Start-ups scale back ops in major reversal
As major global companies like Meta, Amazon, Google, and Microsoft, among others, undergo organisational restructuring and scale down their businesses to focus on core offerings, a similar trend is at play in the Indian start-up ecosystem. Many large Indian firms have, over the past few months, also scaled down their operations or discontinued their business verticals altogether amid a funding crunch.
Faced with losses, online restaurant aggregator Swiggy closed its Cloud kitchen brand, The Bowl Company, in Delhi-national Capital Region (NCR) recently.
Earlier in May, the aggregator had also suspended operations of Supr Daily — its subscription-based grocery delivery service — in Delhincr, Mumbai, Pune, Hyderabad, and Chennai.
The firm’s rival Zomato also discontinued its food ordering application for users in the United Arab Emirates (UAE) earlier last month. The company had sold its UAE business to Kuwaitbased food delivery platform Talabat and had been rendering services to Talabat in return for cost reimbursement. Zomato has also reportedly initiated layoffs of 3 per cent of its workforce.
Industry experts attribute this expansive decrease in operations across sectors to a renewed focus among businesses on efficiency and unit economics as the funding flow slows to a trickle.
Vinod Murali, managing partner at Alteria Capital Advisors, a venture debt firm that has made investments in quick commerce platform Dunzo, claims that “last year was about breadth, while this year is about depth”, as companies shift gaze from expansion.
Take the case of e-commerce giant Amazon which closed three of its businesses in the past fortnight. These include its online learning platform Amazon Academy, its food delivery business Amazon Food, and most recently, its wholesale distribution business Amazon Distribution.
In addition, the firm also announced plans to lay off 10,000 employees amid a global restructuring of the company.
According to market intelligence platform Tracxn’s quarterly start-up report for the third quarter (Q3) of calendar 2022 (CY22), funding in Indian start-ups nosedived by 80 per cent yearon-year in the July-september quarter this year.
Indian start-ups raised $3 billion during this period, which was 57 per cent lower, compared with the previous quarter.
The report added that late-stage funding saw the biggest fall of over 70 per cent, from $142 million in Q3 of calendar 2021 to $42 million in Q3CY22, indicating that investors are not willing to make large investments until economic conditions stabilise. “When there is a surplus of capital, businesses focus more on growth and try to ensure they have multiple engines firing in a bid to demonstrate that they have multiple drivers of success. Businesses chasing efficiency reward focus. Today, there is a premium on efficiency and focus. So, businesses are trying to stick to what they do best,” said Murali.
Currently, a large-scale reorientation of businesses towards profitability and efficiency is taking place. “Across the board, founders are focusing on unit economics and trying to cut losses,” he added.
According to Murali, this focus on efficiency allows businesses to maintain greater autonomy. “If you burn a lot in a capital-starved environment, then you’re giving the keys to someone else,” he said.
This phenomenon of scaling down operations is also visible in the quick commerce sector.
According to media reports, many quick commerce companies, including Reliance-backed Dunzo, Y Combinator-backed Zepto, and e-commerce unicorn Flipkart’s quick commerce arm Flipkart Quick, have scaled back their dark stores (warehouses) in the past few months amid funding chill and sluggish demand.
Besides its quick commerce arm, Flipkart also recently discontinued one of its seller services called Smart Fulfilment. Under this service, sellers had to store their products in a separate space within their warehouses to make them eligible for quicker deliveries.
Hospitality major Oyo also recently announced it would downsize 10 per cent of its workforce, laying off 600 of its 3,700employee base, primarily in technology roles, as part of wide-ranging changes to its organisational structure. Further, Sharechat-owner Mohalla Tech shut its fantasy gaming platform Jeet11 last week. With the move, the Google- and Temasek-backed unicorn laid off 5 per cent of its 2,200-employee workforce. Online cab aggregator Ola, earlier last month, had announced it was shuttering its infotainment vertical, Ola Play, from the Indian market. This came after the company had called a halt to its used-car business, Ola Cars, less than a year after launch. The mobility major also decided to cease operations for its quick commerce vertical, Ola Dash. Kannan Sitaram, partner at Fireside Ventures, observed that businesses are now focusing more on unit economics.
“At Fireside, our focus has always been on unit economics, both at the time of investment and thereafter. If the unit economics is positive, we encourage the use of capital to acquire more customers, expand the business, and strengthen the team,” he said. “We believe experiments are very important and start-ups should allocate capital to innovations such as new products, reaching new consumer segments, and newer channels. Equally important is to fail fast, cut your losses, and move to other innovations. In our view, businesses that work within these parameters will see sustained investor interest and create outstanding value,” added Sitaram.
Many quick commerce firms have scaled back their dark stores (warehouses) in the past few months