Meesho Case Study 2023, Questioning The Ethics Of Extravagant Founder Salaries In Times Of Losses, Layoffs And Funding Crunch!

Meesho Case Study 2023, Founder Salaries, Losses, Layoffs And Funding Crunch!

In the world of startups, especially in the once-booming Indian startup ecosystem, success stories and soaring valuations have often overshadowed the harsh realities faced by some companies.

One such company is Meesho, an e-commerce startup that has recently experienced rapid growth but continues to report significant financial losses.

While the founders, Vidit Aatrey and Sanjeev Barnwal, have achieved remarkable personal milestones, their decision to draw extravagant salaries amidst losses and layoffs raises ethical questions about founder compensation and responsibility.

To put into perspective according to an article published by Inc42 on 5th May 2023, Vidit Aatrey and Sanjeev Barnwal, founders of Meesho received the biggest salary hike of INR 2.3 Cr each in FY22 as against INR 90 Lakh each in FY21, this at a time when it has staggering losses, and when the company has laid off close to 700 employees since last year!

Meesho’s journey has been nothing short of remarkable, transforming from a reseller platform to a full-fledged e-commerce marketplace targeting “Bharat” or the non-tier-1 city audience.

With impressive growth figures initially, soaring valuations, and an enviable market share, Meesho seemed to be on an unstoppable trajectory. However, its inability to raise additional funding after September 2021 sent a clear signal that the funding winter was hitting hard, and it was time to reconsider its business strategy.

As a prolonged funding winter continues, Meesho’s growth at any cost model needs considerable tweaks if it has to attract sizeable capital. No way out, it has set itself an audacious goal—turn profitable by the middle of 2023. However, the point to remember, it lost ₹3,251 crore in 2021/22; for every rupee Meesho earned, it nearly spent ₹2.

High On Cash Burn, Prompt On Layoffs
The recent announcement of the second round of layoffs, impacting 251 employees, approximately 15% of its workforce, reflects the harsh realities of the economic environment and the need for Meesho to streamline its operations and cut costs.

Meesho, based in Bengaluru, was one of the early new-age companies to downsize its workforce during a challenging funding environment. Last year, it laid off 250 employees from its grocery arm, which was later renamed Superstore from Farmiso; the company has laid off close to 700 employees since last year, and the current round of job cuts marks the first time that Meesho’s core marketplace model has been impacted.

In an email to the employees, CEO Vidit Aatrey candidly admitted to over-hiring and running an organization with inflated spans and layers. The decision to right-size the workforce may have been painful, but it was necessary for Meesho to achieve sustained profitability and adapt to the changing market conditions; sure, but what about extravagant personal salaries? Why not take a cut?

As Meesho faces these challenging times, the company’s financials continue to paint a bleak picture. Despite impressive revenues and gross merchandise value, Meesho incurred staggering losses of ₹3,251 crore in the fiscal year 2021-22. For every rupee the company earned, it spent nearly ₹2, highlighting the severity of the cash burn and the pressing need to achieve profitability.

It is in this context that the founders’ decision to reward themselves with a massive salary hike of 155.5% each in FY22 raises eyebrows.

With net losses skyrocketing and layoffs affecting hundreds of employees, such a substantial increase in compensation seems out of touch with the reality faced by the company and its workforce.

What About Personal Responsibility & Accountability?
⦁ Founders are often seen as the driving force behind the startup’s success, but they also bear the responsibility for its failures and must share the burden when times are tough.

⦁ The fundamental question that arises is whether it is justifiable for founders of startups to draw such extravagant salaries when the company is grappling with losses and layoffs.

⦁ On the one hand, it can be argued that founders take immense risks and work tirelessly to build their ventures, and they should be rewarded for their efforts. However, this reward should ideally be tied to the company’s financial performance and success.

⦁ When a company is losing money and laying off employees, it is crucial for founders to demonstrate solidarity with their team and make sacrifices, just as the employees are doing.

Thus, the case of Meesho is an example of a cautionary tale for the entire startup ecosystem. Founders must strike a balance between rewarding themselves for their hard work and being responsible stewards of the company’s finances. Salary decisions should be made in the context of the company’s financial health and its impact on employees and stakeholders.

Transparency is also essential; founders should communicate openly with employees about the company’s financial challenges and decisions that affect the workforce. This fosters trust and shows that the leadership team is willing to take ownership and make tough decisions for the greater good of the organization.

The Last Bit, while the success of Meesho as an Indian startup could be seen as commendable, the recent layoffs and financial losses cast a shadow over the decision of the founders to draw extravagant salaries.

The disparity between the founders’ compensation and the financial struggles of the company raises ethical questions about the responsibilities of founders during tough times.
Going forward, the startup ecosystem should promote responsible founder compensation practices, where rewards are linked to the company’s financial performance and the well-being of its employees.

Founders must lead by example, showing that they are willing to make sacrifices for the long-term success and sustainability of their ventures and for the well-being of the people that work with them.