startups: 28,000 and counting: That’s the 2023 layoff data from startup land

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New-economy companies laid off more than 28,000 employees in the first three quarters of 2023, as startups went ahead with major restructuring to conserve cash and prioritise verticals essential for continued operations, amid a persistent funding winter.

Startups have been the worst hit this year since the highs of aggressive hiring from 2021, data from Longhouse Consulting shared exclusively with ET showed. These companies fired more than 20,000 in 2022 and 4,080 in 2021.

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While the data from Longhouse were for the January-September period, the following three months also saw considerable layoffs made by the likes of Udaan, PhysicWallah, Bizongo and Third Wave Coffee.

“The problem may be deeper in startups but we must remember that the overall economy is also being ravaged by high interest rates and inflation, with tech firms getting impacted across the world,” said Anshuman Das, cofounder and chief executive, Longhouse Consulting.

Sectors like edtech, real money gaming and business-to-business ecommerce were the worst impacted by layoffs, while fintech and deep tech were comparatively better off, senior hiring executives told ET. Even well-funded companies in ecommerce took a cautious stand on hiring and appraisals. For example, Flipkart did not give salary increments to the top 30% of its employees including senior leadership this year, while smaller rival Meesho fired about 250 people in May.

Edtech giant Byju’s laid off over around 2,500 employees till October this year, according to data from Longhouse. ET had reported on September 27 that the firm had started another major round of job cuts that would impact another 4,500 people to further tighten costs. PhysicsWallah and Adda247, both edtech firms, laid off about 120 and 300 employees, respectively.

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In the ecommerce space, B2B platform Udaan fired about 120 employees on Monday, while Dukaan, which helps digitise small stores, let go of 90% of its customer support staff. Dealshare, an ecommerce company focused on tier-2 and beyond markets, cut some 130 jobs in September as it shut down its B2B vertical.


Job insecurity drives behaviour

The layoffs seem to have injected considerable job insecurity into the ecosystem, Das told ET. This insecurity is evident in attrition rates improving to 9-14% in 2023, its best in three years, despite salary revisions being the worst in three years, ranging between a 30% cut and 20% growth, according to Longhouse data.

“For lateral movements across companies in the same position, hikes were averaging as high as 25% to 35% when funding was abundant, as opposed to about 8% to 15% hikes internally. Now, the hikes for that kind of lateral movement has also normalised to 15% to 20%, so employees don’t have as much of an incentive to shift firms,” said Yashna Ray, partner at HR advisory firm Metamorph.

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Attrition was at its worst in 2021, ranging between 32% and 35%, as employees quickly moved jobs to benefit from record levels of startup funding, while things somewhat improved in 2022 to 23-26% in 2022, when the funding winter had just started to set in. The reverse was true of hikes, with the greatest hike range of 25% to 75% seen in 2021, which slowed to 10-50% by 2022.

“On the other hand, this is a great time for any firm to hire the best talent at lowered costs… they will be helped by a systematic correction in pay, and talent does not have that many options either,” Das said.

For instance, the joining ratio—meaning people who joined a company after taking up the offer—has improved to 40-90% in 2023, which was 10-40% in 2021.

Layoffs in startups usually begin with “non-core” roles like marketing, sales, human resources and operations, and that was the case with Indian startups too as they began cutting jobs last year, Ray told ET. This year, however, the layoffs cut much deeper with “core” roles like those in tech, product and finance teams also getting impacted.

“In that sense, it was a bit of a ‘tech bubble burst’… hiring in tech and product roles also slowed down and some startups even cut down their tech teams as they focused on their core products instead of experimenting or shipping new products or features,” Ray added.

Also read | Funding in Indian startups sinks to $7 billion, lowest since 2017

Of growth and profits

At the same time, some hiring has persisted in the startup ecosystem, with about 122,000 people hired as of October 2023, compared with 241,000 in 2022 and 198,000 in 2021. Fintech firms PhonePe and Paytm, insurance tech platform PolicyBazaar, ride-hailing platform and electric vehicle maker Ola, and quick-commerce startup Zepto all hired more than 500 new employees each, according to the data.

Talking about growth-stage companies continuing to hire despite a lack of growth capital, Das said these firms were not just dependent on external funding as they already make considerable amounts of revenue. Due to that, recruitment is inevitable.

“The growth-stage firms have understood that large cheques won’t be cut for some time, so now they are all headed for the public markets. That will likely force them to focus on profitability and will further drive the fundamental shift in hiring,” Das added.

Sectors like sustainability and electric mobility, ⁠deeptech, spacetech and ⁠healthtech had done relatively well in 2023, Ray said. “From a focus on hyper scaling, the focus is now on profitability and core competencies… even first-time founders are not hiring with the immediate future in mind, but looking two years ahead,” he said.

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