The Startup Layoff Game Continues

The year 2022 did not begin with a bang for many corporates, multinationals and startups across the globe. A global sell-off pressure even prompted a stock market crash earlier this month.

This has further resulted in startup funding experiencing a major slow down to a trickle. The first quarter of the year saw Indian startups rake in $11.7 Bn in funding, minting 13 unicorns in the process. So far, 9,608 employees have been laid off by 25 startups, which includes unicorns such as Vedantu, Cars24, Ola, Meesho, MPL and Unacademy.

Situation At A Glance

The world economic order has taken a severe beating. For nearly 22 months, the entire global economy was practically in a state of shut-down. Global Economic balance was adversely impacted in North Americas, Europe and in Asia. And whilst economies appeared to be making serious attempts to totter back, they are nowhere close to success.

Whilst governments of different countries have pumped in additional & unplanned support funds into their budgets to cope with the contingency, there would have to be an impact of that unplanned pumping of money in cash flow and that cost somewhere would have to be absorbed by the economy. 

Anil Mohanty - Head of People & Culture - Medikabazaar further explains, “The impact of recession affects sectors differently. The healthcare sector might not necessarily be affected the same way as other sectors are. While capital spends might be more scrutinized, the retail side or opex and even servicing of already procured medical equipment would typically still likely remain at current levels. For companies in general, it would be better if they are more prudent on expanding their employee base unnecessarily, whether a downturn or even a recession is around the corner.”

Albeit, it would be naive and rather too early to label this situation as a downturn or a recession, one does detect some traces of early behavioural patterns where investors and founders of Companies appear to be preparing themselves for insulatation against the likelihood of such expectations. 

“Our recommendations to clients has therefore been to observe great restraint on avoidable expenses, make investments in Developmental projects with caution and only after Impact Studies, (focus more on ROCE) and observe austerity wherever possible in matters of high-cost talent acquisition. We are influencing them to modify their business models and strategies rather than focus only on the cost front,” explains Adil Malia, CEO and Partner, The Firm.

Furthermore, fear of Covid once again seems to be raising its ugly head and does not appear to have gone away as we had imagined on the one hand. The employees are on the other hand showing great reluctance to physically report to work with further insistence on behaviours reflecting the 'Great Resignation'

Is Layoff the only resort of cost-cutting?

According to a reputed media house, so far, 9,608 employees have been laid off by 25 Indian startups, which include unicorns such as Cars24, Ola, Meesho, MPL, Trell, Unacademy and Vedantu. In May alone, there have been 9 layoffs, impacting 3,379 employees. So far, June has seen nine layoffs of its own. However, the number of employees affected is fewer than in May at 849.

Ecommerce has seen the most layoffs, followed by edtech. The two sectors have collectively seen 17 startups lay off 8,318 employees so far. This means that almost 9 in every 10 employees laid off were working in either ecommerce or edtech.

While laying off has become the easiest way to cut down recurring expenses, but depending on the nature of business, an organization could consider other options as well. “Apart from rendering people off from their livelihood, shutting down facilities and offering work from home as an option, moving to a less expensive office space, or streamlining its supply chain to make it leaner, streamline travel overheads, cutting down on unnecessary or more than necessary marketing spends, reduce inventory levels,” suggests Mohanty.

Malia further explains that cost rationalization is critical to business success, any time - good times or adverse times. There are many known and hidden elements of cost which the organisation needs to study and focus on for purposes of rationalising. However, the focus of leadership should ideally be on redesigning the business model to face the real time economic challenges. But some organisations without doing much research, jump straight into cutting labour & employment costs as a strategy as they trigger symbolic austerity and also it is a low hanging fruit.

In most of the cases, cash flow appears to be getting adversely impacted. Employment cost being a regular monthly burden for outflow of cash ends up creating unnecessary pressure. Reducing employment cost thus becomes an easy solution though not the best. However, long term skill erosion, loss of organisational knowledge, lowering employee engagement and morale etc. due to labour lay-off are costs that such managements ought to be mindful of.    

Falling in the category of “Layoff Safe”

“No company is lay off safe. You need to make yourself layoff safe.” With such embedded thought process in minds of lakhs of employees, how can organizations expect them to work with free-mind, produce utmost productivity when all their actions are just to safeguard their jobs?

Well, these days it’s a very common question these days. “Lay- off is a legally well-conceived and thought out process in certain defined contingencies when business is not doing well. It tends to safeguards the organisation by defining the process which needs to be followed in eventualities where the businesses are unable to perform due to certain reasons,” asserts Malia.

Today organisations need to be prudent about hiring and adopt a lean way of working. If the organisation as a whole adopts this practice, it might not have to come to a situation of laying off employees. Mohanty explain while citing an example of Netflix; “they openly claim that they are only looking for top notch people and if you aren’t happy within 3 months, they could leave immediately- no questions asked. It might not be possible for all organizations to go the Netflix way- but it is still possible to ensure that we adopt lean practices in everything that we do, and engage them in a manner that the workforce imbue the organization’s needs.”