After Zomato, Snapdeal more startups brace for second round of layoffs
Employee costs at India’s leading startups account for about 35% of their overall cash-burn rates, according to industry analysts.
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 organizational and monetary bandwidth to focus on hiring high-value experts having niche skills crucial to advancing growth.
Already, some of the country’s biggest startups—online marketplace Snapdeal; restaurant discovery, food ordering platform Zomato and online auto classifieds CarDekho—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 ramp-up (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 LocalOye. “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 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 Global 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.
“Of course, investors are always part of the conversation,” said Saurabh Kochhar, chief executive of Foodpanda India. “There’s no sense in ‘stupid growth.’ The business model has to make basic sense.”