Indian technology enterprises have changed the country’s landscape in more ways than imagined. They drive scale, enhance both productivity and efficiency and they optimize impact. They are key to bridging the ‘middle’ – something that the large corporates need to be efficient at. Their role in the B2C space is even more visible and profound. They empower and make life simple for the consumers. The network effect is truly an economic multiplier, its role in societal upliftment is equally impactful.
However, there is trouble brewing for these celebrated organisations, visibly manifesting as layoffs.
*Layoffs are sweeping across the tech sector. A year ago, techies were coddled, wooed
The shift is dramatic both in substance and in tone.
Global behemoths are cautious. They foresee the headwinds and are ‘rightsizing’ their manpower strength. Amazon has ‘counted’ 10,000, Meta, Google and Microsoft have identified similar numbers. Elon Musk may lay off 80 per cent of Twitter employees. Uber, Airbnb, Netflix, Spotify, Shopify, Stripe and Robinhood too have announced ‘austerity and optimizing’ plans.
The storm started in the western world and has landed on India’s shores too. Most tech unicorns are stretched. Uncertainty lurks around. Most paid little attention to the fundamentals of the business. The goal was to be the ‘last one standing’, based on the maxim ‘winners take all’.
Employees call it sacking. Employers term it as shedding fat and ‘tightening’ the belt. Apex leadership is admitting to ‘fixing’ mistakes. The ‘invested’ see the trend as ‘reining in’ to tide through a volatile and stormy period.
*Downsizing alone will not make organisations competitive
The markets love downsizing. Investors see it as an attempt to enhance both growth and profit metrices, and eventually value creation. However, every downsizing is not perceived positively, especially those that are ‘survivor’ centric or play on cost reduction.
Downsizing and cost cutting won’t be sufficient. The new-age companies need to ‘redefine’ their goals; strategise to restore high productivity, and higher growth rates. They need to walk a different path.
Unicorns and even those listed will struggle unless they remodel the business ethos. The tightening of monetary policy has choked funding. Valuation by the secondary market, unlike series and angel funding ‘tests’ business models on a day-to-day basis. The stock market questions business robustness every quarter. The listed ‘new tech’ companies have neither demonstrated their robustness nor their future value stream.
There are several macro challenges too. Evolving markets, consumer dynamics has deepened the uncertainty.
Tech businesses have created value adding products, enhanced efficiencies for businesses and simplified life for the consumers. Business challenges however, remain and need restructuring of the model, focusing both on disruption and productivity. Unfortunately, none of the home-grown businesses have been able to catalyse the network effect (in spite of many creating one), that triggers the virtuous growth cycle i.e., demand feeds supply and vice versa.
*Weak moat, low entry barriers
They operate in ‘crowded’ markets with many ‘me too’ offerings and as a result face increasing competitive pressure. They have tried addressing this by customer acquisition through aggressive ‘offers and paybacks’, resulting in high acquisition cost. The porous nature of the marketplace has meant ‘easy and regular’ customer abandonment to the ‘new and the less expensive’. Most tech providers have failed to hold on to consumers. This phenomenon (high customer acquisition cost, regular customer abandonment) lowers customer lifetime value yield. It has amplified the pain.
Funding is drying up, and the cost of funds are going up. Profits (if any) are drifting down. Valuation is plummeting and may well be a true indicator of the intrinsic value; and the ‘worth’. The impatient among the investors are beginning to question the very viability of the business model. There is skepticism all around. Methods, numbers, and models are all under scrutiny. It must worry these unicorns.
While people are still using apps like Zoom and Google Meet, we’re past the pandemic days of ‘everything’ virtual. Outside of work, the situation is even more stark. During the pandemic online life became the only life, and business surged, particularly for the tech companies, fueling a hiring frenzy, and several other excesses. The aggressive online consumer spending provided a heightened, and false sense of demand. Initial success made many believe this to be the new normal.
*Growth, and scale are intoxicating
It’s not easy to ‘pass’ growth, any growth. Fed on the steroids of cheap capital and spurred by investors, many companies went on an acquisition spree – some related to their business and others not. Many who could not acquire businesses in their own sector, entered unrelated sectors and into non-lucrative geographies.
They have adopted business models that may crumble on weak footing.
Unicorns must come clean. It’s comforting, to lean on the resurgence of the ‘normalcy’ (back to work, travelling etc.) for the slowing growth. Admit the obvious that growth prospects don’t look healthy, draw and design a compelling and implementable business model. Layoff is an admission of excess, and equally a signal that remedial action is underway. However, sustainability will depend on demonstrating that the restructured model has worked.
Many who are equating the layoffs of the global tech giants with our unicorns may have got it all wrong. For the gorillas and the whales, layoffs are not ‘survivor’ centric, but more profit motivated. Downsizing in the unicorns conveys a totally different picture.
Navigating tech growth has never been easy. Growth is lumpy, disruptions are common, equally frequent and its impact deeper. Our unicorns grew too big too quickly compared to what it takes for brick-and-mortar companies. This is less understood and rarely appreciated.
*Inch deep, a mile wide but temporary
Some suspect a deeper malice and believe jobs may not come back for the next couple of years. However, we are not in for a dark winter.
There are lessons aplenty. Google, Apple, and Microsoft are slowing hiring, monitoring every cost item but focus is squarely on productivity. Others faced with slowing growth are revisioning strategies. Netflix is releasing a lower-priced service subsidised by advertisements. Similarly, Amazon, is ‘harnessing’ expansion plans, closing operations that are ‘not core’ or not likely to yield returns.
Till their business models metamorphose, growth and valuation are unlikely to rebound for India’s new-age tech companies.
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