It’s a state of upheaval for Indian startup sector as it witnesses massive job losses. Around half-a-dozen Startups have downsized in order to meet costs and survive in the volatile competitive environment. There is immense pressure on management to maintain costs as they look at reducing costs at all fronts including people.
Of late, one such startup making rounds in media include Snapdeal that has laid off around 30% of its staff including full-time and contractual workers. Snapdeal decided to downsize in tranches of 40-50 persons. In February 2016, the e-commerce company had laid off at least 200 employees after putting them on a Performance Improvement Program.
Employees of another e-commerce startup, Craftsvilla, which is a fashion portal, faced the similar fate. Craftsvilla had laid off more than 100 employees including marketing and operation team and the entire staff of product and technology team. YepMe, another fashion retailer laid off unspecified-number of employees from quality control and warehousing team.
What is it that is making difficult for e-commerce industry, especially, startups to survive? Currently, e-commerce segment is fighting slow growth and investors are unwilling to invest in new ventures. To fully comprehend the situation today, it is important to take a peek in the last few years. From the time of their inception, right until 2014, all firms attracted millions (sometimes billions) of dollars in investment. Progressing ahead they made few mistakes by allotting high salary and perks to poach talent and gave three-figure percent raises. They acquired smaller peers sometimes in all-cash deals, either to eliminate them or leverage their network, or both. But challenges complicated when Amazon entered the market. With deeper pockets to fund bigger advertising campaigns, offer better deals, and lessons in better execution, Amazon swiftly invaded on the already saturated territory.
By 2016, the picture became clearer, and to everyone’s surprise, it wasn’t as pretty as expected. There was stagnancy and investors got skeptical of investing in more. Also, CEOs were changed twice within one year for Flipkart, and Snapdeal fell short of targets that it had publically declared. As per media, the reason for massive downsize is tough funding environment and startup investment have dropped by 28% to $1.4 billion from a high of $ 2 billion in 2015, according to data aggregator venture intelligence.
Startups are cutting down on employee base, as it is the largest fixed costs for them. Some of the other companies facing the brunt include Stayzilla, which is 10 year old startup announced closure on account of failure to raise a fresh round of $20 million. It downsized 210 employees, as per media reports. Payment gateway, PayU India dropped their plan to introduce credit card as they had to downsize their 85 member team in call center and 25 people in collection team . Tolexo, Noida-based business goods and supplies startup , has recently fired 85% of its workforce which is about 300 employees as it has decided to wind up its online business and begin an offline venture . Also, it has plans to integrate with parent company India MART
Employee payroll amounts to liability on the company’s balance sheet and in turn it diminishes owners' equity. The reserved earnings are affected by the amount it pays out in payroll, and eliminating it definitely cut costs and escalates profitability.
Indeed, dramatic shift occurs when a company decides to downsize. HR professionals play a key role in ensuring that downsizing is done in an apt manner. Companies not only have to comply with legal obligations but also have to ensure that their brand reputation is not harmed in anyway. While the pain of downsizing can’t be avoided entirely, but it can definitely be mitigated. Watch People Matters recently held SME virtual conference on ‘How can organisations effectively downsize', which suggests practical ways for companies to downsize addressing both HR and legal issues.