As growth dips, startups shed jobs and conserve cash to stay afloat, Technology News, ETtech

Illustration: Rahul Awasthi
Illustration: Rahul Awasthi

Retrenchments and downsizing in the startup ecosystem are set to accelerate as businesses take a hard look at high operational costs and dipping demand in an uncertain environment made worse by the Covid-19 pandemic.

Scooter sharing app Bounce has begun laying off hundreds of employees across functions and levels, five people aware of the development said, although the company was quick to deny that.

Drivezy, a self-drive car rentals platform, has also cut part of its workforce to stay afloat, three people told ET.

B2B unicorn Udaan has cut back on ground staff over the last few months at its pharmaceuticals and fresh division, according to four employees at the firm.

The job cuts come weeks after Oyo sacked about 5,000 worldwide, with a significant number in China.

Last year, ride- hailing major Ola, online classifieds player Quikr, food delivery platform Zomato, wallets provider Paytm downsized their workforce.

Some of India’s top unicorns have also stopped hiring plans and are moving talent internally.

“What India is seeing today, China has been through over the last two months. Overall demand has been down by at least 30% in China, so it’s time for companies in India to act fast, revisit their priorities and tighten costs,” said the founder of a top unicorn, requesting anonymity.

The United States, Europe, China and India are experiencing slowing economic activity that analysts predict will likely last through at least two quarters.

India’s stock market has already taken a beating over the last week, and the pressure has now trickled down to private markets as well.

New mantra to conserve cash

Conserving cash and increasing business runway has become the priority for startups.

At Bounce, the job cuts are across verticals and levels, operations staff, call centre, and technology and product, people in the know said.

However, Vivekananda HR, cofounder and CEO of Bounce, denied this, “We let go of about four in engineering and product, a few in the customer care team – about 20- 30 – because we have a lot of automation. For the operations team, on ground attrition is always there,” he said in an email.

All affected employees have been given a three-month severance package, he added.

Ashwarya Singh, cofounder & CEO of Drivezy, said in “the last 10 months around 48 employees have either left or their positions been made redundant due to our focus on the franchise model”. Udaan did not respond to ET’s email seeing comment.

Most companies that have decided to downsize operations and sales team had ramped up the workforce over the last 18 months to chase growth, including launching new businesses, category or product portfolio expansions and their presence across cities.

Re-evaluating business fundamentals

Three entrepreneurs told ET that they were going back to the drawing board and closely looking at all major business functions before annual appraisals.

Some startups had recently raised capital, but founders said they are looking to change their strategy from hyper-growth to a lower cash burn, slower ramp up and a freeze on hiring.

“While a few category leaders may be able to close their funding rounds, for most companies there will be a delay and it may require a combination of raising internal rounds, cutting burn to extend the runway before the market normalizes,” said Ashish Sharma, CEO at InnoVen Capital India.

With funding rounds getting delayed and consumption dipping, startups that rely on investors for runway are increasingly thinking hard about sustainability, ET reported earlier.

In fact, investors are also encouraging businesses to take a relook at their financial projections.

“We suggest you question every assumption about your business, including cash runway, fundraising, sales forecast, marketing, headcount, and capital spending,” Sequoia Capital said earlier this month, calling the Covid-19 outbreak a Black Swan event for 2020.

On employee headcount, the fund explicitly said, “Given all of the above stress points on your finances, this might be a time to evaluate critically whether you can do more with less and raise productivity.”

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