups are losing weight on their own, or companies and industries that haven’t really changed. Especially for latestage and growth-stage startups, founders couldn’t complain about the lack of funding since last year, but unless they burn more cash, they’ll be able to unlock growth in every industry or business mindset.

Startups raise capital, bank millions of dollars, and seek to diversify revenues and increase market share through expansions and promotions. But often, the founders’ faith in new models is not always rewarded by the market, and the competition is so well-funded that what they plan to do, no matter how detailed, will not work. Such is the way of business and life.

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