Joining an Indian startup? You may be fired at any time!

Pink slips are becoming a little too commonplace across the Indian start-up sector. Employees across companies are now bearing the brunt of their top management finally feeling the 'normal' pressures of running a profitable business venture.

 

 

Most of these businesses grew at a blistering pace, as investors bet big monies on new-age internet companies who chased first-time Indian online consumers with irrational and unsustainable discounts.

 

 

To achieve that, they pulled out all stops, invested in top-dog infrastructure and hired top talent aggressively across levels. And of course, paid them high salaries.

 

Unsurprisingly, these companies clocked up massive losses. Investors started to notice, valuations were downgraded and operations became unviable. Companies then had no option but to drastically scale back and had to resort to massive layoffs.

 

According to industry experts, on an average, employee costs at most Indian start-ups account for about 35% of their overall cash burn rates.

 

 

For the record, Flipkart, one of India's youngest and biggest e-commerce players has a staff-strength of 'just' 30,000 employees and has never been profitable in its 8-year history. 

 

Flipkart recently offered employees who failed to meet professional expectations the choice to either resign or be sent off with a severance pay. The decision is expected to impact 700 to 1,000 staff. This comes after Flipkart deferred the joining dates of fresh recruits from Indian Institute of Management, Ahmedabad, by seven months and had offered to pay a penalty of ₹1.5 lakh earlier in May this year.

 

This is a direct outcome of Flipkart finally turning the 'profit' corner. It is now working towards cutting costs after burning an estimated $50 million a month and clocking up more than ₹2000 crore in losses. The company is now focussed on becoming profitable.

 

 

Snapdeal, Flipkart's arch-rival, is also dealing with a similar situation. According to a report in The Financial Express, Snapdeal - which is at the third position by gross merchandise value after Flipkart and Amazon - saw its losses widening five times to ₹1,319.29 crore for the year ending March 31, 2015, up from ₹264.62 crore in FY14. In FY15, Snapdeal’s total expenses spiked to ₹2256.97 crore from ₹432.78 crore in the previous year, largely on the back of its advertising promotional expenditure and its discounting spree.

 

Not surprisingly then, the Gurgaon-based company reportedly is cracking the whip on employees whose performance is not on par. Earlier in February Snapdeal had put 200 call-centre employees on a performance improvement plan which forced several to quit.

 

The company has denied these developments, but earlier this week it also shut Exclusively.com - a premium online fashion and accessories platform it had acquired in February last year.

 

The losses are not just in the e-commerce field. Rather, it is a common trend among all new-age start-ups.

 

 

Cab aggregator Ola, for example, shut down TaxiForSure (TFS), its value cabs business that it acquired for $200 million in March last year. Numerous media reports suggest that 1,000 employees have been laid off as a result of the shutdown. According to a Business Standard report, Ola reported 20 times more losses at ₹796 crore for the year ending March 2015, as compared to losses in the previous year. So this may be the first in a long line of cost cutting. 

 

The stories of such firings are nearly endless.

 

According to a report in Economic Times, in March this year, real estate website CommonFloor laid off about 100 employees, two months after it was acquired by Warburg Pincus and Quikr. Zomato, India’s largest restaurant guide, recently had its valuations slashed by half, let go of 300 employees, shut down its cashless business in international markets and shifted its strategy towards 'profits'.

 

 

Zomato backed Pickingo too faced problems and had to halt its hyperlocal delivery service. In early 2016, Zomato shut down its food ordering service in four cities - Lucknow, Kochi, Indore, and Coimbatore. In February 2016, Zomato said that it had broken even in six markets (including India) and was on track to make a profit by June 2017. 

 

Foodpanda - another foodservice biggy - recently went through an extremely rough patch.  Things become so bad that earlier this year, speculation was rife that Foodpanda might be up for sale for the ludicrously small sum of $10-$15 million and was apparently negotiating with competitors like Zomato and Swiggy for a complete buy-out.

 

 

It had to cut back operations and lay off 300 employees.

 

Online real-estate portal, Housing.com, that famously fired its controversial founder Rahul Yadav, clocked up losses, fired 800 employees, shut a few departments and was reportedly negotiating with Snapdeal and PropTiger for a stake-sale.

 

Jason Kothari took over as the new CEO in November last. The company recently scaled down its listings and rentals, commercial properties, short stays and land businesses and increased focus on the home buying and selling business.

 

 

All of this gives a clear picture - the glory days of unlimited funds, high salaries and job security are done. If you are planning to join a start-up, consider yourself warned.