“PE Riches will turn to Entrepreneur Rags.”
“Start-ups come with a shutdown gene”
“The beginning of the end.”
Doomsayers are having a field day after the mass firings and hostage drama at TinyOwl, the job cuts at Zomato and at Housing.com, and the drastic pruning of its workforce by e-grocer Local Banya, which has reportedly decided to change its business model.
But are these firings a belated attempt by the start-ups to curb cash-burn rate caused by reckless scaling up? With billions of rupees of funding money sloshing around in their banks (food tech companies alone have together raised ₹1,138.4 crore), the start-ups had been accused of over hiring and not looking at balance-sheet management? Or is it a case of bad talent practices? Or simply a case of overcrowding of too many players in a space (food tech especially) leading to many feeling the squeeze?
“StanChart is firing people. TCS has laid off so many people. But you haven’t written about them. Why are the sackings at TinyOwl and Zomato being equated to the collapse of the start-up ecosystem,” queries Ravi Kiran, co-founder Venture Nursery, whose members have invested in over 10 start-ups, including OyoRooms.
“This has nothing to do with too much venture funding or over-valuation. At the heart of this is management depth,” he says. “I want to ask the VCs who funded these companies, and are on the boards, what governance mechanism they have put in place,” he says. “Downsizing is a legitimate business strategy,” defends Ravi Kiran.
But K. Sudarshan, Managing Partner of EMA Partners, an executive search firm, raises a basic question when he asks, ‘Why are these tech based start-ups hiring so many people? They are tech driven and not people driven. If they hire too many people, the rationale for their business is gone.”
Sudarshan has a point. But for food technology outfits such as Zomato operating in a market like India, there is no other way but to hire foot soldiers to trudge over to restaurants and get them to list on the site. As their apps become well known, they can afford to scale down.
Nabomita Mazumdar, Partner at CiteHR, a community platform that shares HR experiences, feels that such need-based hiring strategy – while it might have been right at that time - is what has brought things to a head now.
Instead of an open door, the start-up has a revolving door, as she puts it, with constant hirings and firings.
‘People are over-reacting’However, Kunal Shah, co-founder of FreeCharge, a digital payments platform, started in 2010 and which has 200 employees, says people are over-reacting. “We often miss looking at the big picture. The question we should ask is what's the sum total of jobs created by start-ups in the last three years and how many scale downs happened? Start-up by its core nature is risk prone.”
But at a time when start-ups were actually jumping to the head of the queue at B-school campuses and even the cautious IITs, which usually review balance sheets before allowing them to recruit, had relaxed their norms for start-ups, the mass firings are going to tarnish their hiring image.