“Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.” – Richard Branson

Since last couple of years, Indian startup eco system is experiencing a roller coaster ride. With huge funds flow, a lot of new business models got introduced in the market that are facilitating consumers over conventional ways. On the other hand, due to factors like market competition, cash burnt strategies, profitability constraints etc, a lot of startups are either struggling to survive or pivoting their business model. As a result, firing has become so much common phenomenon among startups that their credibility is questionable, not only in terms of career choice but also in terms of consumer trust.

Snapdeal, Zomato, Commonfloor, Tinyowl, almost all of the major players of Indian Startup eco system are in the list of companies that have fired their employee in the name of organizational restructuring, performance issues etc. Nobody would love to keep searching suitable job within short span of time or remain occupied 24*7 with the fact that there is need to look for another job. Also, the founding team would not love to remain stuck the concerns like excess manpower.

So there is urgent need for startups to look into manpower planning aligned with the need of business model, scope of work and funds in-hand. Here is an analysis from FS Labs to give a direction to startup founders to think in a better manner rather than firing.

Why Firing happens in Startups

As explained in our previous analysis “Startup Hiring and Firing”, manpower reduction is a natural phenomenon between growth and stability phase. During growth phase the requirement of manpower goes on higher side because of fluctuating demand, operational instability, lack of automation etc. These factors start getting resolved with progression of time, hence, as a result the manpower requirement reduces considerably during stability phase. So if the manpower expansion is not preplanned, it will lead towards firing for sure at later stage of startup.

Another factors like unplanned expansion, wrong recruitment, performance related issues etc also contribute in the acceleration of firing at startup. Generally after getting funding, startups try to capture the maximum market volume by expanding into different geographical locations and business verticals rather than focusing on achieving operational excellence. This premature expansion generally disturb the optimum planning of manpower and results in excess of employees at startup. So to overcome the financial breakdown, startups find the easy solution of firing.

Short and Long Term Impacts of Firing on Startup

Firing in startup not only affects the employees (who got fired) in terms of new job search, justification, mental stress, but also affects the startup in short and long run. Here are major impacts of firing on startup –

  • Reputation of company in terms of career choice of job seekers hence making lesser probability of skilled resources in future.
  • Reputation of company for consumers. A company that can’t take care of its internal consumers, how it shall be able to meet its external consumers’ expectations.
  • Motivational involvement of remaining employees to perform with their 100% efficiency. People start looking for another available options in the market hence start giving less importance to the desired work.
  • Brand name degradation for associated stake holders like service providers, suppliers
  • Resource limitation for other players of same domain. Consumers, job seekers, vendors and other stakeholders start losing confidence is the same concept.

How to Avoid Firing in the Startup

While rapid expansions along with different experiments (different business verticals and services) are the need of time to survive in the competitive market, manpower expansion is majorly dependent on the possibilities of success of experiment. Though possibility of market acceptance of new startup concept can be anticipated based on the feedback surveys, market demand/ trend etc, the true results come from real time execution. So the expansion of man power must be done with backup plan of failure of experiment, otherwise it would have high possible of firing in recent future.

Since the impact of firing is projected on long run trajectory of startup, it’s better to play safe game to avoid the same. Here are few tactics from FS Labs to avoid the same –

Startup Firing - How to Avoid

[A] Optimum Manpower Selection – Responsibility Sharing

Requirement of manpower is directly proportional to the scope of work that needs to be done for execution of startup. Higher the work packages, higher shall be the requirement of manpower to meet the defined time baseline.

  • Areas like engineering, finance etc where the manpower can easily be made completely occupied are the safe zone areas to recruit / expand manpower.
  • On the other hand, areas like service, management, customer support etc which are dependent on the extent of operational need are the crucial areas to expand in terms of manpower.

So balancing is required between both of the zones for safe game.

  • At initial stage, the limited work packages can easily be managed by sharing the scope among the small founding team.
  • At experiment phase, when limited visibility is there regarding the acceptance of concept by mass, there is no point of expanding the work force.
  • At growth phase, when clarity starts coming into picture separate responsibilities can easily be assigned.
  • Till the stability phase arrives, optimum level of manpower should be maintained to avoid the gap between stability vs growth stage.

Keeping manpower at optimum level will add some extra responsibilities to the existing team but can easily be managed in terms of extra benefit to the same team rather than recruiting new team.

[B] Minimal Liability Criteria – Outsourcing

Liability associated with manpower is not just the money, but the assurance of 100% utilization of their skills and time. With increase in man power of the company, liability increases in term of money, utilization and responsibilities. So one simple approach to keep this liability to minimal level is to outsource the work packages –

  • Work scope which can be defined in terms of man hours could be outsourced to squeeze the outcome response time as well as liability. eg – Engineering work could be outsourced based on the man hours associated with it.
  • Work including full time involvement of dedicated manpower could be outsourced based on the number of person required. Eg – Service operation work could be outsourced based on the number of operators required.

Outsourcing is beneficial as it doesn’t give much liability to startup. Any manpower outsourcing consultancy having contract with different startups/ companies can easily manage the fluctuating demand of startups.

[C] Short Term Experiments Approach – Internships and Contracts

Another approach that startups can utilize to test the acceptance of their experiments is to recruit interns and contract based employees with an aim to get the anticipation of market response and then expand if seems beneficial in long run.

High energy level of college students will definitely help in speeding up the process as compared with standard approach and hence the decision making. Limitation with interns is of their limited knowledge base that can be mitigated by giving short training to them. Another limitation is the availability of inters at specific time spans only.

Contract based freelancers might be better as compared with college students in terms of knowledge base but their motivation level is questionable with respect to fresh mind. Limited time span availability of interns can be mitigated through contract based manpower.

[D] Utilization in Other Work – Market Survey, Feedback, Development

Above mentioned approach are to be implemented since the start. If the situation arises where manpower exceeds the requirement, instead of firing them at once or paying them notice amount is not ethical as well as logical. Since company has already invested so much in them, there is no point of just letting them go.

“When people are financially invested, they want a return. When people are emotionally invested, they want to contribute.”Simon Sinek

Spending around 50-60% of the active time per day in company, every person become emotionally attached with it. When the situation of company is clear to every employee, few tries to play safer game and switch the company, while few still remain attached with the hope of success of the company.

So their motivation can be utilized by following –

  • Market surveys to understand the demand of consumers wrt to what is going wrong with the existing setup and accordingly changes can be made.
  • New business verticals that can bring fruitful results to the company.
  • New experiments to enhance the business model and revenue.
  • Why not to motivate employees if they have any new concept in their mind and are not able to startup with.

Firing may seem a good solution with paying some additional amount of money to settle the small liability, yet considering the impact on reputation and the loss of opportunity, it’s better to recruit aligned with the optimum need.

Though it’s difficult to develop a fool proof strategy to avoid firing in startup at any stage as it is a result of different parameters, safer strategies could easily be developed to avoid the same up to maximum extent.

Wish you luck for your startup. Stay tuned with FS for more updates.