Reasons Behind Hiring and Firing by Startups Revealed
These days all the newspapers are flooded with two types of news: Startups that are firing employees (Read: Has Investment Crunch arrived in India?) and those which are acquiring new talent or acqui-hiring at a high cost. As soon as the hiring news makes you feel motivated to join a startup the very next day a lay off by another company puts you in a dilemma (Read: 6 points to consider before joining a startup). In this article, we will try to understand what causes these startups to fire employees and why do they hire leaders at a premium.
Let us understand what are startups that would help us better understand their requirement. Startups are technology-based small companies usually with lesser funds and high growth rates, both categorically as well as geographically. They are under constant pressure from the competitors as well investors. As we all know, there exist 100s of startups in each segment, and they all will not exist forever. Most of them will close down, and rest will consolidate leaving behind just 2-3 major players in each sector. Now the race is who will be in the top 2-3. Investors are betting on different horses and sometimes multiple horses. As soon the company gets funding it is under, acute pressure to scale up its operations, expand in a new location, increase the number of categories, upgrade its technology etc. After all, it is all about numbers only. Nobody is making any actual profit on which valuations are taking place. Scale and scalability are a major criterion on which investors lend their money. Thus, companies need people on a short notice and often:
Startups generally overhire people in the expansion mode. In a recent ET article, one of the sacked employee from Tiny Owl, complaints of the excess number of workforce in Pune office, both in the marketing as well as in sales department.
Hire without checks:
“Between speed and quality, e-commerce companies are now focusing on the former. Several are hiring based on the fancy resumes- there have been instances where people have joined without proper document”- said Prateek Srivastava, founder Basil Advisors, reports ET.
Hire without clarity of roles:
In the wake of scaling up, many a times proper job description is not defined, thereby leading to non-fulfilment of KPAs and thereby layoffs. In an interview with ET, Zomato spokesperson said the firm sets the expectation right from the time of hiring on the uncertainty of a startup job.
Recently we saw a major chunk of employees being fired from some of the well known startup companies. Some of them became popular only after mass layoffs. ET reports that at least 3,270 employees have lost jobs in 20 startups in past 6 months, which comprise 18% of its employee force. The survey of these 20 companies by GrowthEnabler reveals the breakup of reasons of layoffs by these employees:
40% of the layoff employees were from food tech companies and 30% from e-commerce.
Does it mean the startups do not value their human resource?
Human resource is the biggest asset of any company, and the startups understand it very well. Not just that the good and dedicated employees are required for a quick and assured success, there is a lot more.
In a survey of 100 startups :
47% of the startups said that venture capitalists review the quality of their workforce to assess funding potential.
53% said they spend more than 60% of the standard market value to hire the best talent.
Competing on the talent acquisition ground:
Every day, we are hearing news about startups battling with their competitors not only on the funding grounds but also on the talent acquisition grounds. The talent pool for such companies is limited – “people working with organisations such as Google, Adobe, Intuit.”-Said Anuj Roy, Partner at Transearch.
“Ecommerce requires different types of skills, a different mindset, willingness to take risk and often cross-functional expertise. It is hard to find people who are the right fit.”– said Sandeep Murthy partner at Lightbox Ventures, reports ET.
Best Payment Masters:
The companies are becoming the best payment masters and luring the best talent even from Silicon Valley. Flipkart Internet has over 23 employees whose take home salary is more than Rs 1 crore annually that is comparable to the age old brand ITC. However HUL has 169, Infosys 123, and Wipro 70 such employees who are paid more than Rs 1 crore annually.
Best Engineering and B-Schools:
Most of the startups goes to IIMs and IITs to hire the best talent in the country.
What is the reason of this double-faced strategy?
Its very clear from the above analysis that there are many companies that are not hiring very cautiously and in the wake of showing good numbers either they are over hiring, or hiring without predefined roles. Thus, they are not able to manage their employees in the hard times of delayed funding, or pivoting, or when they are not able to meet the growth projections. Ideally in Indian culture, layoffs are not acceptable as there is no state security like other developed countries. Thus, it becomes a moral responsibility of the companies to either absorb them, or help them develop skills or change their role, or, at least, help them find other option so that they can support their family.
On the other hand, companies are chasing the rare talent and paying at par with big FMCG companies. This is because “As the companies start climbing the pyramid, the talent pool gets thinner.” Said Saurabh Kochar, CEO Foodpanda. And it is imperative to have people who have actually done that. “Building scale needs people who have been there, done that. Leaders who can lead by example.” Said Vijay Shekhar Sharma in a leading Magazine Cover Story.
Poaching of good talent from the competing startups is also labeled fair, as it is a war. Companies fear that better talent with the competitor can lead them to achieve better results and in turn more funding. Thus, startups flushed with funds are betting any amount to hire the top talent. The bigger picture is that a credible leading team can also become the most important factor for a prospective IPO.
pic source: freepik