Why startups no longer are the darlings of placement cells

On Wednesday (25th May, 2016), Flipkart decided to delay its offer to the graduates of Indian Institute of Management -Ahmedabad (IIM-A) by six months . Those supposed to join this company in July now would join only in December causing needless forced unemployment for the graduating students. In a recent development, Flipkart decided to give Rs 1.5 lacs as joining bonus in December which the IIM management summarily rejected as inadequate.

This fracas has started a war of words between IIM-A whose chairperson wrote a letter to Flipkart demanding the company honour its promise of these graduates to be absorbed as scheduled (you can read the letter here). Following this letter Flipkart sent a rejoinder stating it took this decision under difficult economic circumstances and that organizational restructuring was taking time.

The point to be noted is this- Startups aren’t the best of employers and they weren’t suppose to be. The way startup culture has bloomed is only due to gush of foreign funded venture capitalist monies. Indeed startups have a very high failure rate and these can be understood by the following cases.

  1. Mumbai-based food ordering app TinyOwl has temporarily withdrawn its services in all cities except Mumbai, since 23rd May 2016

2. Indian e-commerce major Snapdeal is reportedly planning to scale down its                              operations in its few regional offices including the major ones in Mumbai, Bangalore,            Kolkata, and Hyderabad

3. Grocery delivery service PepperTap will be shutting down its operations in six Indian              cities, which include three metros.

And the list goes on. Start-ups by their very essence mean risk. It means ideas incubated by founders and , then the concept is tested in the real market with the help of angel investors or venture capital. Since some of the ideas can fail, startups have been forced either shut down entirely or drastically scale down operations to keep the ship from sinking. Some like flipkart have been insanely successful other like TinyOwl have not.

Due to their excessive reliance on external funds, some of the decisions are also controlled by the people who fund them. They’re under immense pressure to monetize their model and generate profits. As a results even pay hikes can’t be taken for granted . As this report from Economic Times points out, from having 30-40% hikes every year to almost zilch now, start-ups are struggling to hire and keep the best talent. Some have resorted to job lay-offs, an unthinkable event in the era of free-flowing dollars. Meanwhile our PSUs and core companies are starved of managers, while people get attracted to basically simplistic ideas like food and grocery delivery services.

Even in the case of established startups, termed unicorns — or companies valued upwards of a billion dollars — Flipkart, Snapdeal and Ola have all seen exits of senior managers in recent months. The latest exit being that of Ravi Vora, the head of strategic initiatives at Flipkart . Others to have quit the country’s largest online retailer include engineering head Sameer Nigam, who left in July last year. Chief Technology Officer Amod Malviya transited to an advisory role in in the same month. In February 2015, Delhi-based Snapdeal saw its then chief technology officer Amitabh Misra leave to start-up on his own.

The fact that some start-ups are yet to break even like flipkart itself, makes us believe that even the startup culture is unsustainable and more of a ponzi scheme. As Vivek Kaul writes in this column, ” …the fact that the Indian e-commerce companies have adopted a discount model in order to lure customers. This means selling products at a loss in order to build a customer base.This strategy of acquiring customers has been directly copy-pasted from what many American e-commerce companies did during the dotcom boom towards the turn of the century.  As Gary Smith writes in Standard Deviations—Flawed Assumptions, Tortured Data and Other Ways to Lie With Statistics: “A dotcom company proved it was a player not by making money, but by spending money, preferably other people’s money…One rationale was to be the first-mover by getting big fast…The idea was that once people believe that your web site is the place to go to buy something, sell something, or learn something, you have a monopoly that can crush competition and reap profits.”

Says Kaul, “The major Indian e-commerce companies seem to be following a similar strategy of trying to build a monopoly by offering products on substantial discounts. The trouble with this strategy is that it needs a lot of money. Up until now, the Indian e-commerce companies have managed to survive because international hedge funds and private equity investors have made a beeline for investing in them.”

This means that start-ups might not be the best place to start ones career especially considering the uncertainty about their future. But then, we need to look beyond this and encourage PSUs and core sector companies where systems are robust and are more likely to play a stellar role in policy and decision-making. PSUs are basically headed by bureaucrats and are typically not suited to take the company forward in this age of nimble-footed management. If they can hire these grads, say by assuring tenure by way of a fee waiver, then it’s a possibly a win-win situation. The talent starved-PSUs get the much need fire in the belly and the graduates get the real taste of nation building by way of exposure to the economy. Same is the case for core companies like Reliance, Birlas, L&T etc. If capable managers are offered good postings, there’s a fair chance they’d stay here.

This writer has no sympathy for the troubles Flipkart faces due to many of its decisions and also with regards to its business model. And neither should the colleges from where they’re hiring. The tonality of the letter by the IIM-A chairman, was reminiscent of the heady labour union days of 70s and 80s. The letter demanded a job guarantee from no less than the CEO of the company. How ironical is the fact that the head of one of the premier business schools, which teaches basically capitalism, is asking for job guarantees as a matter of entitlement. It should kept in mind, the same people at this stage who ask for same job security, may not have too much qualms in restructuring their own companies leading to sacking others below them.

It’s better both companies and B-school graduates realize the ground reality because neither side should take the other for granted.

 

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