Startup employees stare at an uncertain future with pay cuts, layoffs due to coronavirus crisis

Anand Jayaramanna (name changed), an engineer working with a startup in Bengaluru, was literally shown the door last week as the company could not withstand the sudden slowdown in business due to coronavirus lockdown.

“It was all very sudden, and they did not give us any notice. I have savings only for the next three months. After that it is going to be hard for me,” says Jayaramanna.

This shows the unprecedented challenge that startups may have to face in the coming months if the spread of the novel coronavirus is not contained.

The threat of job losses has now raised its ugly head on the startup ecosystem, which provides employment, directly or indirectly, to little more than half million people, according to various reports.

According to Nasscom, Indian IT industry’s trade body, Indian startups created an estimated 60,000 direct jobs and 1.3-1.8 lakh indirect employment in the year 2019.

Fighting for survival

A few days ago, Prime Minister Narendra Modi called upon both the public and private sector not to resort to wage cuts or layoffs. However, the situation at the ground level seems to be grim.

Companies like MakeMyTrip and Zomato have already announced voluntary salary cuts, especially from the top management and those in leadership positions.

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This is an indication of the things to come as the startup ecosystem provides employment to both formal and informal job sectors. And there is also a large segment of workers who come under the category of the gig economy.

“Hiring is down by 60 percent in all sectors. Retail and ecommerce are the worst hit,” says Pravin Agarwala, CEO and co-founder, Betterplace. He adds that the next two months will be very crucial for employees in the blue-collar segment as nobody knows what the future holds.

Rohit Tewari, Founder, ReferHire, a HR tech startup, says, “What we are facing now is a cash flow crisis, with businesses grinding to a halt. Startups have already started to feel the pressure as most of them are living on a month-to-month basis.”

Such a situation will put tremendous pressure on startups, given that they do not have the cash reserves or resources of larger firms.

Rituparna Chakraborty, Co-founder, TeamLease, says, “For the first time, we have no forecasts, and we have no idea what is going to happen. Large companies can sustain current employees for a while, but startups cannot sustain this over the next quarter, and churn has already started to happen. 2020 can be a gap year for many of us.”

Most vulnerable segments

At a time when salary freeze or pay cut and layoffs all look very real, there are certain segments in the startup ecosystem, which seem to be very vulnerable.

Deepak Agarwal, Co-founder, TurboHire, a Hyderabad-based HR startup, says, “Indians do not have the habit of firing people, at least in the formal sector. I do not see layoffs happening at least in the month of April, but it will be a case of wait and watch.”

He feels that if the mid-to-long term prospects look bad, then layoffs could start, and it will mostly begin with the non-essential staff.

According to BetterPlace, which places and tracks blue collar workers, India employs around 170 million blue collar workers, and it estimates that more than 65 percent of them will not be employed next month.

Impact on tech industry

Even though the pressure seems to be high on the unskilled or semi-skilled segment in terms of employment, the situation is not very optimistic on the skilled talent pool side either, as there is almost a complete freeze on hiring.

Kamal Karanth, Co-founder, Xpheno, a specialist staffing startup, says, “Employment in GICs (global in-house centres) for technology hiring was down by 50 percent as of last week, and going forward, we believe there will be no hiring. People will now safeguard their business and focus on efficiencies.”

India churns out around 1.5 million engineering graduates every year, and in the current situation, their job prospects also look weak. The technology industry in the country employs around 4 million people directly, and is one of the biggest absorbers of the technical talent pool.

Given this environment, the startup community is now hoping for some kind of stimulus package from the government, which would be real and meaningful. This is the broad sentiment expressed across the ecosystem.

However, for startups which have been conservative with their cash, the situation could be slightly better. According to a startup founder, “We have enough cash, which can last us for four months. If we are not growing, at least we will survive.”

A bleak future

The current situation is also creating a unique scenario for startups to go back to their drawing board and think about their future.

Rituparna says, “Many of us have to get used to a new way of working, which is dynamic, and perhaps work for multiple firms. I would recommend people to reinvent themselves and utilise this time gainfully.”

However, the big question remains as to when will the outbreak end and life get back to normal?

Kamal says, “If and when hiring opens up, businesses will try to use current staff to increase efficiencies and hiring will be the last thing on their mind. This period is going to be one of the hardest times for India.” He further adds that it would take 12 months for tech hiring to get back to normal conditions.

But there is some hope for companies like HR tech startup TurboHire, which has onboarded two new clients during this period.

As Deepak says, “The optimism is still there in the market. Companies are still scanning the market for the talent even though there is a delay in their joining dates.”

(Edited by Megha Reddy)