Indian Startup Layoff Season: Slashed 18,000 Jobs In 2022 And What’s Next In 2023?

Indian Startup Layoff Season: Slashed 18,000 Jobs In 2022 And What’s Next In 2023?

A global shutdown caused by the Covid-19 epidemic early in 2020 would devastate the startup industry. To withstand the terrific crisis, the majority of businesses hurried to cut spending and stop hiring. But for the following year or two, the reorganization didn’t go as poorly as expected.

The markets were booming, and investors placed large bets on a new era of capital-efficient technologies and shrewd business practices. As a result, investment for tech firms continued to flow. Even the dynamics of the labor market were in their favor. The Great Resignation, which saw a large number of workers leave their jobs in search of better opportunities, coincided with a sharp increase in hiring as businesses scrambled to close the talent gap.

However, when the Russian invasion of Ukraine began in February 2022, the scenario was reversed. The effect of geopolitical instability on the world economy, along with the failing markets, rife inflation, and the worry of a protracted global recession, have put a curb on the newly found euphoria throughout the startup world in India and beyond.

For both large and small enterprises, the guiding principle has shifted from “growing at any cost” to “making a profit,” as conventional belt-tightening has replaced investors’ fear of missing out (FOMO). Briefly said, 2018 has been the year of “loud” layoffs (done vociferously on all types of communication channels, especially social media), and all signs are that the wreckage will last well into 2023.

18K Employees Fired from Indian Startup And Still Counting

For startup employees, the last few months have been depressing. In what is undoubtedly the worst year for white-collar labor in the IT sector, more than 50 startups have fired their staff in India, while thousands of big tech corporations are sending out pink slips to employees worldwide.

52 Indian businesses, including a number of unicorns like BYJU’S, ChargeBee, Cars24, LEAD, Ola, Meesho, MPL, Innovaccer, Udaan, Unacademy, and Vedantu, in addition to the publicly traded food tech Zomato, have requested 17,989 employees to leave as of December 8, 2022.

From February to December 2022, Indian startups let go of employees. Due to the fallout from the startup funding boom that occurred the year before, January was the lone exception. But, as the cash influx slowed, thousands of companies were asked to depart and many found themselves with very limited runways.

It was hardly shocking because, following the financing tsunami brought on by FOMO in 2021, a reality check had been overdue. What we are presently witnessing is a significant correction in startup investment, which has been brought on by soaring valuations and ongoing macroeconomic headwinds.

Inc42 research on funding for Indian IT startups published in January of this year predicted a correction of up to 24% by 2022. Startup funding in India totaled $24 Bn between January 1 and November 29, 2022, a 35% decrease from the same time last year.

Not all startup industries, though, experienced the same level of layoff carnage. Edtech is the worst offender in India, and consumer services and e-commerce businesses are next.

Together, these three industries account for 15,424 layoffs, which means that in 2022, nine out of ten Indian startup employees who were let go worked in one of these industries. In addition, these industries are well-known for wasting money, and many companies in these fields were forced to lay off staff in order to save money when startup funding dried up.

What Has Caused the Massive Elimination of Jobs

A layoff may eventually result from a number of circumstances. However, it is not the sort of development that happens all at once. Even once a business publicly states a rough estimate, it may take months before people depart the company.

However, not every layoff is as extreme as Twitter’s historic downsizing. Many HR professionals claim that instances of “silent resigning,” forced resignations, improbable corporate goals, and stricter “performance” requirements might be referred to as “passive layoffs” that will continue to harm people’s ability to support themselves.

For example, numerous media stories have criticized the internet giant Google’s parent company Alphabet’s plan to fire 10,000 of their “low performers.” The “performance” label may have an impact on layoffs and career progress in addition to their severance pay.

More importantly, it will affect the “trust” factor and professional ethics when IT (and other) organizations across the board believe that cutting headcount is the only solution to reduce cash burn during any downturn.

How justified are Indian entrepreneurs joining the layoff train in the face of a funding crunch and the aftermath of a downturn in the economy? Analyzing the cause of the job loss scenario requires a detailed examination of the industry figures.

The capital crunch and restructuring are the main causes of layoffs

The redundancies caused by M&A-related mergers and acquisitions were cited as the reason for 42.3% of the firms that laid off their staff in India, according to Inc42’s Indian Startup Layoff Tracker, which tracks startup layoffs throughout the nation.

For example, BYJU’S asserted that 2,500 employees were let go as a result of role duplication and the ensuing reorganization. Aakash, a chain of test-prep coaching centers, WhiteHat Jr, and other businesses were acquired by the edtech unicorn last year for a combined sum of $2.3 Billion.

According to the information provided, just around one-third of the laid-off workers were fired due to cost-cutting. Although the current research solely takes into account the formal justifications for layoffs supplied by the entrepreneurs, this number should actually be substantially higher.

An additional 11% of employees were added to the list of laid-off workers due to financial constraints and unfavorable economic conditions (read: lack of outside funding and revenue decline). In general, the funding shortage was listed as the primary cause of the majority of layoffs (46% of employees) at Indian startups in 2022.

Since COVID-19, the worst wave of layoffs has occurred.

According to Inc42 statistics, there was a massacre during the first few months of the 2020 lockdowns as Indian startups fired roughly 8,200 workers between April and June.

Millions of people were laid off by the majority of B2C startups, including unicorns like Ola, Zomato, Swiggy, BookMyShow, MakeMyTrip, Livspace, BharatPe, Lendingkart, and many more, in order to withstand supply chain disruptions that forced businesses to halt operations for weeks at a time.

But the ominous year also led to a record amount of money in 2021. Digital technologies were used by a few consumer-facing industries, like e-commerce, consumer services, edtech, and fintech, to meet consumer demand for affordability, convenience, and safety. Naturally, each of them drew enormous sums of money and incredible value while growing rapidly to seize market share.

When we fast-forward to 2022, the statistics are even more dismal than they were in 2017. This time, Indian firms have let go twice as many workers, or about 1,760 workers each month. Furthermore, due to overly cautious investor mood, the funding winter ($24 billion in 2022 compared to $42 billion in the previous year) has continued unabated.

There is a strong and clear message everywhere. Consumers and investors will cull out businesses that fail to remain viable in a tech-driven world and a brutal economy in the wake of global recession fears that may continue for years (think of the dot-com boom or the 2008 global disaster). Till these businesses hit the sweet spot, selling more while spending less and attracting new capital, layoffs and hiring freezes will persist.

Global Tech Layoffs Soar; Impact on Indian Workforce

Thousands of employees have been let go by Indian startups, but these layoffs are nothing compared to what is occurring at some of the biggest software businesses globally.

One example is Twitter. Elon Musk, the inventor of Tesla and SpaceX, sacked almost 3,700 workers worldwide as he acquired the microblogging platform following a well-documented saga that began in April of this year. These had an impact on 180 Indian employees, and the team’s size decreased from 230 to a few dozen personnel.

Meta announced the single largest batch of tech layoffs in 2022 a few days after the Twitter massacre. The parent firm of Facebook, WhatsApp, and Instagram reduced its personnel count overall by 13%, and more than 11,000 were given the option to resign.

In any case, Meta’s 400-person India team has not been harmed by the 2022 layoffs. Amazon followed suit, and according to media estimates, the e-commerce behemoth may fire up to 10,000 employees worldwide, with hundreds of Indian staff potentially in the firing line. The leading e-commerce company in India has also closed multiple business sectors.

The corporation insists that it has not yet terminated a single employee in India despite being mired in a legal dispute with the country’s labor ministry over the alleged layoffs. According to Inc42 insiders, Amazon has encouraged workers from its shuttered businesses to join other verticals or submit their resignations.

However, there may still be hope for the e-commerce industry. Flipkart, a prominent player in e-commerce, or the developing D2C market in India has not yet implemented layoffs to safeguard growth and profitability.

Along with other companies, Google and its parent Alphabet are reportedly planning to lay off 10,000 workers globally, which might have an impact on its Indian staff.

Along with Big Tech, networking giant Cisco has laid off about 4,150 workers, or nearly 5% of its global workforce. Numerous employees in India would also be affected by Cisco’s layoffs, it has been reported in the media.

A total of 1,35,000 employees have been affected by tech layoffs in 2022, which is far worse than the Dot Com bubble in the early 2000s, which resulted in the loss of 120,000 jobs.

What’s Scheduled for 2023

A few conclusions will become clear if the timings of significant layoffs during 2022 are reviewed. The majority of layoffs initially occurred near the end of 2022, and experts who spoke with Inc42 predicted a new round of layoffs to begin in 2023. As an illustration, while Meta, Amazon, and Twitter announced layoffs in November 2022, Google and other digital titans may begin firing employees as early as January 2023.

Nearby businesses including BYJU’S, Unacademy, Vedantu, and others have been cutting back for the majority of the year. But beginning in October, there were further layoffs. This is supported by the fact that 16 startup layoffs have occurred since October 1, affecting 5,488 workers, or 30% of all workers affected by layoffs this year.

There is also general agreement that businesses involved in edtech, eCommerce, social media, and consumer services will be most negatively affected.

The contagiousness of layoffs inside the tech industry is another intriguing finding from these discussions. Professor Jeffrey Pfeffer of Stanford University claims that corporations may just be firing workers to copy other businesses, creating a snowball effect.

When asked about additional crucial triggers, HR professionals say that these industries are now developing and that businesses are aiming to improve their performance over the upcoming quarters in preparation for public listings.

Additionally, the 2022 funding shortage has led to an increase in mergers and acquisitions. More individuals will be laid off as M&A activity rises in the industries most impacted by the funding restriction.

Simply put, before it becomes company as usual and recruiting resumes to normal levels, entrepreneurs in capital-intensive industries (e-commerce, edtech, and consumer services) or those in low-monetization segments like finance need to reconsider their principles.

The current state of the nation’s IT/ITeS sector is another sign that job losses might last long into 2023. Information technology behemoths Infosys, TCS, HCL, and others reportedly stopped hiring in October 2022, let go of university recruits, and plan to pick out underperformers in the next months.

We know that any macroeconomic change has an influence that cascades from Big Tech to IT majors and startups. It is identical to the liquidity constraint, which first affects the public equities market before affecting the private equity market a few months later.

Similar to how it did, the startup environment has seen a downturn in recruiting in the IT/ITes industry. Startups also slowed down hiring like IT/ITes corporations did. Recruiting in the IT/ITes and startup sectors decreased by 19% and 61% YoY, respectively, according to the Monster Employment Index and RazorpayX Payroll report.

According to Pfeffer’s “layoff contagiousness” argument, the impact of Big Tech layoffs and IT/ITes majors postponing hiring can push startups to lay off more workers.

The conclusion

Stakeholders have frequently expressed concern about startup layoffs and their potential long-term effects on the labor market. It is even more important now that the startup ecosystem has established itself as a significant employer. Indian startups employed 7.98 Lakh people, according to government statistics presented in Parliament in July 2022.

Can we predict a speedy rebound given the increased expectations from the startup sector? Naturally, a lot of it hinges on startup investors and how willing they are to relax financial restrictions. Now that local and international VCs have already launched India-specific funds of $16 Bn in 2022, there is no scarcity of dry powder.

In a nutshell, there is a healing road, but there are no set deadlines. The funding winter may not end for another six months to a year. However, only the startups with the most solid foundations, flexibility, strategic thinking, and resourcefulness will make it through this recession.

Nevertheless, thousands of workers lost their employment in 2022, and it’s possible that there won’t be any rapid relief in the future.

edited and proofread by nikita sharma