Turbulence Hits Third Wave Coffee Laysoff 120 Employees; 2023 The Year Of Layoffs, How Is The Road Ahead In 2024?

Third Wave Coffee, a speciality coffee and food brand with substantial backing from Zerodha co-founder Nikhil Kamath, has initiated a workforce reduction, resulting in the dismissal of 120 employees.

The restructuring, described as a response to a “strategic review” and the imperative for “team consolidation for efficiency” across multiple departments, has affected areas such as technology, finance, marketing, business development, and app development.

Based in Bengaluru, the company is offering the impacted employees two months’ salary if they opt for an immediate departure or the opportunity to continue working until mid-February 2024.

This decision to trim approximately 10 percent of the total workforce comes in the wake of Third Wave Coffee securing a substantial $35 million (around Rs 270 crore) in its most recent funding round, supported by investors including Gaurav Munjal and Roman Saini of Unacademy.

Notably, affected employees expressed discontent with the lack of written communication regarding the staff reduction, asserting that the notification was delivered in person.

According to one employee, both the Head of HR and the founder individually communicated to each affected employee, explaining the redundancy of their roles in the restructured organization.

There are reports suggesting the possibility of another round of layoffs on December 15, as disclosed by some employees.

In response to the developments, the company conveyed that it remains robust post the recent fundraising, asserting its commitment to further scaling and establishing Third Wave Coffee as India’s premier coffee brand.

The Tough Road So Far
Over the past two years, more than 35,000 employees in Indian startups have faced job cuts, a trend that began with the onset of the funding downturn in Q1 2022; notably, industry experts suggest that an additional 5,000+ layoffs may have gone unreported.

Prominent contributors to this wave of job losses include BYJU’S, Ola, Unacademy, Blinkit, and WhiteHat Jr, collectively letting go of 13,740+ employees in the last two years; among these, BYJU’S stands out with 6,500+ job cuts.

Looking back to predictions in 2022, it was anticipated that 2023 would mirror the job market challenges observed in 2022, which witnessed over 18,000 startup employees losing their jobs for various reasons.

As of December 8 this year, more than 17,000 jobs have already been lost, and the factors contributing to the attrition-heavy environment in 2022 have persisted into 2023.

Throughout 2022, global economic uncertainties stemming from Russia’s invasion of Ukraine, market instability, inflation, and concerns about a global recession had a profound impact.

This, coupled with the fact that Indian startups faced challenges in delivering tangible results beyond cash burns, exacerbated the situation.

According to the most recent data, the ongoing funding winter has led to the loss of over 35,000 startup jobs since Q1 2022.

The persistent layoffs by industry leaders BYJU’S, Ola, Unacademy, Blinkit, and WhiteHat Jr, raising the count to 13,740+ in the last two years, highlight the challenges faced by the Indian startup ecosystem.

The ‘Funding Winter’ The Real Culprit?
Whether attributing this to the funding winter or examining underlying factors, the Indian startup scenario remains marked by uncertainties and challenges.

Facing two consecutive years marked by significant attrition, the blame is often placed on the funding winter – evident in homegrown startups raising $8.67 billion between January and November 2023 as compared to $22 billion and $27 billion in the same period in 2022 and 2021, respectively.

The correction rate stands at 61% for 2022 and 68% for 2021, reinforcing the influence of the funding winter as a primary factor in the Indian startup landscape.

Long Hours, Uncertainty And Limited Scope
However, if one looks deeper, it becomes apparent that the world’s third-largest startup economy is not only grappling with funding challenges but is also susceptible to attrition driven by high work stress.

Unlike traditional 9-to-5 jobs, startups demand elevated levels of commitment, ownership, accountability, and efficiency from their employees, often leading to departures attributed to stress and workload.

According to a March 2023 EY report, startup-related segments, including e-commerce and technology, experienced attrition rates surpassing 20%, with an average involuntary turnover of 4.4% across segments.

The similarity in skill sets between startups and tech companies also contributes to the high attrition rate as individuals transition between these domains.

The past two years and the present have seen adverse impacts on the Indian startup workforce due to geopolitical and macroeconomic developments, including rising energy and food prices, the US debt ceiling, the US-China trade war, the Russia-Ukraine conflict, and the Palestine-Israel conflict.

These events, collectively contributing to global inflation and reduced market liquidity, have eroded the confidence of venture capitalists (VCs) and private equity (PE) firms in Indian startups, prompting cautious approaches to investment.

Similarly, grappling with falling revenues and escalating losses, capital-hungry Indian startups have resorted to employee layoffs to extend their cash runways.

The emergence of generative AI has added to the challenges, with consumer-facing roles at risk of becoming obsolete, casting a shadow on the corporate culture of Indian startups.

In this complex scenario, startups are navigating uncomfortable twists and turns, prompting a reevaluation of strategies and priorities in the face of evolving market dynamics.

What Led To The Fall
In 2023, a substantial portion of startup layoffs in India can be attributed to restructuring or turnaround efforts, accounting for almost two-thirds of the total layoffs.

Approximately 11,000 employees have been affected by these initiatives; notably, only about one-fifth of the layoffs were officially attributed to cost-cutting measures, though the actual number might be higher, considering the data relies on the reasons provided by the startups.

Late-stage Indian startups were responsible for more than half of the total layoffs in 2023, marking a shift from 2022 when they accounted for around 70% of job cuts.

On average, late-stage startups let go of 14% of their workforce during layoffs, compared to 26% for growth-stage startups and 41% for early-stage startups.

This trend is seen to align with the funding trends observed during the year, with growth stage funding experiencing a 38% decline in the first half of 2023, while late-stage funding increased by 30% YoY.

Among the startup segments affected, edtech, consumer services, and enterprise tech witnessed the most significant job losses.

Edtech, in particular, remained a major contributor, accounting for over 40% of all layoffs, with BYJU’S alone responsible for nearly a quarter of the total layoffs recorded.

Consumer services and enterprise tech faced challenges for the second consecutive year, with 11 startups in consumer services letting go of over 2,105 employees, and 18 startups in enterprise tech firing more than 1,700 employees, reflecting the impact of reduced enterprise spending globally.

What Is In Store In 2024?
Looking ahead to 2024, the scene appears uncertain; despite a period of intense funding activity between July 2021 and March 2022, the subsequent nine months witnessed the worst layoffs in the history of the Indian startup ecosystem.

While investors have become cautious about vanity startup bets, concerns persist over unsustainable business models and growth trajectories and analysts are urging startups to reconsider their approaches and strategies.

Fitch’s recent outlook provides a mixed bag of news, highlighting the avoidance of a US recession but projecting a global growth decline to 2.1% in 2024 from 2.9% in 2023.

Predicting the future remains challenging, but expectations for 2024 include a potential revival as global supply chains normalize and core inflation cools off faster than anticipated.

However, the similarity in the current funding scenario to the pre-pandemic era raises concerns that employee retrenchment may continue to be a painful reality for Indian startups in the coming year.

The Last Bit, Looking forward to 2024, the outlook remains uncertain.

Despite a historical period of intense funding activity, the subsequent months witnessed unprecedented layoffs and investors, once enthusiastic about Indian founders, have adopted a more cautious stance, avoiding vanity startup bets.

Fitch’s mixed economic outlook adds complexity, foreseeing a potential global revival while cautioning about a decline in growth and the echo of pre-pandemic funding scenarios raises concerns about continued employee retrenchment.

As Indian startups navigate these challenges, a resilient approach and strategic reevaluation are imperative for charting a course through the unpredictable waters of the startup ecosystem.