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Are Indian startups hiring recklessly?

India-Startup-layoffs-job loss
Reuters/Adnan Abidi
Living dangerously.
  • Itika Sharma Punit
By Itika Sharma Punit

Co-editor, Quartz India

Published This article is more than 2 years old.

Indian technology startups have been on a hiring spree lately—thanks to easy availability of funds. But, given their business models, the huge manpower they have accumulated may soon turn into a liability. In fact, several companies are already reworking their hiring policies, and some are trimming their staff size drastically.

On Aug. 31, food ordering startup TinyOwl laid off around 100 employees at its Pune and Mumbai offices to cut costs. ”The elimination of certain positions in the company have been made on a strategic level, to increase efficiency, productivity, and re-direct our diverse talent to focused departments, providing the best innovative offerings to our customers,” Tanuj Khandelwal, co-founder of TinyOwl, told YourStory. “We see this development as a positive move towards growth.”

This closely follows media reports that said Mumbai-based real estate portal Housing.com plans to lay off 600 of its 2,600 employees across business verticals over the next three months.

If human resource experts are to be believed, what has happened at TinyOwl and Housing.com may become more widespread in the coming years.

“There is no doubt that Indian startups have gone overboard with hiring in the last few years, and that has happened because they raised so much money and they had to spend it in some way,” Kris Lakshmikanth, chairman and managing director at recruitment consultancy, the Head Hunters India, told Quartz. “Now as funding starts getting slower, due to reasons like the crash in the Chinese markets, these companies will need to cut costs and then may look at layoffs or freeze hiring.”

Currently, several Indian technology startups have a larger headcount than their global peers, even though the business models of Indian companies have often been inspired from the latter.

For example, at the time of its acquisition earlier this year, Bengaluru-based online taxi aggregator TaxiForSure (TFS) had 1,800 employees, while its California-based competitor Uber had barely half of that. Remarkably, at that time, Uber had presence in more than 50 countries, and TFS operated in just 47 Indian cities.

This was one of the reasons why TFS’ acquisition talks with Uber hit a roadblock. “With Uber, the discussions went far, before a scary reality emerged. The company globally has 848 people on its rolls. TFS had 1,800 people in India. If the deal was to go through, it would lead to a massive bloodbath,” the Mint newspaper reported.

While TFS may have managed to avoid the massive layoffs by selling out to local competitor Ola, pink slips are a reality that may not evade the Indian startup space for long.

Bulging at the seams

Some of the largest internet businesses in the world also have lesser headcount than Indian internet firms.

Chinese e-commerce giant Alibaba Group Holding—which outsources most of its delivery operations—had 34,081 employees at the end of 2014. And in April this year, chairman Jack Ma said that the company plans to cap the size of its workforce at the current levels. ”The more people you have doesn’t mean the better,” Ma said at an internal company meeting in Beijing in April.

Some of the largest internet businesses in the world have lesser headcount than Indian internet firms.

In comparison, Indian e-commerce giant Flipkart has been building its logistics and delivery operations in-house, and the eight-year-old company has over 33,000 employees. In March, Flipkart said it plans to double its technology team from 1,000 employees then.

In the technology space, hiring in large numbers was once seen as an indicator of good health for IT services companies, but the same logic does not apply to software product startups. If anything, it reflects high costs.

“Startups are currently in a land grabbing phase. They want to grab more customers, increase their presence in more and more cities, and get all the good talent that they can acquire. But in the end, business has to make business sense,” said Guruprasad C.K., ‎principal at human resource consultancy firm, Heidrick & Struggles.

In March, Delhi-based e-commerce major, Snapdeal had said that it plans to double its employee base in 2015. Others, such as online furniture retailers FabFurnish, Urban Ladder and Pepperfry also have aggressive hiring plans. And their founders are confident that pink slips will not become a trend in the Indian startup space.

“I don’t think it will become a trend,” Rohit Bansal, co-founder and chief operating officer of Snapdeal, told Quartz. “We took some bold steps in our early years, but we did not let go of even a single employee.”

Snapdeal currently has around 7,000 employees.

Pivoting businesses

But as these startups fine-tune their business models, several jobs would be at risk.

“Employees at startups need to be swift and nimble. Startups keep reinventing themselves, and so those who work with these companies must also be ready to re-skill themselves,” said Guruprasad.

In June, Flipkart decided to outsource some of its functions to Serco, a BPO (business process outsourcing) firm. Following the decision, the company transferred about 300 middle- and lower level employees to Serco.

“Almost 80% of the employees who join startups are lured by the high rewards that these companies offer, but they don’t realise that there are high risks involved in this space,” B.S. Murthy, CEO at LeadershipCapital Consulting, said. “Every time a startup will need to change some business or add a stream, they may have to let some employees go off.”

Most Indian startups are far from breaking even, and all the current growth and expansion is being fuelled by the investment that has mostly come from venture capital firms and hedge funds. But over the next few years, when these companies come under the pressure to turn profitable, the huge employee base is unlikely to be anything more than a liability.

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