They have fancy names, big-bang ad campaigns and exciting news on funds raised. Then come stories that they are laying off staff. Hiccups are a part of India’s startup story. Should we be worried as Prime Minister Narendra Modi gears up to launch a detailed blueprint to encourage entrepreneurship through a ‘Startup India, Stand Up India’ campaign on January 16? Logically not, but a word of caution may be in order.
The year 2015 saw a heady growth in Indian startups with aggressive funding, hiring and expansions. However, as GrowthEnabler, a London-based advisory for small enterprises entering India noted in a study, as many as 3,270 employees lost their jobs in 20 startups in the six months until December alone. Startups thrive on two magic words: scale and consolidation. When a young company grows, it gets higher valuations from venture capitalists, but in a crazy gold rush, when expansion is not matched by sales revenues, cost-cutting becomes the obvious other thing that drives up share valuations. This often results in downsizing, cutting back on ambitions and sell-outs to rivals — resulting in likely job losses. IT industry association Nasscom estimates India’s startups to grow from 3,100 in 2014 to 11,500 in 2020. Its latest estimate puts the current number at around 4,200, the third highest in the world after the US and the UK, employing close to 85,000 people.
Twenty-something millionaire CEOs recruiting straight from college campuses fire up youngsters, but layoffs are a footnote in the tale. India has come a long way from the 1990s, when romantic booms in startups resulted in heartbreaks and protests when jobs were lost. Traces of that remain, but the younger generation is more likely to shrug off the traditional Indian stigma of a job loss as a comment on an employee’s capability. But it is pertinent to remember that as many as 90% of startups are expected to fail, as per global trends. The Prime Minister may well bring a dose of realism to the startup business as he exhorts entrepreneurs to endorse embracing risk.