Slowdown in hiring activity in startups is a reality. Many companies which have been hailed as ‘unicorn’ from India and their employees should be ready to brace this reality. The initial stress is visible since the fast growing startups like Zomato, TinyOwl, Food Panda, Housing.com have been letting go of their chunk of the workforce. The numbers are for everyone to see and it has raised some tough questions in the minds of various stakeholders – startups, investors and employees, who till about 2 months ago, were queuing up outside recruitment companies to land a job in startups.
Before, I delve into what's in store for employees and startups, let’s look at the trigger for this spiral which seems to have engulfed even the big daddies of the sector. Most of the e-commerce and internet startups are currently on a hiring freeze. The reason behind this is a gross miscalculation in their growth projections. Many companies over projected volumes of their business turnover, growth rate and thus over-hire people, specially at the entry level. In a bid to acquire to more customers, e-commerce companies invested heavily into building a last mile supply chain mechanism by hiring delivery boys in large numbers. I know of companies where they would have ideally needed 100 delivery boys but hired 10X in order to align with their business projections, which would help them to raise another round of funding. Investors too have encouraged some of the fast growing startups to prepare business projections to sign bigger cheques.
An entrepreneur friend of mine who is in his late 40s, was in for a surprise when he was looking to raise around Rs 50 crore from VCs. A VC told him that he would like to sign a cheque of Rs 150 crore if he would show higher business growth. Thankfully, my friend refused to do that and since his company is profitable, currently he is not looking to raise funds. Probably, his maturity and experience about his business segment saved him. However, same didn’t happen with a far younger lot of entrepreneurs who have correlated success of their businesses to the rounds of funds they can raise.
I want to reiterate that the money that is coming by so easily is risk capital and has to be returned with a healthy RoI. Thus, don’t go overboard with project hiring targets.
Now that funding pipeline is drying up and investors asking CEOs to focus on profitability, a good sense of rationalizing workforce has seeped into startups. But is it too little, too late? I’m often asked this question in many informal conversations by prospective candidates. Their perspective is that they were hired after passing 12th, paid well and everything going hunky dory. A majority of these young boys over leveraged and gifted themselves fancy smartphones, bikes etc. And one day they lost their jobs. Now they are in a serious debt trap. Perhaps that’s what triggered a face-off between TinyOwl employees and their management. I would advise not to cast it aside as one-off incident because if mass firings like these will continue, there is bound to be a friction.
In the last 2 months, hiring activity in the startups space has gone down. With many well-known startups on a hiring freeze and a deluge of candidates in the market is spoiling compensation dynamics. Personnel who lost their jobs are currently in the market and many of them are taking massive pay-cuts to land jobs.
Here is what companies can do if they are planning to realign their personnel requirements in the near future
- Severance package should be paid promptly
- Outplacement: Connect with their recruitment partners to outplace as many employees as possible
- Plan in advance: Chart out the number of redundant employees well in advance so that companies can exercise other possible options of either moving them internally or finding them other jobs using their peer network before terminating one’s service – this should be the last option of any company which is looking to restrategise its workforce.
Peek into the future
Hiring activity for entry level or mass jobs will be slow for the next 3-6 months, however, recruitment for replacements in critical functions will continue. Companies have taken a lesson from this cycle and they are likely to tone down their people’s projection to avoid such a scenario. Hiring mandate for senior and strategic roles will continue to keep recruiters busy.