Pink slips: Startups forced to lose employees to stay afloat.
Ten months ago, Bhuwan Arora started up Oditty, an online content platform for news, videos and books. The 26-year-old IIT-Delhi alumnus relied on his personal savings and angel funding of Rs 25 lakh, which came in by April, to get the venture going. Over the next few months, Arora pitched his business plan to countless investors, but none was willing to bankroll the startup.
Early this month, the Delhi-headquartered Oditty ran out of money. Arora laid off the team of 25 and put up the startup’s shutters. “I am bankrupt, but my survival is the last concern on my mind. I feel terrible for my employees,” says Arora.
Cut to Indore, where Piyush Tiwari is now based after a stint as marketing head at TinyOwl, a Mumbai-based food-ordering venture. After 82 days, Tiwari’s first job in a startup had run its course; he became a casualty of a restructuring exercise in October, when he was asked to leave. “I am hurt. It (the short stint at TinyOwl) has badly damaged my profile,” he laments, adding that he should have reviewed the background of the cofounders before accepting the job offer. “I regret joining a startup, and will never go back.”
Period of Churn
They’re the flavour of the season, founded by entrepreneurs many of whom have become the poster boys and girls of Gen Y. Working with startups today is considered uber cool, and infinitely more sexy than doing the grind at, say, a metals manufacturer or a soaps marketer. But what happens when these startups begin to fire, with almost the same energy with which they had begun to hire?
As investors tighten the purse strings, nudging entrepreneurs to veer off the path of ‘burn and earn’, sackings are becoming an inevitable part of life in a startup where fire fast is often a more pragmatic option to failing fast. Whether it’s established players like Zomato or the newer ones like Housing and TinyOwl, a whole host of startups are going through a period of churn.
When downsizing hits the headlines, particularly in sectors that are still young and hunting for paths to profitability, it’s tempting and perhaps inevitable for the Cassandras to pronounce doomsday as the numbers of those fired keep rising. The common refrain: the going was good as long as the funds were pouring in; when those funds stop, pretty much everything else does too; what begins is the firing.
The prophets of doom may be only partially right. True, a fair part of the firing has its origins in funds either running out or — as in the case of Oddity — not coming in at all. The truth is that layoffs are inevitable in startups, almost as much as they are inevitable inthe rest of industry.
The only difference would be that the startups are young, and their founders raw, with little experience in, amongst other things, hiring. The business models are fluid and, as they keep changing, so do the skillsets — whilst new ones are needed, some of the existing ones may be rendered redundant. And, ironically, often it is when operations stabilise that startups suddenly realise they have too many people on board.
The reason for that: the phase of stabilisation is preceded by the growth phase, the period during which hiring peaks. The flip side of startup firing is that, sometimes, it’s the employee who finds it tough to cope with the chaos and pace; particularly those who’ve parachuted in from the corporate world where systems and processes have been institutionalised over decades. The inability to align with the founders’ vision and drive is unavoidable in such situations, as is what follows: a parting of ways, at the behest of the founder.
Whatever the reason for layoffs, what’s common is the pain, for both employer and employee. “While it (sacking) is traumatic for the employees, it is equally painful for the employers,” says Neha Singh, cofounder of Tracxn, a Bengaluru-based data analytics firm that provides financial information on startups. Shattering the myth that it’s only fundsstarved startups that let people go is PepperTap.
The one-year-young Gurgaon-based hyperlocal grocery delivery service closed a Series B funding round of $36 million (around Rs 237 crore) in October this year. In 2015, PepperTap laid off some 40 employees, pegging its current headcount at a little over 2,000. Reasons for the layoffs? Poor performance coupled with a business rejig, as the startup shifted from distributed customer care call centres to a centralised one, says Navneet Singh, cofounder of PepperTap. “Asking someone to leave is a difficult decision.
It feels like having failed someone,” says Singh who started with a team of six employees last December. However, at times, it’s necessary to ensure the success of the larger organisation, he adds. Singh feels it’s unfair to paint all startups with the same brush of reckless hiring. Startups are being shown in poor light when it comes to layoffs, he reckons. By their very nature, such ventures are inherently more actionpacked for employees than traditional corporations. However, they also are inherently risky due to their nascence, he adds. “Joining a startup is a conscious call one takes,” says Singh.
Yet, the truth may well be that for every well-funded startup that’s firing, there are at least two that are letting go of people because they have no money to pay them. Like, for instance, Oditty whose founder Arora insists that “there was nothing wrong with the business model. Only the timing was wrong”.
Arora resorts to numbers to support his contention: Oditty had 1.73 lakh page views per month, 1.01 lakh active users every month, 5.58 lakh news articles and 15.9 lakh books. While it was not making money, the expected profit to be made by the startup in three years was estimated at — hold your breath — $175 million.
Investors clearly weren’t buying into that projection. Arora doesn’t blame them, but wonders why they weren’t willing to give him as long a rope as perhaps the founders of Flipkart and Snapdeal have got. “They took many years to reach the scale they have, and investors backed them. “You need rock solid backing of investors to make something big. It’s not going to happen overnight,” he shrugs.
Prachi Jain, who worked with Oditty for nine months as a social media marketing head, says Arora was a “compassionate employer”. The 22-year-old was aware of the financial troubles and feels it’s unfair to blame the founder for the layoffs. “I was aware of the flip side of working in a startup.
You have to be ready to swim as well as sink.” Jain’s short stint taught her plenty: it pushed her out of her comfort zone, taught her how to wear multiple hats and perform diverse roles and equipped her to handle pressure, she contends.
But the biggest kick was the designation: social media marketing head. “Can you become the head of a vertical in a traditional company when you are just 22,” asks Jain, adding that it’s only at startups that one can rise rapidly in the ranks.
While it might have been a meteoric rise for Jain, for Tiwari it was a swift fall. With over 10 years of experience in Reliance Retail, Pantaloons and Microsoft, the job with TinyOwl was his first startup stint. “I thought that startups and ecommerce are the future. So I also took the plunge.” The experience, he says, was “‘disastrous”. The cofounders were a bunch of young guys in their 20s with no practical experience at all, claims Tiwari, adding that they hired recklessly to achieve scale and get funding. “In Pune, for instance, you just need one man to manage the marketing depart -ment. But there were six.” The sales team too was overstaffed, he claims.
On his part, TinyOwl chief executive Harshvardhan Mandad contends that working in a startup is about the ability to cope with a dynamic environment. “While we appreciate people’s hard work towards making centres like Pune profitable, employees joining startups do so with an understanding of the environment they are joining,” he says.
Human resource experts reckon that the current turmoil in the startup world is “evolutionary” in nature. “Rightsizing has always been inevitable in any company’sjourney, whether in terms of numbers or skills. It is a fundamental principle of evolution,” says Padmaja Alaganandan, leader, people and organisation, at PricewaterhouseCoopers India.
Whenever a specific segment of industry grows rapidly, there is always a phase of huge talent absorption.
However, that phase is followed by adjustments as the business growth gets moderated or expectations of profitable growth set in. Examples of such sectors over the past decade include insurance, retail and aviation. And we will continue to see this happen even in the future, adds Alaganandan.
Investors, for their part, are focused on returns, and whatever needs to be done to deliver those returns. Avnish Bajaj, managing director of Matrix Partners, a venture capital firm, maintains that by its very definition the startup ecosystem is meant to be disorderly and chaotic. “Even Silicon Valley is known for boom and bust cycles.
Unfortunately, in our country we don’t understand this fundamental thing, which may be because India never had a startup culture,” says Bajaj.
That’s why startups are either overhyped or vilified. We need to take a balanced view without being too critical,” adds the investor whose current portfolio includes LimeRoad, Ola, Practo, Quikr and Stayzilla. “Failure should be encouraged. It’s normal to fail.”
Tightening the Belt
To be sure, in recent times, Silicon Valley has been warming up to the idea of fiscal prudence and cost cutting, leading to a spate of layoffs.
Ride-hailing app Uber, Swedish caller id app Truecaller and Finnish smartphone startup Jolla are some of the notable startups that have reportedly started shedding jobs. Others like Evernote, Hootsuite, Jawbone, Snapchat, and Tango — each valued at least $1 billion — have also opted for cut in headcount over the last few months.
Fred Wilson, a venture capitalist based out of New York, has been advising entrepreneurs to rein in spending. In his blog late last month, Wilson wrote about belttightening at his portfolio companies, which had recently reviewed their spending and concluded that things had gotten a bit out of control.
“It is amazing how easy it is to take costs out of your business after two or three years of hypergrowth where the focus was on hiring, growing, expanding, and retaining the team,” Wilson wrote on AVC.com. A managing partner at Union Square Ventures, which has raised $625 million and has made 179 investments in 83 companies, according to CrunchBase, some of Wilson’s largest deals include Tumblr, Twitter and Zynga. “If you’ve been seeing a growth spurt for the past few years and have not taken the time to do some belt tightening, it might be a good time to do that,” he says.
Wilson contends that most employees appreciate when hard decisions are made. It can be a negative signal if it isn’t explained properly. “But it can be a very positive signal when the proper context is placed around the spending cuts,” Wilson maintains.
Mohinish Sinha, global expertise leader at Hay Group India, a global management consulting firm, contends that the layoffs are nothing but a mid-course correction. “It’s in the nature of startups. Anything rarely goes as per plan.” It’s common to find startups changing their operating model in the first couple of years of business. The skills for which hiring initially takes place are part of that experimentation.
Modifications — and with them layoffs and fresh hiring — are inevitable along the way. Consider for instance Frankly.me, a video-blogging startup, whose founder Nikunj Jain had little choice but to lay off employees once the business model changed. Founded in April last year, Frankly.me enabled users to get answers from celebrities and experts through video selfies.
By October 2015, the venture changed the model to become a horizontal video sharing network, in the process making the team of 30 involved in the Q&A platform redundant. Jain says that the sackings were part of a “trial and error” process towards the end of establishing a sound business model. It may, however, not be as clinical as it sounds. As Jain puts it: “At the end of the day the one who is sacking is also a human with emotions, and there’s no sadistic pleasure in sacking.”
Sajel Saxena is one of the employees Jain had to let go of. The 23-year-old who worked as head of the digital marketing at Frankly.me for 11 months didn’t have any regrets when he was told to leave in November. “If you are good at your work, you will get a job. So no point complaining,” says Saxena, who is now working in another startup in Greater Noida.
Saxena opted to work in a startup because he wanted to gain experience that would help him in setting up his own startup after a few years. “There’s no learning in the traditional companies,” he contends, adding that talent gets spotted and recognised only in startups. As for the danger of losing one’s job, Saxena says with a shrug: “No risk, no gain.” Abhijit Khasnis, chief operating officer of Hiree, a Bengaluru-based online recruitment platform, points out that while there will be a set of employees that will continue to flock to startups irrespective of the environment, another set will be more reluctant. The first type are keen to do and learn different things, work across technologies, across different domains, and be a part of the creation in an early stage of the company.
The second type are those who worked at corporates and are now attracted by the hype as well as potential — think multi-million-dollar funding rounds, billion-dollar valuations and success stories on newspaper frontpages and magazine covers — associated with startups.
The Efficiency Metrics
Teeshant Dhiman, 26, an IITian who has worked with three startups in his five-year old career, clearly belongs to the first category. After working for 18 months in his third startup stint, Dhiman put in his papers because of differences with the founder. Yes, he’s now looking for a fourth startup sojourn. “People get afraid of the negative 50 per cent; I focus on the positive 50 per cent,” he maintains. Over time, startups will realise that mindless cash-burn and hiring could well mean the end of the road, sooner than later. Indeed, the lessons are already being learnt by those still in the game, as ventures around them crash and burn in spectacular fashion.
“Hiring for future is a cardinal sin,” says Radhika Aggarwal, cofounder of ShopClues, which claims to be the fourth largest ecommerce player in India by sales. Unfortunately, a bootstrap mindset has gone down the drain for a lot of the newer startups, she contends, adding that what has worked wonders for her company is the “bootstrapped mindset”.
“The moment you start spending every penny as if it’s yours and not of an investor, most of the problems will get sorted out.” ShopClues has raised roughly $120 million so far in six rounds of funding, but never went on a hiring spree after each round. “We are not a raise-and-burn company. We manage efficiency metrics,” she says.
Not all startups will think that way, which is why history shows that only two (at best) of every 10 ventures succeed. So, the next time somebody lets out an alarmist scream on reading the next headline of a startup laying off — in the inside pages of newspapers hopefully, by then — just tap him or her on the shoulder and say: “Hey, it’s okay, this is how it’s supposed to be.”