Star­tups May Lay Off Many More This Year

Cos un­der mount­ing pres­sure from in­vestors to re­struc­ture oper­a­tions, cut flab

The Economic Times - - Companies -

Biswarup Gooptu & Payal Gan­guly

New Delhi | Ben­galuru: In­dian star­tups, brac­ing for an­other year of dras­tic belt-tight­en­ing, are ex­pected to lay off hun­dreds more this year, bow­ing to pres­saure from in­vestors to trim flab and re­struc­ture oper­a­tions.

Sev­eral of the job cuts are ex­pected to be a re­sult of the rapid au­toma­tion be­ing in­tro­duced at lead­ing star­tups to han­dle rou­tine tasks, as well as be­cause of a spate of merg­ers and ac­qui­si­tions among emerg­ing busi­nesses an­tic­i­pated this year, ac­cord­ing to in­dus­try an­a­lysts track­ing the de­vel­op­ments. For in­vestors, there’s more than one rea­son to cheer: In ad­di­tion to low­er­ing ex­penses for star­tups, the lay­offs will give the firms or­gan­i­sa­tional and mon­e­tary band­width to fo­cus on hir­ing high­value ex­perts hav­ing niche skills cru­cial to ad­vanc­ing growth.

Al­ready, some of the country’s big­gest star­tups — on­line mar­ket­place Snapdeal; restau­rant dis­cov­ery and food or­der­ing plat­form Zo­mato; and on-de­mand de­liv­ery startup Gro­fers — have let go hun­dreds of em­ploy­ees over the past eight months as they seek to ra­tio­nalise costs and build health­ier bal­ance sheets.

“It’s in­evitable,” said Su­nit Mehra, man­ag­ing part­ner at ex­ec­u­tive search firm Hunt Part­ners. “In 2014-15, there was huge ram­pup (in hir­ing) that wasn’t done in a planned man­ner. A lot of num­bers got added just for the sake of adding them.”

Em­ployee costs at In­dia’s lead­ing star­tups ac­count for about 35% of their over­all cash-burn rates, ac­cord­ing to in­dus­try an­a­lysts, who add that the move to shed per­son­nel is be­ing driven by in­vestors strug­gling to find ways to earn mean­ing­ful re­turns on the mil­lions of dol­lars they have poured into In­dian star­tups.

“Th­ese are def­i­nitely test­ing times for the startup ecosys­tem,” said Aditya Rao, chief ex­ec­u­tive of ser­vices startup Loca- the job cuts are ex­pected to be a re­sult of the rapid au­toma­tion be­ing in­tro­duced at lead­ing star­tups

to low­er­ing ex­penses for star­tups, the lay­offs will give firms or­gan­i­sa­tional mon­e­tary band­width to fo­cus on hir­ing high­value ex­perts the and

lOye. “2016 is the year where ev­ery­one is try­ing to re-eval­u­ate their strate­gies and put a strong fo­cus on rev­enues and mar­gins more than any­thing else.” The Tiger Global Man­age­ment and Light­speed Ven­ture Part­ners-backed firm laid off about 60 em­ploy­ees in Novem­ber, giv­ing them about three months’ salary to­wards sev­er­ance.

Star­tups “are be­ing forced to bring down their op­er­at­ing ex­penses dras­ti­cally and look to be prof­itable at the gross mar­gin level,” said Anil Kumar, chief ex­ec­u­tive of hir­ing firm RedSeer Man­age­ment Con­sult­ing, an ad­vi­sory firm that tracks on­line busi­nesses in In­dia.

The move to ruth­lessly prune work­forces fol­lows two years of un­mit­i­gated growth for In­dia’s big­gest startup ven­tures that saw them emerge as the poster boys of hir­ing at In­dia’s top engi­neer­ing and man­age­ment schools. But that trend has ground to a halt as deep-pock­eted risk cap­i­tal in­vestors such as Tiger Glo- bal and Soft­Bank, which were among the most ac­tive back­ers of In­dian star­tups, toned down their hy­per-ag­gres­sive in­vest­ment strate­gies.

“A few big funds led the in­vest­ment charge and cre­ated th­ese in­vestor con­sor­tiums. The new in­vestors did not un­der­take the nec­es­sary due dili­gence and have now started ask­ing ques­tions,” said Kumar. Em­ployee ex­its at star­tups have be­come more fre­quent this year.

In March, real es­tate web­site Com­monFloor laid off about 100 em­ploy­ees, two months af­ter it was ac­quired by War­burg Pin­cus and Tiger Global-backed Quikr. “As part of the over­all in­te­gra­tion ex­er­cise, we have been analysing all our as­sets and be­lieve it is best to con­sol­i­date our phys­i­cal as well as peo­ple as­sets based on our busi­ness needs,” a Quikr spokesper­son said in an email to ET. The pre­vi­ous month, Snapdeal, which is backed by Soft­Bank, Fox­conn and Alibaba Group, put about 200 em­ploy­ees at its call cen­tre on a so-called per­for­mance im­prove­ment plan that has led to sev­eral staff ex­its. “Some of the em­ploy­ees have cho­sen not to go through the per­for­mance im­prove­ment plan and have in­stead opted to exit… The PIP process is ex­pected to cover about 200 team mem­bers,” a com­pany spokesper­son said.

Snapdeal de­nied any plans for lay­offs. “We cat­e­gor­i­cally deny any plans to re­duce the team strength in any of the func­tions or ver­ti­cals at Snapdeal. We have nei­ther laid off nor do we in­tend to lay off any­body across the com­pany,” the spokesper­son said.

In De­cem­ber, Rocket In­ter­net-backed Foodpanda In­dia laid off more than 300 em­ploy­ees, who ac­counted for about 15% of its to­tal work­force at the time. Two months ear­lier, Zo­mato, which counts Se­quoia Cap­i­tal and Te­masek among its back­ers, too, laid off around 300 em­ploy­ees, a bulk of them in the United States.

SEV­ERAL OF IN AD­DI­TION A SPATE

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