From IPO Highs to Employee Goodbyes: Attritions in Indian Startups during IPOs

IPO might stand for "Initial Public Offering," but for many Indian startups, it’s beginning to feel more like "Immediate Personnel Overhaul." When a company goes public, the resulting shock waves often send employees running for the exits, cashing in their stock options, and looking for comfort. Top Indian startups are witnessing an odd trend: a spike in employee attrition right when they hit the stock market bell.

High attrition rates in organizations are deemed ‘Red Flags’ and are usually a matter of concern to be taken seriously, but still, startups are never bothered about employees leaving. Behind the curtains, is there anything even happening, or have the startups accepted to live with it?

High attrition is not new to startups. As startups seek to find a product-market fit in the early stages, striking a people-fit is just as elusive....... But as it turns out, high attrition continues to haunt these startups even when they mature and become listed companies. If anything, it has only increased. - The Ken (How startups stopped worrying about high attrition and learned to live with it: By Vanita Bhatnagar)

While it’s difficult to define a “good” attrition rate, businesses should generally aim for an attrition rate of 10% or lower; however, the most recent data provided by corporate giants like Zomato, Nykaa, Paytm, etc. paints a bleak picture of higher churn rates during these crucial times, further validating the trend

As seen above, the attrition level of Zomato during the IPO year 2021 stood at 25%, as compared to 22% in the previous year. To provide another example, Paytm had an attrition level of 29% in 2021, the year it went public, up from 26% a year earlier.

The reasons? There could be many.

For one, the reasons may be mostly due to the complexities of the IPO process itself.

Companies that are in the process of going public tend to make major changes in their organizational structure, such as restructuring, higher performance expectations, and cost-cutting. The changes can make the workforce uncertain, forcing employees, out of fear, to look outside for stability, or lead to something even worse: The dreaded layoffs!

One view is that in the absence of huge cash flow, typically startups attract good talent by offering high stock options & ESOPs that can often become a payday around the time of the IPO, as it presents a logical place for employees who may have been holding out for this liquidity dream to finally cash out and leave.

Finally, post-IPO, startups come under scrutiny from both investors and the wider public, driving higher expectations for performance and profitability. One such environment that is born in this fast-paced environment is speed over perfection, which can lead to a high-pressure work culture that drives employee retention down. Thus making the workforce more inclined to work for less-regulated peers or switch to more established firms (whether legacy or not) where they see more predictability and work-life balance.

Interestingly, startups have started to live with a high-attrition kind of ecosystem, which has led them to rethink their HR strategy. Many have embraced early talent acquisition, onboarding, and are now moving beyond retention to hire quickly for vacancies. This includes adopting technology for faster hiring, extending talent search to overseas markets, and providing decent pay packages and perks to grab high-quality talent on the first go.

For instance, Delhivery had churn at 31% at its peak year during the IPO year of 2022 and has invested in an adaptive HR infrastructure to ensure operational momentum continues despite the high turnover.

In addition to this, new-age startups are putting in efforts by offering flexibility to work remotely and by structuring to create a more interactive and inclusive work culture that attracts and retains talent. These steps are in place not only to counter the high attrition rate from direct hires but also to bring a strong workforce to the table that can withstand the challenges of hyper-growth.

The data and trends we observe indicate a significant evolution in the way the startup ecosystem treats its talent. Where high attrition during and post-IPOs is a problem, it also speaks to the ever-changing nature of early-stage companies and the new strategy of sustainability in growth and innovation. As more startups and unicorns grapple with the difficulties of IPOs, their flexibility with HR policies and talent acquisitions will play a critical role in their future.

The narrative around employee attrition in startups is thus a testament to the startup’s resilience and its capacity for continuous evolution in the face of new challenges.

(Do let me know in the comments if you've been in a similar situation and noticed any other trend shift in HR policies.)