How startups will deal with this crisis

24-year-old Akriti Sharma (name changed) joined a well-known startup for a four-month internship in October. “The company was always in the news and had a good brand name,” she tells me over the phone.

One December afternoon, however, she was asked to quit with immediate effect. “I was told employees were not responding to my project.” Shocked, she asked for at least a week’s notice, but was denied on grounds that it was “not a full-time role” anyway. She was offered full remuneration and a certificate confirming the completion of the internship. Weeks later, Sharma got shortlisted at another company. But as Covid-19 struck, the offer was put on hold.

For Akshat M, an executive with 15+ years of experience, it was a similar experience earlier this year at another young firm. “Investors were pressurising to show profits…We’d find out that someone had been fired after his name would disappear from the official chat room or email.” When one morning, he too was asked to leave, he asked for a pay cut instead, but was let go after being handed a severance package. “It came as a surprise to me as I was the only one with any experience in the team’s core area of functioning.”

Those whose jobs were safe had another reason to complain. “The vertical I was heading, was moved over to a guy who was already handling three divisions. People were fed up with the immense work pressure the layoffs resulted in,” he tells me.

As many as 3,000 startup employees were fired in 2019 in India, a report by The Ken said. 2020 has clearly been off to a rough start: The last few weeks have been replete with reports of layoffs as Covid-19 pandemic hit revenues. From Swiggy and Zomato in foodtech, to Ola and Uber in transportation, it has been nothing short of a bloodbath.

How expensive are employee costs for companies?

For India’s top 11 consumer technology unicorns, the total wage bill stood at ?8,869 crore in FY19 – up nearly 74% in one year, an Economic Times report said, citing data from the Corporate Affairs Ministry and regulatory authorities in Singapore. While the average share stood at 15% of revenue, the number was as high as 40% for some.

The hiring pace has been no secret. As per LinkedIn Top Startups 2019 data, the top 25 firms created 18,000 jobs in 2018 alone. In October last year, Swiggy announced plans to hire three lakh people in 18 months – this would have enabled the foodtech major to displace TCS as India’s then largest private sector employer. As of January, Zomato had doubled its strength of direct employees in the last two years. In December, financial services firm Razorpay announced plans to expand its workforce by 65%, adding 400 employees, by mid-2020. And these are only a few examples.

This does not necessarily imply that organisations are bloated, or even that layoffs are convenient to cut costs. Any company, given the need to innovate, ends up hiring a few more employees than it needs to run the business. Much like how traditional IT services companies have a bench of workers to tap into at any given point in case a new client comes in, says Sanchit Vir Gogia, founder & CEO, Greyhound Research.

But then has the uncertainty been bubbling even before Covid-19?

The cost chickens have come home to roost, The Ken’s report wrote in January this year, calling the cycle of “hire-to-grow, fire-to-sustain” almost a rite of passage among startups. Sid Pai, venture capitalist and founder of Siana Capital agrees, saying the external shock (Covid-19) hit an unsustainable model. “With a flush of capital chasing them, companies have been using investor money to fund growth at the cost of profits. It is only natural for a young firm to focus on growth and on spreading their services,” he says.

Burning cash in the growth stage or when entering a new category, is accounted for by both founders and investors. But what has changed now is the increased pressure from investors to report real revenue, even as the pandemic has derailed plans for many to keep pace with their targets. It is a watershed moment, Gogia says, with a new set of realities emerging.

The Road ahead

It’s unlikely hiring would be as usual in a post-Covid world. For one, the pandemic has changed the mindset towards the role of technology and automation as large sections of employees work remotely. Experts say, what hasn’t been achieved in the last decade will virtually be achieved or is rather already being achieved in a matter of months.

What this would also mean is that people who’ve retained their jobs will end up shouldering responsibilities earlier handled by two or more people, according to Pai. Companies may take to hiring temporary workers during periods of high demand, like festivals.

Another change expected is the end of the “Greater Fool theory” - the thinking that some other investor is likely to come in at a later stage with a much higher valuation. 

How will this change the perspective of those impacted? Here’s what executive & leadership coach Harsh Johari says:

• One should understand that these layoffs may not have anything to do with the performance. So don’t be harsh on yourself.
• Think outside the current set of industries where you can apply based on your experience and skill set. We are used to thinking that we can do only certain types of jobs and that reduces our prospects.
• Upskill with relevant learning programs. Don't go on a spree of attending endless online classes in the hope that it will look impressive to a recruiter.
• Focus on sectors which might see growth in the coming years and think of a secondary source of income as a freelancer.
• Think hard on what value you can add to your company. Just doing your job may not be enough if you want to survive.

What steps can job seekers take to shield themselves amid this uncertainty? Share your comments and experiences with me.