Last year, this time around, we remember mentioning how 2023 would be no different from the year in review (2022), which took jobs of more than 18K startup employees due to reasons galore.
As expected, the layoff axe continued to slash employee headcounts at Indian startups, with over 17K jobs already lost as of December 8 this year. Essentially, the primary factors that played a macro role in making 2022 an attrition-heavy year found their way into 2023 as well.
For the uninitiated, the entire 2022 was laden with the impact of Russia’s invasion of Ukraine on the global economy, ailing markets, rampant inflation and the fear of a global recession. These, in turn, impacted investor sentiment, along with the fact that Indian startups had little to deliver but cash burns.
Long story short, according to the data collated by Inc42, more than 35K startup employees have lost their jobs since the onset of the funding winter in Q1 2022. However, if industry experts are to be believed, 5,000+ layoffs have gone unreported.
Moving on, leading the onslaught are BYJU’S, Ola, Unacademy, Blinkit, and WhiteHat Jr, which have shown doors to 13,740+ employees in the last two years. Interestingly, among these industry frontrunners in living the layoff dream, BYJU’S takes the podium with 6,500+ job cuts.
While BYJU’S, Ola, Unacademy, Blinkit and WhiteHat Jr together sacked an estimated 9,390 employees in 2022, BYJU’S, Skill-Lync, GoMechanic, ShareChat and ZestMoney made 6,075+ employees look for pastures new.
Now, we can either blame the ongoing funding winter for the meltdown in the startup job market or talk about the factors that have largely remained hidden in plain sight, adding more blue to the Indian startup gloom.
Two Attrition-Heavy Years: Who’s To Blame?
As per the Inc42 analysis, homegrown startups raised $8.67 Bn between January and November 2023 against $22 Bn and $27 Bn during the same time in 2022 and 2021, respectively.
Looking at the correction rate, which stands at 61% for 2022 and 68% for 2021, it is easy to blame the funding winter, which is the root cause of almost every anomaly in the Indian startup space.
However, if you are a regular reader of Inc42, you would know that we always try to look beyond the clichés in our endeavour to bring forth deeper analogies and equations working in the background.
In our perusal to look beyond the funding winter, we learned that the world’s third-largest startup economy is also vulnerable to attrition caused by high work stress.
It is also imperative to mention that, unlike typical 9-5 office jobs, startups seek high levels of commitment, ownership, accountability and efficiency from their employees. “Therefore, several employees leave due to high stress and workload,” an industry expert said.
According to a March 2023 EY report, the ecommerce, technology and related sectors – all startup-related segments – experienced attrition rates exceeding 20%, with an average involuntary turnover of 4.4% across segments.
Moving on, given that many similarities exist between startups and tech companies regarding employee skill sets, the high attrition rate in the two circles results from people leaving one domain to enter another.
Further, it is anybody’s guess that the state of the Indian startup workforce has been adversely impacted by geopolitical and macroeconomic developments over the past two years — rising energy and food prices, the US hitting its debt ceiling, the trade war between the US and China, the Russia-Ukraine war and the Palestine-Israel conflict.
Global inflation rose on the back of these developments and all these factors confected a reduced market liquidity. This has broken the confidence of VCs and PEs in Indian startups, making them think twice before embarking on the route fraught with uncomfortable twists and turns.
As such, grappling with falling revenues and mounting losses, capital-hungry Indian startups have been sacking employees just to extend their cash runway for a bit longer.
Adding insult to injury, the emergence of generative AI has been yet another dent in the image of the Indian startup corporate culture. With the rapid adoption of AI, industry experts see consumer-facing roles being rendered obsolete soon.
Startup Turnarounds Made Employees Pay Heavily In 2023
According to Inc42’s Indian Startup Layoff Tracker, which monitors startup layoffs across the country, nearly two-thirds of the layoffs that took place during the year (2023) were attributed to restructuring or turnaround efforts by various Indian startups.
In terms of numbers, nearly 11K employees have been impacted by restructuring exercises so far this year. Going by the available data, only about one-fifth of the laid-off employees lost their jobs due to cost-cutting measures. This number ought to be much higher, but the current analysis only considers the official reasons for layoffs provided by the startups.
Meanwhile, during the year, late stage Indian startups accounted for more than half of the total layoffs conducted in the Indian startup realm, witnessing a respite from 2022 when late stage startup layoffs accounted for approximately 70% of the total job cuts.
On average, a late stage startup sacked 14% of its workforce in a typical layoff exercise in 2023 compared to 265 growth stage and 41% at the early stage. It is imperative to note that industry experts see the layoff trend mirroring stage-wise funding trends observed during the year.
According to Inc42 data, growth stage funding fell 38% during the first half of 2023. Meanwhile, late stage funding increased by 30% YoY, which might be a reason why late stage startups saw fewer layoffs this year than last year.
Edtech, Consumer Services, Enterprise Tech Employees Among The Worst-Hit
Among the 11 startup segments that saw layoffs during 2023, edtech, consumer services and enterprise tech saw the most job losses. Two of every three startup employees laid off during the year worked in one of the aforementioned segments.
Refusing to budge, edtech continued to be the startup employees’ worst nightmare, accounting for more than 40% of all layoffs during the year at more than 6,758. BYJU’S, the edtech behemoth, alone accounted for nearly a quarter of the total layoffs recorded by Inc42 during the year so far.
Consumer services retained its unfortunate label alongside edtech as being among the top segments impacted by layoffs for two consecutive years. This year, 11 startups in the sector fired over 2,105 employees. Across the past two years, 19 startups in the space let go of nearly 7,400 people.
Enterprise tech became an unexpected entry into the startup layoff realm as 18 startups from the segment fired over 1,700 employees during the year. Troubled by the fall in enterprise spending across the globe, the segment’s share in handing out pink slips jumped from 2.6% in 2022 to 10.3% in 2023.
Will 2024 Be Any Better?
The last few years have been quite paradoxical. While we have observed investors going gaga over the charm of Indian founders, we have also witnessed them tightening their purse strings in no time.
For instance: The nine months between July 2021 and March 2022 were witness to the most intense funding activity the Indian startup ecosystem had ever seen. In just three quarters, homegrown startups raised $44 Bn.
In contrast, the nine months between July 2022 and March 2023 saw the worst layoffs during any time in the history of the Indian startup ecosystem. During this period, 63 Indian startups fired 12,214 employees.
However, the only common trend in 2023 has been investors’ distastefulness in making vanity startup bets, despite accumulating billions of dollars in dry powder.
As analysts continue to sound caution over unsustainable business models and growth trajectories, Indian startups seem to be rethinking their approach and strategy.
On a different note, rating agency Fitch delivered a mix of good and bad news earlier this week. While the good news is that the US economy has managed to avoid a recession, the bad news projects the world’s growth to fall sharply to 2.1% in 2024 from 2.9% in 2023.
Predicting the future is a fool’s errand. However, we can only expect 2024 to be the year of revival, with global supply chains returning to normalcy and core inflation cooling off faster than anticipated.
However, given that the current funding scenario reminds one of the pre-pandemic funding era, employee retrenchment is an anomaly we may see Indian startups bracing in yet another painful year on the employee front.
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