The startup language of layoffs

Gupta says Trell was hiring new talent while letting go of hundreds of employees. That and miscommunication have left him and his colleagues who were laid off distraught. “They did give us a severance pay, but cut out on our variable pay for January to March, which is the bonus we’re entitled to if we perform well,” says Gupta. “If I wasn’t performing well, what was all that appreciation and extra work for?” he asks.

“They fired us over WhatsApp calls that cannot be recorded, unlike Zoom calls. We didn’t get any official mail or a proper explanation except for the fact that the company was running losses and had to downsize. We were shut out of the system within 10 minutes of being informed. The whole process was very shoddy and unethical,” says another Trell employee, who was laid off in March, on condition of anonymity.

The management of the influencer-led social commerce startup laid off around 300 employees in March, according to The Economic Times, amidst an investigation for alleged financial irregularities by the Trell co-founders, which includes allegations of siphoning off money for personal use. After reporting a loss of Rs78.4 crore in Q1FY21, Trell raised Rs339 crore in July 2021.

Forbes India reached out to Trell with a detailed email on the concerns mentioned above. The company, however, declined to give a response.

Trell isn’t alone. Major growth-stage startups in India have laid off hundreds of people in 2022. As per Business Insider's estimate, more than 5,700 employees across major startups have been laid off in the last four months. In addition to this, US-based digital mortgage lender Better.com badly botched mass layoffs twice. On December 1, CEO and co-founder Vishal Garg laid off 900 employees via a Zoom call, and made headlines for being cold and insensitive. In March, the company laid off 3,000 of its remaining 9,000 employees in the US and India, according to The New York Times.

“I received the severance payslip in my workday account [the payroll software the company uses]… that’s how I found out that I’ve been fired,” a sacked employee tells Forbes India on condition of anonymity. “The severance checks arrived without any additional communication from the company. It was a day or two later that we were all collectively informed on a Zoom call that they’re letting us go.”  

Forbes India sent a detailed email to Better.com asking for its response on the issue, but there was none.  

While layoffs are a part of a business cycle, the scale and how they’ve been carried out—over WhatsApp calls, without notice, and with pay cuts—are a cause of concern. Most of the startups that have laid off employees are flush with funds and have been experimenting with expansion plans.

Startups in India mopped up over $10 billion in funding during the first quarter (January-March) of 2022, according to Venture Intelligence. This is a 50 percent spike from the $5.7 billion they raised in the same period last year.

Edtech platform Unacademy—which saw revenues going up around six times in 2021—has laid off approximately 600 employees, according to The Economic Times, or 10 percent of its workforce since February 2022, in addition to the 325 part-time employees and educators on its platform. Most of them were from verticals like sales and business operations, and were part of the content sales and business development teams for the core Unacademy test preparation product.

The Gaurav Munjal-led edtech unicorn gobbled up competition and other edtech startups in 2021, and raised $440 million last August. The organisation says it is focussed on becoming profitable by the end of Q4CY22 in its core test-prep business while investing for growth in group companies. “Unacademy is built on a culture of high performance and transparency, and a key aspect of that is the transparency and objectivity with which we conduct our annual appraisal process. Based on the outcome of several assessments, a small subset of employee, contractor, and educator roles was re-evaluated due to role redundancy and performance, as is common for any organisation of our size and scale. The vast majority of roles impacted has been a result of that process, and the efficiency we aim to drive in the broader business,” the company tells Forbes India.

“We have discussed and parted ways with the identified people, as per their respective contracts. The company has in good faith ensured they receive certain additional benefits and a generous severance. We value everyone’s contributions at Unacademy, and we wish all of them the best of luck and thank them for all their efforts at Unacademy,” says a company spokesperson.

Meesho, an ecommerce platform, laid off 150 employees from its grocery business in March, according to The Economic Times. The platform, which raised around $870 million and recorded a 150 percent jump in business in 2021, recently rebranded its grocery business to the Meesho superstore from Farmiso. The Economic Times reports that around 400 people have been impacted by the downsizing move.

Meesho declined to respond to Forbes India’s detailed email for a comment on the issue.

Ride-hailing giant Ola has undergone a massive restructuring of its personnel. Business Insider claims the company has laid off 2,100 contract workers and is closing its 200 retail outlets, and scaling them down further.

Ola, however, tells Forbes India that it hasn’t laid off any employee this year. The company recently announced that it is adding 10,000 people across key areas, including sales and service centres.

The Economic Times also reported that Bengaluru-based bookkeeping startup Ok Credit has laid off around 40 employees from the backend, technology, and engineering teams in February. Furniture rental startup Furlenco let go of 180 to 200 employees, mostly from customer support roles, including grievance management, scheduling, and other operations, as the company scales down operations across metro and non-metro cities.

Furlenco declined to comment, while Ok Credit didn’t respond to Forbes India’s detailed email with questions on what led to the layoffs.

Facing a severe cash crunch, Lido Learning, an edtech platform, laid off 150 to 200 employees in February, citing underperformance and irregularity of work by the concerned employees, as reported in The Economic Times. Lido Learning also didn’t respond to Forbes India's detailed email with questions about the company’s operations.

Why downsize when you’re growing?

The year 2021 saw a funding peak for startups followed by a hiring spree and massive pay hikes. Most of the startups that have let go of employees this year were experimenting with growth strategies that didn’t work as intended and are now shedding deadweight or businesses and verticals that are not moving the needle.

“The major reason for layoffs is unplanned hiring… usually startups are in a rush to on-board talents that might be of no use after some time,” reasons Manas Pal, co-founder of PedalStart, a startup enabler that supports early-stage startup founders. “Such layoffs and a toxic culture create conflicts and communication issues which later affect the mental health of employees.” 

“Startups usually face pressure from investors to try newer approaches, which coupled with inadequate growth analysis, lead them to create market strategies or growth plans or introduce new verticals that fail which has a direct impact on the workforce,” says Mayur Taday, chief business officer for BFSI, ReCom, and TeleTech verticals at TeamLease Services, a hiring platform for entry-level and blue-collared jobs.

Explaining the reasons for the recent layoffs, Taday says: “The ‘Fail fast, Succeed Faster’ methodology adopted by startups gives them the agility to change or fine-tune their business models quickly which leads to overhauling of skills. Some startups are required to downsize to achieve their profit and loss milestones. Another reason is that some new entrants quickly realise that they are unable to disrupt the market leader and so need to go back to the drawing board. Some run out of cash and lay off people until the next round of cash infusion.”

When a business experiment doesn’t work out as planned, human resource is the first thing that gets affected since they are the easiest to control while other fixed costs are not in their hands. These layoffs lead to the investment going to other segments of the startup, either in the form of increased cashflows or something else,” says Aditya Arora, CEO of Faad Network Private Limited, an investor network that assists early-stage startups.

Mass layoffs by startups isn’t new. In 2016, then-growth-stage startups Flipkart, Snapdeal, Zomato and Grofers had fired thousands of employees.

“The nature of these businesses and the cycle in which they’re operating might lead to a certain level of the workforce that will go out of business every time, but startups need to improve their communication with employees and how they handle these layoffs,” says Arora.

“A social commerce company today is also a technology company, a fintech and banking products company… so many of these business domains and cycles are interrelated within the same organisation, and you need to hire specific talent for them. If any of these segments isn’t working or is a pain in the balance sheet or isn’t giving returns as expected, then a startup can’t afford or take the load of extra costs because investor money can dry out soon,” he elaborates.

The global factor

“Currently, the Russia-Ukraine war has increased costs, and the growth in online business is slowing down with the offline engagement increasing post-pandemic. These major startups are large companies now. And like any company, they are impacted by different macroeconomic factors,” says Padmaja Ruparel, co-founder of Indian Angel Network (IAN) and founding partner of IAN Fund. “As businesses face a tough time when growth slows down and raising funds becomes difficult, it is imperative that businesses conserve cash and start to optimise. They do this by cutting costs from their multiple business lines or geographies, and reducing teams.”

According to media reports, 506 startup funding deals were recorded in Q12022. Over $11.8 billion was raised by Indian startups in the quarter, 186 percent higher than the funds raised in Q12021.

Despite the funding boom, it is doubtful whether Indian startups would be able to sustain the investment tempo. Globally, the macroeconomic headwinds like a hike in interest rates by the US, geopolitical tensions arising from the escalating Russia-Ukraine conflict, ever-increasing crude oil prices, changing public market valuations for tech companies, and a frozen IPO market have induced caution among investors concerning high-growth, high-burn startups.

According to a Bain & Company report released in collaboration with Indian Venture and Alternate Capital Association, the Indian startup ecosystem is likely to witness a shift in the pace and quality of venture capital (VC) deals in 2022.

The first signs of a slowdown in fundraising by the Indian startup ecosystem are showing up. According to KPMG’s Venture Pulse report, VC investment in India slowed somewhat in Q1CY22 relative to record totals during the second half of 2021. VC investment in Q1CY22 reached $7.9 billion across 300 deals, said the report.

“Yes, we will see more downsizing of teams as fundraising is slowing down. Companies will cut the flab and hire prudently,” warns Ruparel.

Money Matters

The mass layoffs mean an infusion of job seekers in the market, and shift the needle in favour of startups for salary negotiations. “Since so many of us have been laid off, and we’re all looking for jobs, we aren’t getting as much as we were previously,” says Divija Rai (name changed), who was paid Rs4.5 lakh per annum at Trell and is now being offered around Rs3.4 lakh annually from the startup she has applied to.

Riya Sen (name changed) agrees. The 21-year-old joined Better.com at Rs6.8 lakh per annum as a fresher, and was among those who was laid off in March. She is now being offered between Rs4 lakh to Rs5 lakh per annum, much lower than what she made earlier. “It’s hard to decide… I’ve applied at many places and while I am getting responses, I’d have to settle for a much lesser pay than what I was earning at Better.com. I’m confused about whether to take up opportunities with a pay cut or wait for a better offer,” she says.

Forty-nine percent of recruiters are facing the challenge of inflated salary expectations because of the inflated talent market, as per the annual Hiring Trends Report 2022 by Scaler, a Bengaluru-based edtech startup.

According to the survey, for 83.5 percent of respondents, the average time taken to fill open positions has increased significantly, resulting in longer recruitment cycles. The number of open positions taking more than a month to be filled has also increased by 12 percent. This increase in turnaround time results in decreased organisational productivity, high hiring costs, and increased stress on other employees.

Currently, startups are looking for technical talent which has the most inflated salary expectations, says Ruparel. “As Indian startups/companies go digital and build tech products to automate and scale, tech talent is imperative. Currently, quality technology product architects and developers are scarce and expensive,” she says.

“The last two years of the pandemic have led to unprecedented changes for employees across sectors. New roles came up to suit evolving workspaces and environments, for which mass hiring took place. Adherence to a growth strategy, a plan to hire and a thought-out compensation policy could have helped avoid layoffs. The focus should have been on nurturing the skilled talent in a company rather than hiring irrationally,” says Harshada Sarode, human resource manager at PlayerzPot, a fantasy gaming platform that employs around 200 people and has chosen to move employees from one department to the other instead of laying them off. “Interestingly, we found out that many of our employees are currently working exceptionally well in a role that they had not initially applied for.”  

The bigger concern because of the mass layoffs is whether startups would lose their attractiveness because of a high-risk environment? “That is a concern. There has been a drastic change in the demands of the workforce in favour of learning, flexibility and a positive work culture. The younger generation often opts for challenging work that grows them into risk-takers more than the older lot,” says Pal.

“The high-reward aspect along with high risk still make startups attractive for the younger talent, but if these mass layoffs become a trend, they stand to lose attractiveness in the global market,” says Arora. “Now is the time for startups to invest in human resources more than ever. Proper recruitment strategies should be formulated instead of rapid hiring and rapid firing.”