Indian startups are on a lay-off spree. Reportedly, more than 8,000 start-up employees have been sacked since the beginning of 2022. Edtech company Vedantu has laid off 424 employees, which is in addition to 200 academicians and assistant teachers. The laid off employees include contractual and full-time employees.
Another media report cites that ridesharing company OLA Cabs laid off 2,100 employees. Other Indian startup firms like Unacademy, OkCredit, Trell, Furlenco, Meesho, and Lido Learning have also reportedly laid off employees. Startups laying off employees is indicative of an increased focus on the bottom-line.
“Liquidity is tightening up and VC funding is not as easy as before. As many founders are realizing, just having a good business plan and revenue topline is not enough,” observes Lloyd Mathias, Business Strategist and Angel Investor.
On the reasons behind the layoffs, Arjun Jolly, Principal, Athena Executive Search and Consulting, says, “This is due to the geopolitical tensions, impending recession fears and fed rate interest hikes having led to inflationary pressures with massive corrections in stocks globally and in India as well. This has led to limited availability of funds for the coming quarters, at least, forcing startups to rethink and prioritise business models and functions. A trickle-down impact of it is layoffs in order to reduce cash burn and reserve funds during these periods. Already, stock prices of most listed new age companies have corrected sharply in recent months and we are seeing a correction in valuation for many established startups as well.”
Does layoff news impact employer brands?
“Sudden layoffs, which come with no prior information or post information, definitely impact employer brands. It puts fear in both existing and future employees, and results in negative comments on employee feedback sites like Glassdoor, severely impacting the employer’s reputation as a good employer,” says N. Chandramouli, CEO, TRA Research.
“A well-funded company is expected to also plan well. Sudden layoffs demonstrate a lack of planning and strategic support for goals. However, many layoffs are initiated by non-strategic investors who are only interested in the short term.The onus, however, lies with the investee company, as the scrutiny on the investor must be as high as on the investee. The colour of money matters in the long run,” he adds.
Mathias also shares the view. “It does impact the employer brand, as it makes future hires vary of the company. This may happen more so in companies that fire in a cavalier manner or that have just come out of a hiring cycle. Also, existing employees tend to feel a bit insecure,” he adds.
According to Avneesh Kumar Agarwal, Founder & CEO at SpeckyFox Technologies, layoff news plays a big role in both, determining a corporation’s capability to draw top talent and in impacting its public-facing appearance.
“The adjusting economy suggests that companies that concentrate on large layoffs during critical times will probably face hardships while attracting skilled and talented people in the future. In my view, employer branding sometimes isn’t just about how someone functions or expresses to attract talent to their organization. Instead, it’s something about trust and how well-behaved they are during a time of crisis. Every interaction throughout the employee lifecycle determines what an employee would think of the organisation he is working for, so it’s noteworthy that the actions during the time of predicament are aligned with the employer’s brand and because it is something that employees value the most,” Agarwal adds.
Harish Bijoor, Brand Guru & Founder, Harish Bijoor Consults Inc has a different perspective.
“Layoffs do not affect employer brands at all in the category of new world enterprises related to the tech category. In the old days (six months ago), it used to be a shock. Not anymore. A startup today is expected to recruit heavily and retrench heavily as well. This is inbuilt in the DNA of recruitment of this category. Uncertainty is the norm. If you gain big, you lose big as well,” he says.
Even on funding, if a startup plans to raise funds and has recently laid off its employees, its chances of getting funds will be drastically reduced because someone is trying to raise the funds at the peak of the downturn, contend some industry watchers.
Will laying off impact the company’s valuation?
“Not necessarily. To some extent, layoffs reflect belt tightening and a concern for maintaining a solid bottomline. However, if the layoffs are substantive, then it may serve as a red flag to existing and potential investors that all is not right with the business model. But laying off does get the startup into the limelight, albeit not in the way they’d like to. It also is indicative of weakening business fundamentals,” says Mathias.
“Dried-up funding results in the rise of layoffs. Laying off employees has a substantial negative impact on customer retention. Customers are indeed an asset to the company, and the employer must figure out ways to retain them. When a company lays off its employees, it sends a message to clients that the company is undergoing some kind of crisis. In fact, it’s an indicator that either the business is not going well, the economy is not on the right track, or the start-up has made some erroneous decisions in the past as far as hiring is concerned. These indicators will not help investors to infuse money at a higher valuation, and ultimately, investors will either prefer to invest their money at a lower valuation or might shift to some other competitors in the same domain,” says Agarwal
“Valuation of the company is not impacted by operational events like layoffs. Most investors understand that such actions are part of the corporate lifecycle. Due to a broader correction in sentiment, it is expected that the salaries in the market will be rationalised. The purpose of life is to live a life of purpose. The salary corrections in the market allow employees to introspect harder about their purpose in life and its alignment with the company’s mission, rather than choosing a company that is paying more salary,” says Pallav Pandey, Co-founder and CEO of Uolo.
“Cutting employees is the go-to move in such circumstances in order to minimise fixed commitments and lower cash burn,” observes Abhinav Mital, Co-founder, The WorldGrad
“Layoffs in startups result from overzealous recruitment followed by underwhelming performance. This in turn means that companies struggle to raise further capital as their valuations appear to be exaggerated and their cash demands too ambitious. In other words, if the company is laying off staff en masse, it’s probably because its value in the market has already taken a hit. A crisis for one company can be an opportunity for others — both to learn from their mistakes as well as support those impacted by the crisis. While a few companies may not be able to sustain their employee base, the industry as a whole does step in to provide a new home to the highly talented and trained staff,” surmises Mital.