The experience of a first job at a start-up, as a young professional in Bangalore recounted recently, went something like this: mostly everyone was younger than 35 and the work atmosphere was exciting. The pay was reasonable and a raise came by fairly quickly. The company, then a few years old, hosted a grand party on its anniversary. A year later, the celebrations were more muted. And a bit more down the road, it was letting people go. The word was ‘restructuring’.
The professional, who preferred to remain anonymous, moved out when she got another offer. The unsettling feeling—of old colleagues leaving—perhaps tipped the scales. But ask her: given another chance, would she go again for a start-up job? Coming from one who has seen that world both close up and from a safe distance, the answer may be surprising. “I think I would. It’s very different in other (traditional) companies. There, stability is the lone thing that’s encouraging.”
Two years after start-up activity peaked in the country with big money flowing into the on-demand economy, the risks that everybody always knew were possible have caught up with many new entrepreneurial ventures, most visibly at some of the homegrown ‘unicorns’—as billion-dollar start-ups are called—especially in e-commerce.
“Right now, it’s possibly a bad phase because we have heard bad news either in companies changing course or folding up or eventually coming down to employee layoffs,” says Thammaiah B.N., managing director of the HR firm Kelly Services. Of late, quite a few start-ups have consulted the firm to manage career transitions in the event of a downsizing. “We help employees to find new jobs,” he says. “We have seen millennials also break down. So, it’s not that it does not affect them. It definitely does.”
More than finding a new job, it’s the lingering social stigma in family circles that mostly affects employees, even though peer groups may sense the scenario. “I hope,” says Thammaiah, “start-ups understand this angle and make space for some of these good practices. For, it is inevitable for many to lay off—that’s a reality. But they can do many things to soften it. It’s good for them.”
Last month, TechHub, which provides co-working spaces for tech entrepreneurs, held its first Start-up Funeral in the country in Bangalore, an event it has conducted in a few cities globally since 2014. It’s a meet-up to discuss what happened and what you learnt from it. Global research indicates that more than 95 per cent of start-ups close down by the fifth year and it’s generally taken that nine out of ten start-ups in India fail every year, says Sreenivasa Prabhu, general manager at TechHub, Bangalore. “Though we are open to celebrating success and treating these so-called successful start-up founders as heroes, no one talks about failures and learning from all such failures. Also, we wanted to apprise the world that failure is not the end of the journey and there is nothing wrong with failure as long as you learn from it,” he says. To be sure, the reasons could be very specific to each but a few do seem common enough, including the fact that most start-up ideas in India were copycat versions of those in markets elsewhere and probably floated without learning the local market sensitivities.
“If some idea is found to be successful or is attracting investments, a whole lot of start-ups emerge doing the same activity without offering any specific value to the customer,” says Prabhu. “One such example is the food-tech sector, where there were close to 350 food delivery apps in India during the late 2015 to mid-2016 period, when food-tech was a hot sector. Some of these are also an outcome of investor competition to get a piece of the hot sectors without actually looking at the value that they are creating.” It’s an observation many would tend to agree with.
Quite obviously, start-ups are still hiring (financial technology and healthcare are apparently sectors where some of the action is) and the pay still compares well with those by established companies. But salary hikes for a job shift have somewhat cooled off, unlike in the past. Generally, there’s been a 10 to 15 per cent drop from what would have been offered three years ago, say headhunters. These days, a mid-to-senior level employee switching jobs could get a 25 per cent increase, which is probably closer to what an established firm offers. Notes Thammaiah: “They are not trying to make salary one of the biggest attractions. In the earlier phase, they had to attract the best talent. Now, with the profitability aspect coming in, they are cautious of not going overboard.”
Sometime last year, Raj Lalwani called it a day with a start-up, iServe.io, he had bootstrapped and worked on for 18 months. Lalwani was building an app to aggregate services—the annual maintenance of white goods, for example—and act as a sort of bridge between customers and companies. “It is a huge pain point and we were just addressing the need for communication,” the 39-year-old says. But selling the idea to enterprises, he had slowly figured, was a tough nut to crack.
“I wouldn’t say that one day I got up and decided to shut down. It was a gradual process. This is true for every entrepreneur. You don’t have a steady run of successes only, you have ups and downs. Any successful start-up you see simply had more successes than failures. Towards the end, I started seeing more failures than successes,” he says. By then, his financial situation too was in distress with missed card payments and electricity bills. Lalwani now works for one of the bigger on-demand start-ups and he’s enjoying the challenges he’s tackling at the new job. With hindsight, there were possibly a few things he would have done differently with his idea. Would he revive it? “Maybe not now. But you never know,” he says.
Would the word ‘bubble’ fit? Not everyone thinks so. “Like Rome wasn’t built in a day, there will be false starts or screw-ups as companies try to scale and mature. Those things are par for the course, right? People will make wrong moves, mostly unintentional,” says a senior executive who’s worked with several start-ups. “Let’s look at what e-commerce has achieved. It has fundamentally changed how people shop. I think that’s amazing progress. Has it been without any scars? Absolutely not. We will still see a lot of bad news coming. The way to look at it is these handful of companies have changed India forever.”
This executive, too, had started a company a few years ago and ran it for 18 months before it shut down. “A bunch of things went wrong. Thankfully, all of us found jobs again,” he says. “But what I took out of it was something else altogether. It made me into a far better professional and far better start-up person.” Of course, the scenario has changed. For instance, a year ago, when there was more enthusiasm, investors were willing to write bigger cheques. “I think people are still writing cheques and they are being more cautious,” he says. “In fact, they are looking for better discipline and their investors in turn are demanding better discipline. Things are harder and people are asking for the right metrics finally.”
Ajay Hattangdi of InnoVen Capital, which lends to venture capital-backed start-ups in India, explains that much of this has to do with the cyclical nature of the industry. He has seen three up-and-down cycles in the last 12 years. “What you’re seeing right now is no different,” he tells Outlook. Of course, at a more specific level is the realisation that companies can’t continue to keep burning money like they used to. “And that has come on the back of what, I would say, has been a long drought in the venture capital industry for exits which is exacerbating the whole issue.”
In InnoVen’s recent Start-Up Outlook Report 2017 (where it spoke to 170 start-up leaders), around 65 per cent respondents felt that the Indian start-up ecosystem may be in a technology bubble. “There is a clear recognition in the industry that this is an issue. It’s not like anyone is trying to hide it,” says Hattangdi. It’s a natural course of events to allow companies that fail to die. “Clearly, what is happening is good. Let’s not kid ourselves. The companies that are dying are the inefficient ones.”