Needless to mention, Coronavirus has affected every aspect of human life. To contain the spread of the virus, many precautions are being taken at different levels. Many countries like India have declared lockdown to cope with the situation. While the delivery of essential services has been allowed, the supply chain is still struggling to cope with the security measures. India’s 21-day lockdown may have thrown up an opportunity for online grocers to shine, but the rest of the industry sectors is drowning in the Covid-19 tsunami.
But beyond this, the real economic impact from the coronavirus pandemic will come in the weeks and months to come. Many large companies are also helpless in this time, yet they are trying to manage things. But this pandemic has left small businesses & startups with no more option but to downsize & layoff.
Layoffs 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. Also, India has banned entry of all foreign nationals till May 17 with exceptions, such as diplomatic visa. This means that international firms have to put their business plans on hold.
Coronavirus have some far-reaching consequences - besides killing human beings, this deadly virus can result into unprecedented economic recession. However this will have more impact on startups than on bigger firms. Last couple of quarters has seen startups laying off thousands of employees.
Indian startups and SMEs(small and medium-sized enterprises) have begun evaluating their options to cut spending as demand for their products and services has taken a massive hit due to the Covid-19 outbreak as startups are finding it difficult to raise funds.
Nearly, 71% of businesses have seen reduced demand. The firms are also looking to cut spending on marketing and advertising, tech infrastructure, commercial rentals and employee costs to survive during this tough time.
Also Read: Effect of Coronavirus Crisis on Employment
Layoffs increased in Startups since COVID-19 Outbreak
Many sectors are greatly affected due to COVID-19. The sector, especially startups, is likely to see more layoffs if the virus outbreak continues to cause havoc. In this, travel industry, startups, IT firms seem to be the first casualty. For India's venture capital industry, 2019 was a milestone year with $10 billion deployed into overall startups, that saw a 55% jump from 2018, according to Bain & Company, highlighting how the industry grew amid global economic uncertainty.
But now this situation is taking another turn; layoffs have already started happening. Rituparna Charkraborty, co-founder, Teamlease Services, a staffing firm, told that as demand slows down, it will impact startups and might result in layoff. She explained that unlike bigger firms, they don’t have deep pockets and have to be frugal.
India’s biggest travel portal: MakeMyTrip has decided to lay off 350 employees as its business has been affected severely due to the Covid-19 pandemic. MakeMyTrip has told employees that MMT has analysed impact closely and has spent considerable time figuring out the path to business recovery. Founder Deep Kalra and CEO Rajesh Magow sent out a letter to all employees informing them about the layoff.
Kalra and Magow have writtten in their letter,
“What's evident is that the impact of COVID-19 crisis is going to be long drawn for us. It's unclear when traveling will become a way of life, as it was pre-COVID-19. We are living through extraordinary times that have impacted individuals, communities, businesses, countries and our world at a magnitude unknown before and there is no let-up in sight.”
MakeMyTrip promised to offer support to laid-off employees compensation including Mediclaim coverage for individuals and their families till the end of the year, leave encashment, gratuity, retaining the right to exercise part of RSUs as applicable. Employees can keep the company laptops and will be provided outplacement support apart from salary payments as per their notice periods.
At the same time, MakeMyTrip’s associated companies like GoIbibo and Redbus can fire 60% of their contractual employees due to decreasing demand. There are 650 such contractual employees in these three companies. Majority of them are working in customer service and backend support.
Travel & Hospitality service Startups
Airbnb also plans to lay off nearly one-fourth of its employees. The 25% of the company includes nearly 1,900 employees who will be laid off. According sources, the news would be broken to employees by CEO Brian Chesky.
CEO of Airbnb, Brian Chesky stated in his memo,
“Airbnb’s business has been hit hard due to COVID-19, with revenue this year forecasted to be less than half of what we earned in 2019. We are collectively living through the most harrowing crisis of our lifetime, and as it began to unfold, global travel came to a standstill.”
Chesky told that prior to the layoffs, Airbnb had 7,500 employees. Airbnb will halt projects related to hotels, a transportation division and luxury stays for some time. But Chesky has assured that laid off employees would get some facilities from company’s side.
Chesky said that U.S. employees laid off will receive 14 weeks of base pay plus an additional week for every year they worked at Airbnb. The company will also provide 12 months of healthcare for laid off U.S. employees. He also mentioned that May 11 will be the last work day for impacted Airbnb employees in the U.S. and Canada.
Similarly, around 5000 Oyo employees will be laid off across the world due to coronavirus outbreak. Oyo Hotels is laying off staff in the U.S., China and India as the company tries to find its way to profitability in turbulent times.
Oyo expanded rapidly after its founding in 2013 and reached a valuation of $10 billion but investors have soured on money-losing businesses after WeWork’s meltdown and SoftBank has pushed portfolio companies to prioritise profitability.
The travel and hospitality service company TravelTriangle has laid off about 50% of its workforce in the past 10 days. “TravelTriangle has fired about 250-300 people since March 20,” said one of the sources. Impacted employees are from operations, marketing, customer support and business development functions.
In addition to this list, corporate travel planning company TripActions, that was valued at $4 billion last year, laid off 350 employees via Zoom. The reports state the layoffs consist of about one-quarter to one-fifth of the total company. The company said in a statement, “We’ve cut back on all non-essential spend and made the very difficult decision to reduce our global workforce due to pandemic.”
Online Food Delivery startups
On May 18, Bengaluru-based food delivery startup Swiggy announced that it will lay off 1,100 employees and shut down some of its businesses as the coronavirus continues to take its toll. The core food delivery business has been severely impacted and will stay impacted over the short term.
Co-founder & CEO of Swiggy, Sriharsha Majety stated,
“While we are very fortunate to have raised capital just before Covid-19 hit and have sufficient runway today, it is incredibly important to prepare for worse scenarios in the macro environment and make sure we are protected."
Swiggy will give at least three months of salary to all impacted employees. For every year spent by the employee, they will be paid an additional month’s salary. Along with this, Swiggy plans to provide medical insurance for impacted employees until 31 December, 2020, as well as career transition and access to free learning on Linkedin for upskilling. Moreover, it has allowed the staff to retain office laptops and communication allowance for the next three months.
Similarly, Gurugram based Food delivery platform Zomato decided to layoff 520 employees which is 13% of its workforce. Also it will temporarily cut salaries of the rest as the Covid-19 pandemic and resultant nationwide lockdown has hit its businesses, Zomato's Founder & CEO Deepinder Goyal said in the email on May 15.
Deepinder Goyal said in his mail,
“Our business has been severely affected by the COVID lockdowns. A large number of restaurants have already shut down permanently, and we know that this is just the tip of the iceberg. I expect the number of restaurants to shrink by 25-40% over the next 6-12 months."
As compensation, the laid-off employees will receive half of their salaries along with health insurance for the next six months or till they find another job. Goyal also said that the company will provide impacted employees outplacement support to find jobs.
Cab Services Startups
Uber, American ride-hailing Mnc, announced on May 6, that it will lay off 3,700 employees which is about 14% of its total workforce. Also CEO Dara Khosrowshahi will forgo his base salary for the rest of the year as COVID-19 has crushed the travel industry because of lockdowns to stop the spread of the virus.
Uber has been hit hard by the coronavirus pandemic. Uber’s global gross bookings are down by 80%, according to reports. The company is set to lay off up to 700 people that is about 25-30% of its overall workforce in India as per sources. Uber has over 2,000 employees in India. The decision has been almost final and likely to be announced when lockdown will get lifted.
On May 18, Uber's CEO, Khosrowshahi told employees Uber will lay off an additional 3,000 employees and close 45 offices globally. As part of the layoffs, Uber is expected to pay up to $145 million to employees via severance and other benefits, and up to $80 million in order to shut down offices, according to a filing with the SEC.
CEO of Uber, Dara Khosrowshahi said,
“We are looking at many scenarios and at each and every cost, both variable and fixed, across the company. We want to be smart, to move fast, to retain as many of our great people as we can, and treat everyone with dignity, support and respect.”
On May 20, Indian ride hailing unicorn Ola said that it will lay off 1,400 staff which makes about 35 % of its workforce due to the uncertainty caused by the coronavirus pandemic. Ola's CEO Bhavish Aggarwal said in a note to employees that COVID-19 has led to a drop of 95 per cent in Ola's revenues in two months. The impact of the crisis will be long-drawn for Ola. Every affected employee will receive a minimum financial pay of 3 months of their fixed salary.
Similarly, other Cab service companies are also facing the heat as more people avoid taking public transport and cabs and have started working from home. Pravin Agarwala, co-founder of The Better Place, a blue-collar management firm, said cab aggregators are already witnessing drop in demand and this drop would go up to 30-40 % if the same situation continues.
Drivezy, a self-drive car rentals platform, has also cut part of its workforce to stay afloat, according ET’s report. Moreover, B2B platform 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.
Scooter Rental Startups
Electric-scooter startup Bird said it is laying off nearly a third of its workforce to survive damage done to its service by the coronavirus pandemic. Bird has already paused shared scooter operations in many markets around the world and drastically cut spending and is now "laying off" 30 % of its workforce, founder and chief executive Travis VanderZanden said in a memo to employees.
In the same way, scooter sharing app Bounce has begun laying off hundreds of employees across functions and levels. At Bounce, the job cuts are across verticals and levels, operations staff, call centre, and technology and product according to reports.
Startups are Terminating the Hiring plans
Apart of layoffs, some of India’s top companies have also stopped hiring plans and are moving talent internally. Meanwhile recruitment firms have announced that processes of hiring have dropped by 50%, as interviews are being cancelled. Meanwhile recruitment agencies are informing that Indian startups also have cancelled upto 50% of all hiring and interviews with layoffs going on parallel.
Bengaluru-based firm Rupeek, which operates an online marketplace for gold loans, has terminated a human resource contract with Aasaanjobs, a recruitment marketplace for blue and grey-collar jobs. This will allegedly indirectly impact 600 jobs. Rupeek told it won't renew the contract with the human resource contractors and reduce the number of outsourced staff in the current economic environment.
Rupeek said in a statement.
"Considering current business and economic environment, we had to take the unfortunate decision of not renewing our contract with our human resource contractors & the consequent reduction in the number of outsourced staff. We regret the unfortunate timing of this event. To protect their interests, we are offering a generous severance package over and above contractual dues."
Kamal Karanth, co-founder of Xpheno, a staffing agency said, “Almost 50% of ongoing interviews, new requirements, on-boardings have stopped for the last two weeks now, particularly in the IT sector.” He also added that close to 25 captives opened in India last year and hired close to 5,000 people. However, this number is likely to come down as the coronavirus has made the execution a challenge.
According to experts, most firms have delayed the hiring process by 4-6 weeks. Appraisal hikes may also see a 2-3 % drop as well this year. In addition, with sectors across under stress, performance pressure will also be high, leading to more layoffs, said the experts.
Due to this laying off process going on all over the world, 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. India’s GDP growth slowed from 2.5% to 5.3% since the crisis began.
To add to that, the coronavirus outbreak has emerged as a new threat to the global economy and Indian manufacturing. India is currently in its fourth week since the first batch of Covid-19 positive cases were identified. The startup ecosystem in India has taken a major hit and entrepreneurs are trying to figure out how to run their operations by cutting costs in trying to stay afloat.