A layoff is an involuntary separation from work through no fault of the employees. It is initiated by the employer for economic or business reasons. The global break-out of the Covid-19 pandemic spelt a disaster for the economy as 2020 saw severe lockdown restrictions for more than half the year.
Hence, unfortunately, it came as no surprise when companies – startups as well as large corporations – laid off staff in a bid to save their business operations from folding. The grim economic scenario of that year saw as many as 12,951 startup employees lose their jobs in India.
Global statistics reveal that since April 1, 2022, more than 43,000 employees from 342 startups and tech companies have been laid off worldwide out of which 13% are from India. Employees of big tech companies like Microsoft and Meta have also not been insulated against job loss.
Since the beginning of the pandemic, India has seen more than 25,000 employees lose their jobs and more than 11,500 employees have been fired this year. This unfortunate scenario has been dominated by ed-tech platforms like Unacademy which has laid off 1,150 employees, BYJU'S which has laid off 550 employees, and Vedantu, which has laid off 624 employees. In fact, two ed-tech companies, Udayy and Lido Learning, have closed their doors completely.
Among other sectors, ride-hailing platform, Ola laid off close to 500 employees, MFine, the healthcare startup laid off 600 employees, and pre-owned cars platform Cars24 laid off 600 employees. Other Indian startups and unicorns that have laid off employees are Meesho, MPL, Innovaccer, LEAD, Trell and Blinkit (now owned by Zomato).
Reasons for the Layoffs in Startups
The year of 2022 has been rocky for the public and private sector equity market. Stock markets across the world reacted negatively and plummeted due to the global sell-off pressure. This impacted the new age tech stock as listed startups struggled. This was followed by the fall in the private markets as well.
India is the third largest startup ecosystem in the world in terms of unicorn companies created. 2021 was the year when the startups experienced soaring valuations which slowly dropped and began experiencing a cash crunch this year as investors became wary of higher startup valuations.
This led to a funding crunch and by the second quarter of 2022 Indian startups were able to raise only USD 6.83 billion. This was down by 42% from USD 11.83 billion which was raised in the first quarter of 2022.
By July 2022, Indian startup funding had reached its lowest in over 17 months as the total startup funding value stood at only USD 1.16 billion, further dropping to USD 1.1 billion in August 2022. Investors took on the role of advisors to startups, giving instructions on survival techniques. There were various reasons that led to startups laying off their employees in quick succession.
As funding resources dried up, startups found it difficult to sustain existing business operations, much less expand. Compounding this was the slow market that was affecting sales figures, impacting the company’s profits.
Companies underwent modifications, often merging internal functions or even shrinking business operations. This led to positions being scrapped, leading to staffing redundancies.
Many companies either shifted business operations areas or even shut down some business locations. This led to massive employee layoffs, affecting the economy of the community.
Mergers and Buyouts
Many startups, which showed promise in terms of their product portfolio, were merged with larger corporations or were outright bought. This also led to employee layoffs as new management had their own plans and goals.
What Does the Future Hold?
As bleak as the scenario has been in the last seven to eight months regarding layoffs and funding, the overall numbers are now beginning to rise. As per India’s largest human resource firm, TeamLease, Indian corporates have seen a 7% increase in their intention to hire. This number is estimated to reach as high as 70% in the coming few months as per their Employment Outlook Report for the period July-September 2022.
This upward trend is driven by the various initiatives announced by the government which are aiming at bringing the private sector back to its pre-pandemic levels. The market, post-pandemic, is driven by automation. Hence, it stands to reason that employees acquire the latest industry-specific knowledge and technologies.
As per Shantanu Rooj, CEO TeamLease - “Businesses are looking for digitally conversant, highly adaptive and multi-skilled people who can be moulded into any kind of role. Employees will need to develop not only adjacent skills but also diametrically opposite skills - combinations like technology, and creative, technology and psychology is becoming commonplace.”
In times of financial crisis, many companies take the easy road of layoffs, citing reasons of cost-cutting, staff reduction, mergers, buyouts, etc. This move is disruptive to individual lives. However, such times are cyclic in nature and beyond individual control. As the Indian economy rises and the situation gets better, so will the employment scenario.
What is a layoff?
In simple terms, a layoff refers to the termination of employment for reasons other than the employee's performance. It is mainly initiated by the employer for economic or business reasons.
What are the reasons for layoffs in startups?
The following are some of the major reasons for layoffs in startups:
- Cost Reduction
- Staff Redundancy
- Mergers and Buyouts
How many employees have been laid off by Indian startups?
Since the beginning of the pandemic, India has seen more than 25,000 employees lose their jobs and more than 11,500 employees have been fired this year (2022).