Start ups aren’t for the faint hearted. What leads to massive layoffs in start ups

Start ups pay a good salary, have flexi working hours and meals are on the house with an open bar on weekends. This is a typical myth in India about start ups and people were painting colourful pictures of the work culture. In the last few years, employees, mostly young ones, working with MNCs were lured by the perks and made a jump to one of the new start ups in India. With walls full of graffiti, and quirky designations, start up culture in India was quickly gaining throttle until all of a sudden the bubble burst happened and layoffs began.

While layoffs in start ups are quite a common thing that has happened in the US, Indian start ups are entering a similar phase when layoffs are getting massive. Last month Ola shut down Taxi for Sure and lay off some 250 employees. The major one was Askme, which got shut because the investor backed off seeing no profits in the business. Askme closed down recently and almost 4000 employees were left without employment. What’s worse? The ecommerce company hasn’t cleared their salary for the last two months.

An interim order of the National Company Law Tribunal has asked Astro Entertainment Networks Ltd, a major investor in Askme not to quit. However, Astro has responded that having invested USD 300 million, they haven’t seen any profit in recent time.

So we investigate what’s causing the damage.

Lure of extra
Start ups are known to be good in workplace culture. A 30%-50% or even more hike in the current CTC and fancy designations shouldn’t be the one reason to quit. With funds drying up and ventures becoming cost effective, it’s the workforce that is chosen first to be culled. Founders of most of the start ups have begun from grassroots and know their job very well.

Data by Xeler8 reveals that out of the 2,281 ventures that started since July 2014, at a failure rate of 43.7%, almost a thousand have shut down.


Too many employees
At the time of investments, everything goes well and start ups tend to recruit a lot more than their actual need. This is often because they have bigger plans. However in case the venture shows a decline in profits, they tend to get rid of the extra hires.

A survey by a firm that tracks candidate movements across different hiring stages, Belong, shows that the number of joinees in ecommerce firms dipped by 61% between November 2015 and April 2016 over the May to October 2015 period.


Underperformers are the first to get the boot
Even Binny Bansal of Flipkart has reportedly admitted that he was also removed from the post of CEO because of underperformance. In Flipkart’s list there were many others who had underperformed. But 700 people were forced to resign, while Bansal stayed. Now the problem with the employees begin. Once laid off from a start up, they are offered salaries that don’t match their last ones. At 30-40% lesser figures they agree to join because they know the job market is competitive at the moment.

Shifting focus
In the initial days of start up boom in India, VCs would invest in any project that showed a potential to grow. However, investors are now showing restraint in such decisions.

Start ups, as a result, are changing their focus. They are looking more towards making profit than just the growth factor.

Ravi Gururaj of NASSCOM believes start ups generally fire employees under three circumstances. They either don’t have the money and need funding, or they have hired more than the need or they have different plans.

Let whatever be the case, hard times like these are essential for employees to evaluate their professional skills. If one can fight the odds and survive, he would be the best fit in any industry under any circumstances.

Start up industry will remain like this and people joining the industry need to be prepared for the same.