Entrepreneurs who got it right explain reasons behind mass firings in the startup ecosystem

8th Jan 2016
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The startup ecosystem had its fair share of highs and lows in 2015. While it rejoiced at the shower of funding, it also had to labour under the sacking trend. From real estate to foodtech to automobile, the layoffs spanned across categories. Big names like Housing, Grabhouse, Zomato, TinyOwl, Foodpanda and Gozoomo all laid off employees. Though these developments might have worried some, it has provided great lessons to the ecosystem – be wary while hiring, burning cash recklessly, and achieving GMV, among other things.

Credit: Shutterstock
Credit: Shutterstock

Experts say that the recent ups and downs have helped them understand the ecosystem in a better way.

“There are two ways to look at the business. One way is to chase the revenue and the other way is to chase the scale. When the latter is chased, without paying much attention to revenue generation, the business is destined to suffer the loss,” says Amit Jain, Co-founder, CarDekho.

He adds that the current situation is the result of an exponential expansion, without heeding to need for establishment of base. In the process of chasing expansion, many startups committed the mistake of hiring extra workforce which became obsolete when growth didn’t meet the scale point as expected. With funding almost exhausted, these startups tried to maximise the runway and reduce the cost.


Also read: The truth about hiring and firing in the startup world


 

CarDekho was launched in 2008. It raised the first round of funding of $15 million from Sequoia Capital in 2013. Last year, it announced a fund raise of $50 million in another round led by Chinese funds Hillhouse Capital and Tybourne Capital.

While some startups are firing their employees across the segment, CarDekho is looking to double its workforce. Amit says that their revenue is expected to grow twice in the next fiscal year.

Neha Puri, Founder, CyberChef, which provides a marketplace for procuring food from home chefs in Gurgaon, feels that there have been some mature startups that made the mistake of over-hiring and spending on non-essential resources. And as the resources depleted, the organisations first decided to reduce the additional cost by cutting down on physical items and employees.

She explains that after receiving funds, the first mistake startups often commit is increasing their workforce in order to achieve scale. After a point of time, when funds dry up and there is no growth, the hired skillset becomes obsolete.

“But we do believe that the news of firing in the startup industry was over-hyped. Hiring and firing are the part and parcel of any business. Layoffs happen everywhere, but the way they happen is what makes the story. Today, had some organisations not come in the eye of the people for the treatment vetted out to their employees, layoffs wouldn't have been a big issue of discussion,” observes Neha.

CyberChef, which was launched in February 2015, is still bootstrapped. It recently set up its Mumbai base, and is keen on expanding to other cities such as Delhi and Pune. “Though we are expanding our base across the country, we have been hiring carefully,” Neha adds.

Far from the media hype, business-to-business startup industry is silently working and claiming to achieve commendable growth numbers.

Ajay Chauhan, Co-founder, SalezShark says that major buzz is happening around valuation and not the product. Gaining scale and not having revenue has backfired. “To run a successful business, it’s important to make the product presentable and create that 'wow' factor in it, so that consumers will buy the product, irrespective of added benefits given on it.”

SalezShark is a US-based sales and marketing automation platform, powered by customer relationship cloud. The startup was incorporated in 2014 and is headquartered in Virginia. It was launched in India in April 2015 with its operational office in Gurgaon. The company has 100 per cent subsidiary in India.

The platform’s mobile app enables sales and marketing folks to prospect in a better manner and efficiently manage their daily tasks, meetings and activities.

Initially, the startup was seed-funded with a capital of $one million by its founders and later it received an investment of $2 million from Indian-American entrepreneur Saif Ahmad. Currently, the platform is hiring and plans to increase the employee strength from 25 to 50.

Investors, who are the major players in the ecosystem, are becoming cautious, as they’re trying to conserve capital. Startups are being told to focus on fundamentals and unit economics by their VC board, and are hence cutting costs to retain invested capital. This gives them a longer runway and opportunity to survive.

Peesh Chopra, Managing Partner, PVC, says that firing employees won’t do much help to the ecosystem. Startups need to change the business fundamentals.

“When you do mass firing, the available workforce in the company goes on the downward spiral. They work under the constant pressure of losing their job. This leads to more resignations, sometimes people quitting from top positions. And losing efficient workforce is not good for any company,” explains Peesh.

The current situation is a wake-up call for the industry. Amidst all this unsavoury news, the industry does continue to bag more funding, based on the strong business fundamentals.

“Interestingly, despite the existing problem, we are going to make an investment in a hyperlocal delivery company soon because the company has strong fundamentals of client retention and positive unit economics,” adds Peesh.

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