It appears that layoffs en masse is becoming a norm across many startups in the country as evidenced by the news about Flipkart laying off around 700 people that went viral recently.
Startups are grappling with the problems of decline in funding and cash crunch. Besides, consolidation in the startup space will lessen the number of companies, leading to further layoffs. Many startups had received handsome funds last year and hired people in large numbers without having in place effective strategies for their deployment and exigent situations.
Laying off people is not the only problem faced by startups. Their biggest concern is survival in the market.
"Last year, the first thing any startup did upon getting funded was to hire people. But back then investors of these startups were focused on client acquisition. This year, that changed to unit economics, leading to layoffs. It is rather ironical that most of these tech startups had to cut jobs due to technology deployment which shows their immaturity in hiring. Most of them overlooked the need to put in place robust recruitment and HR systems before hiring," Kamal Karanth, MD, Kelly Services and KellyOCG India told THE WEEK.
Experts say though Flipkart has cited poor performance as the reason for layoffs, it has more to do with not having enough funds to sustain salaries of employees they hired. "I feel that startups like Flipkart have overhired people and they are now redundant from a revenue generation perspective. The company also has been grappling with the problem of generating new funds for their business. Besides Flipkart, other startups are also facing similar problems and do not have new funding cycles and cash to burn to sustain the salaries of many of their people," Alok Shende of Mumbai-based Ascentius Consulting pointed out.
According to analysts, the layoffs in many startups will be across the board but more at the entry level as these companies have very few employees at the top and senior management level. "The Indian startup scene will see a lot of consolidation and the number of players will go down and so will the employees...Jabong, which was acquired by Myntra, has a full fledged HR and a marketing department and so does Myntra. Consolidation will do away with the dual positions in many of these startups. Our firm is already getting CVs from senior and mid-management level people working in Flipkart and Jabong. Many of the CEOs in these startups will start feeling shaky about their positions. This is because they were hired on very high salaries and it will not be feasible for many startups to sustain their high salaries in the absence of proper funds," Kris Lakshmikanth, founder and CEO of Head Hunters India Limited, told THE WEEK.
Besides, these layoffs will make many new job seekers wary about joining the startups. "The news about placements from IIM Ahmedabad not being honoured by Flipkart was enough to dent its image," Lakshmikanth added.
Many of the youngsters who joined startups have found work exciting initially, but began facing issues gradually. "Candidates who join startups do so for the potential to learn and grow which is not possible at the same scale in an established entity. Most of them are aware of the risks involved in joining a startup. However, job seekers may grow wary of startups that attract too much of flak from traditional and social media and avoid them," Karanth pointed out.
Experts also feel that problems will continue to grapple these startups. "The perception that startups are very lucrative and different has been largely created by the media. Now, people are realising the problems in these startups and things are not very rosy. Long working hours, unrealistic targets and salary cuts have been haunting the startup employees in the near past," said Shende.