Startups: Unprofitability-Prompted Layoff



The wave of layoffs has impacted numerous startups worldwide, sweeping away thousands of people from the workforce. According to the layoff.fyi aggregator report, the number of employees affected by the policy exceeded 15,000 in May 2022. These conditions impacted a wide range of sectors in the digital industry. Vtex, an Enterprise Digital Commerce Platform, happened to lay off 193 employees, approximately 13% of the team comprises. Geraldo Thomas and Mariano Gomide de Faria, co-founders and co-CEOs of Vtex, stated that the world is changing rapidly, and their decision to lay off employees was taken as a strategic plan to adapt. The e-commerce company assured investment for talent development will remain secured, and no further layoffs will occur. The same occurrence happened to Paypal, an American multinational financial technology company; 83 workers were laid off from over 30,000. The decision was made to assess their work to fulfill customer satisfaction and operate with the best structures and procedures to support Paypal's strategic business priorities as it grows and evolves. On the other hand, the corporation did not mention filling positions or layoffs, instead stating that it will persist in recruiting. On the other side of the world, a Turkish quick commerce company, Getir, laid off 4,480 workers, or 14% of Getir's workforce, one of several companies impacted by startup layoffs worldwide. The Turkish quick commerce startup has also decided to slow down the recruitment process, marketing investment, and promotion of its services.


The global debacle correspondingly exerted influence on Indonesian ventures. This startup layoff wave is presumed to have occurred due to the bubble burst phenomenon. According to Nailul Huda, a researcher for the Institute for Development Economics and Finance (INDEF), a bubble burst is a condition in which economic growth accelerates and falls expeditiously. The hard-to-perpetuate explosive development prompts this state at the beginning of the pandemic - which later, owing to its unsustainability, declined drastically. It is believed that many startups will not be able to abide, and layoffs will occur, conveyed Nailul to CNN Indonesia on Friday (5/27). Executive Director of INDEF, Tauhid Ahmad, stated on detikcom, Sunday (5/29) that large-scale layoffs at startups occurred for two reasons: restructuring due to a business setting and inadequate performance achievement. For instance, Zenius, an educational startup, recently laid off more than 200 workers. As stated by their management, terminated employees will receive severance pay following Indonesian laws and regulations. Likewise, employees at the state-owned digital financial provider LinkAja experience similar disruption. According to Reka Sadewo, Head of Corporate Secretary Group LinkAja, this Telkom subsidiary will make various substantial adjustments, particularly in terms of the company's commercial focuses and objectives. In the same case, JD.ID, an e-commerce service, performed a restructuring that led to a massive employee reduction. The appalling macroeconomic conditions played a significant role and tremendously affected the digital industry - forcing them to consolidate with the situation to weather the wave and endure its continuity.


This layoff was brought on by the startup's reliance on funding from investors following the COVID-19 pandemic. Consequently, the forthcoming funding will be quite difficult to obtain due to various issues, including global macroeconomic conditions plagued by inflation. Investors are becoming more selective in their selection of startups since they seek out safer assets and stocks in technology, and startups are viewed as high risk. On the contrary, the conventional companies are presumed not to be affected by the cutbacks since it has been hammered by a wave of layoffs since COVID-19 first appeared, according to Bhima Yudhistira, Director of the Center of Economic and Law Studies (CELIOS). Conventional companies could endure volatility and be valued more organically and profit-oriented rather than burning money or pursuing high stock prices. Many predict that this year will be the startup winter haze, represented by massive sell-off pressure in the digital industry, conveyed Bhima to detik.com, Monday (5/30). Furthermore, Rudiantara, Chairman of the Supervisory Board of the Indonesian Fintech Association (AFTECH), stated that many venture capital firms are now focusing on the financial performance of the company rather than the traction of the digital startup. One of the world's largest and leading venture capital firms, Sequoia Capital, has advised its network of founders that the era of being rewarded for hypergrowth at any costs is quickly coming to an end. Essentially, investors will sooner or later shift their focus toward companies who can demonstrate profitability, generate positive cash flow, and provide a sense of certainty and security to their stakeholders in view of the fact that companies with said qualities have a higher chance of sustainability for decades to come.


Sources:

CNBC

DetikFinance

Kompas


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