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Can Startups Sustain on Strategy Alone? Balancing Layoffs & Innovation

Indian startups see fewer layoffs in 2024, but silent firings are up. Is this a recovery or a new, stealthy way to cut costs? Read more to find out!

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Can Startups Sustain on Strategy Alone Balancing Layoffs Innovation

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Indian startups are increasingly adopting a cautious approach to workforce management in 2024, leading to the termination of approximately 10,000 employees. This move comes as companies face significant funding challenges, prompting a shift towards more strategic hiring and operational decisions aimed at ensuring early-stage profitability.

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The trend represents a substantial reduction from the previous year, with layoffs decreasing compared to 2023's figures of 15,000 in the latter half and 21,000 in the first half.

Comparing Layoff Trends Over Time

The layoffs in 2024 have shown a distinct shift in strategy compared to previous years. Data from Longhouse Consulting indicates a more measured approach, with companies opting for incremental reductions rather than large-scale cuts. This change suggests a shift from reactive to proactive workforce management, as companies aim to stabilize their operations amidst an unpredictable funding environment. The decline in layoff numbers reflects a broader industry trend towards sustainability and efficiency.

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High-Profile Layoffs Highlight Sector Struggles

Several high-profile startups have been at the forefront of this trend. Swiggy, for example, recently laid off approximately 400 employees. Ola Electric, preparing for its IPO, is finalizing the termination of over 600 employees, following the dismissal of around 200 employees by its sister company, Ola Cabs, in April. Other significant players, including Cultfit, Licious, PristynCare, and Byju’s, have also implemented job cuts as part of cost-cutting measures. These layoffs, ranging from 7% to 15% of their workforce, underscore the broader challenges faced by the sector.

Silent Layoffs: A New Trend in Workforce Management

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One notable trend in 2024 has been the rise of "silent layoffs."

Anshuman Das, co-founder and CEO of Longhouse Consulting and Careernet, highlights that around 40-50% of this year's layoffs have been executed without formal announcements, often framed as performance-related separations. This marks a significant increase from the previous year's 20%, indicating a shift towards more discreet methods of workforce reduction. Silent layoffs allow companies to manage reductions without attracting widespread attention, thereby mitigating potential negative impacts on employee morale and public perception.

Strategic Workforce Adjustments Over Mass Layoffs

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In contrast to the broad team reductions seen in the previous year, many of this year’s layoffs involved substituting higher-paid employees with lower-salary or less-experienced staff. This strategy not only reduces payroll expenses but also aligns with efforts to maintain operational efficiency. By framing these layoffs as performance-related, companies aim to set realistic expectations regarding bonuses and salary increments for retained staff, helping to reduce anxiety and dissatisfaction.

Consumer Internet Companies Also Affected

Major consumer internet companies such as Flipkart and Paytm have also not been immune to workforce reductions. Earlier this year, Flipkart announced plans to cut its workforce by 5-7%, impacting between 1,100 and 1,500 employees. This decision is reflective of a broader trend within the industry, where even established players are forced to reassess their workforce strategies in light of funding constraints and competitive pressures.

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The Broader Implications of Layoffs

The reduction in layoffs in 2024, while seemingly positive, indicates a more profound restructuring within the start-up ecosystem. Companies are moving away from aggressive expansion towards sustainable growth models. This shift is likely driven by the need to attract and retain investor confidence in a tighter funding climate. By reducing operational costs through strategic layoffs, start-ups aim to present a more stable and profitable outlook to potential investors.

Future Outlook: Sustainable Growth or Continued Challenges?

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Looking ahead, the start-up ecosystem in India is likely to continue facing significant challenges. The current trend towards strategic, performance-related layoffs suggests a new norm in workforce management. However, the underlying issues of funding and profitability remain. Companies will need to balance cost-cutting measures with the need to innovate and grow in a competitive market. The rise of silent layoffs also raises questions about transparency and employee trust, which could impact company culture and long-term sustainability.

As Indian startups navigate the complex landscape of 2024, strategic workforce adjustments have become a critical tool for ensuring survival and growth. The shift towards more discreet and calculated layoffs reflects a broader industry move towards prudence and sustainability. While the reduction in the number of layoffs is a positive sign, the challenges that prompted these measures remain. Startups must continue to innovate and adapt to maintain their competitive edge and attract the necessary funding to thrive in an ever-evolving market.

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