Friday, Oct 07, 2022

Can Gaurav Munjal's Assault On Employee Perks Help Unacademy Become Profitable?

As one of India’s most promising edtechs struggles to find its ground, can its cost-cutting tactics bring back its heydays?


“We must turn profitable ASAP (as soon as possible).”

There was a certain sense of urgency when edtech major Unacademy’s CEO Gaurav Munjal wrote this in a recent internal email to his team. While mentioning that the company has more than Rs 2,800 crore in the bank, he wrote that they "are not efficient at all".

“There are a lot of unnecessary expenses that we do. We must cut all these expenses," the email further read.

From laying off more than 750 of its staff between April and June and the management going for pay cuts to discontinuation of free meals for the workforce—the company is trying to be as frugal in its spending as possible. Interestingly, these efforts also come at a time when it is looking to switch on the offline mode by spending big in that space to get to Munjal’s aforementioned goal of profitability.

As it looks to get listed in another two years, the company, which was burning cash like nobody’s business until last year, is realising that it has struggled to set up a clear road to profitability so far and is scrambling to fix that now.
But how did the edtech unicorn land itself in such a quandary?

Have Money, Will Spend

In August 2020, a cash-rich Unacademy, backed by big players, was announced as the official sponsor of the glitzy Indian Premier League. However, the partnership, which was supposed to span three seasons of the game, was cut short in 2022 with its withdrawal from the upcoming season citing a “change of focus”.

Experts believe that Unacademy’s heavy spending on marketing in the past few years has a lot to do with its current situation. 

In its early days, the company only concentrated on below-the-line marketing for a small targeted audience. In 2019, it switched to above-the-line marketing which generally has a broad reach but is largely untargeted. The shift was reflected in its marketing spends which galloped from a measly Rs 6.97 lakh in 2015, the year of its inception, to Rs 411.29 crore at the end of FY21. In fact, reports suggest that the company spent Rs 40 crore in IPL ad spends even this year.

No wonder Munjal has asked the company to embrace “frugality” as a core value going forward. In the same mail mentioned above, the CEO owns up to the fact that the company did go overboard with its spends. "Until now we have never had frugality as one of our core values. Honestly, since we were focused on growth and the fact that we had raised millions of dollars of capital it (frugality) wasn’t a priority (sic)," he wrote. Munjal said that the company will also be shutting down certain businesses, like its global test prep arm, that have failed to find the product market fit.

However, a sudden pivot to profitability from growth and a change of focus could be an issue for a big company, as another CEO in the start-up sphere points out. 

“If you are a small start-up with a 20-30 member team, it is easier to do that. Very few organisations in the world have been successfully able to do that. We will have to see how things play out in the next few months for such companies,” Nithin Kamath, founder and CEO, Zerodha, had said in a recent interview with Outlook Business.

Collateral Damage

"We spend crores on travel for employees and educators. Sometimes it's needed, sometimes it's not,” Munjal had written in his mail, indicating the company’s next area of cost-cutting.

Apart from cutting down on marketing spends and sponsorships, Unacademy has also started slashing its spending on the top offices and other employees.

With that came a slew of changes directed toward the workforce. Munjal said that employees, including top management officers, will not be allowed to travel business class on company expenses. Also, dedicated drivers for top officers will be done away with. The CEO also informed his employees that they will have to give up their complimentary meals and snacks to save cash.

Interestingly, travel and perks make up just about 10-15 per cent of a start-up’s expenses and the biggest chunk is taken up by employee salaries and marketing spends. While on the one hand, the edtech is going down heavily on costs, on the other, it has increased its employee stock ownership plan pool by 20 per cent.

The recent email was the second one that Unacademy employees had received from their CEO in the past two months. In the first one sent in May, Munjal had warned them of a potential “funding winter” and had advised them to work with constraints. “We are looking at a time where funding will dry up for at least 12-18 months. Some people are predicting that this might last 24 months,” Munjal had said on May 26 after the first round of layoffs in the edtech firm.

Experts believe that the cutting of perks is mere optics and that the fear of layoffs still looms large in the sector. Munjal, however, has said that the company will not see more layoffs and that there will be internal migration for redundant employees.

The Kota Controversy

After the K-12 segment took a massive hit post the reopening of schools, several edtechs are testing the offline waters. Unacademy is no different.

With an eye on profitability, the unicorn is now spending big on its offline foray as it recently opened two offline centres in Kota, Rajasthan. As per reports, the company has spent a whopping Rs 100 crore to onboard 30 teachers in Kota, often known as the coaching capital of India, to battle against local favourite Allen Career Institute.

The edtech’s bid to poach teachers from Allen has naturally not gone down well with the institute which has threatened to blacklist its teachers if they went to Unacademy. In a video message meant for the teachers planning to join Unacademy, Brajesh Maheshwari, co-founder and director of Allen Career Institute, even said, “Sharafat ki duniya khatam, jaisi duniya waise hum (the world of decency is over, we will be as the world is)”.

After the video came out, the issue escalated to the point where Unacademy sought police protection for some of these poached teachers. In a response to Unacademy making inroads, Allen has also entered the edtech space now with its digital arm Allen Digital.

Here, the issue lies in the misplaced focus of edtech firms, feels Rahul Kashyap, co-founder, SkillSlash, an edtech offering upskilling courses and internships for real-time projects. “Many edtech start-ups' sole focus has been valuation and expansion. They aimed to sell their products without considering whether or not a certain student requires them. Their sales tactic of one size fits all is now backfiring. It helped them increase their revenue but how long could they keep this technique going without results?” asks Kashyap.

Unacademy, which Munjal had started as a YouTube channel in 2010, became one of India’s most successful start-ups since its launch in 2015. While the pandemic fuelled its growth further, the company started witnessing a downturn as schools started reopening in the midst of a funding winter. Now, the unicorn seems to be preparing for the worst by resorting to extreme austerity measures even as it focuses on spending big money on its offline arm. The question is:

How much of all this will pay off?

Unacademy declined to give a comment for the story.