The current phase of layoffs and fund crunch at start-ups in India is expected to be a temporary phase and, in fact, there could be a sudden spurge in talent demand as the situation eases. Experts with whom THE WEEK spoke to feel that with the growth expected in the Indian economy over the next few quarters, start-ups are also expected to see an uptick in their business. The hiring is expected to surpass the layoffs.
Experts believe that startups that are forward looking and can adapt to dynamic markets are much more effective in scaling up without laying off. While job security itself is subject to internal environmental factors such as success of the start-up itself, from an overall employment perspective the current spree of layoffs and dearth in funding looks to be temporary at best. This is because as the start-up ecosystem in India matures, they would not need to resort to such measures.
“Currently, the trend right now is a valuation game, and cost optimisation follows the fund raising. In the near term we will see sudden upsurge in talent demand, and in terms of job opportunities start-up hirings are taking place with the same or more momentum than the current layoffs so this should not be an issue in the long term. The dearth in funding is also something that is not going to persist or impact the ecosystem in the long term as immediate environmental factors subside,” said C.S. Murali, chairman of the Entrepreneurship Cell, SID, at the Indian Institute of Science (IISc)
Experts do agree that while companies hired aggressively at the start of the pandemic they were unable to later manage their workforce capital, leading to bloated spending and cash burn, and the current inflationary environment is adding to the dearth in funding. The answer for some start-ups was to lay off people.
“Indian startups are now looking at going lean, streamlining operations, consolidating departments and restructuring team sizes to more effectively use capital. However, these are tendencies more from start-ups that aren’t successful in managing their runway and have to tread carefully to grow the business. During a funding crunch, enterprises tend to offer more security, as they have exit packages and can always adjust resources in other departments,” said Murali.
Market analysts point out that high recruitment followed by layoffs is cyclical in nature, as is the nature of the economy. “Today's layoffs will lead to a scorching pace of growth in the near future. So, I would not be too worried about it as it is a course correction occurring right now. I would call it right-sizing and not downsizing. This will last a few quarters, and in a post pandemic world, growth will be back in many sectors of the economy which will fuel demand. This will lead to more revenue growth and hence more recruitment to manage the growth. One has to be patient and wait it out and also add more skills during the downturn. I am very optimistic that the situation will stabilise in next one year as start-ups will focus on profitability and be realistic about hyper growth,” pointed out Prof Dwarika Prasad Uniyal, pro-vice-chancellor (development and leadership) and founding dean, School of Economics and Finance, RV University.
Market analysts further believe that a boom in the investments for Indian start-ups, has inevitably concluded into a mid-term consolidation phase. The slowing down of the economy has further squelched the investment momentum. Other than the start-up that have progressed to sound revenue footings, it is going to be a long winter to draw new investments but it will eventually improve.
“The real challenge, as can be construed from the listing of few major start-ups, is that inspite of being funded in the private market for so long, some of the marquee names still do not have a sustainable visibility to the path to profit. If the listed start-ups cannot generate sustainable profits, the rationale goes, what are the odds that work-in-progress startups will be able to generate the green bucks,” said Alok Shende of Mumbai based Ascentius Consulting.
"Among the panic of an economic decline, the Indian start-up had molded themselves to a post pandemic world. With more than thousands of employees being laid off from several start-ups, it has created an air of concern among the various stakeholders invested in the startup ecosystem,” said K.R. Sekar, president, BCIC And Partner, Deloitte.
“Start-ups are very challenging and dynamic in nature, due to this unstable nature drop in cash-flows results in layoffs unlike larger enterprises and corporates where they weigh a lot as they can always adjust their resources with other departments or compensate with helpful severance packages. The safety of working in a start-up also depends on the individual and their individual goals. Post pandemic, the market has always been in a volatile state which has allowed professionals to understand and anticipate the future of their careers. Expecting to sustain a start-up job despite the recent turn of events will equal to no learning from the lessons of pandemic,” he said.
“Profitability over retention of buyers, taxing expansions and low investments has spiked the costing. As these start-ups continue to chase profitability as is the case this trend is likely to continue in the next quarter as well."