With Startups taking the center stage in job market, culture of “Hiring and Firing” is no longer an unknown attribute to the job seekers. This culture could raise a serious question on the credibility of startups as a career option.
Startups are lucrative as far as learning is concerned. When asked to explain the USP of working at a startup, Amrita – working with a leading startup company says,” Yes, working in a startup is a challenge and an opportunity at the same time. On each and every front you get to work right from zero and you have to decide pace, destination and targets. You are being involved in every decision making, you get to look the real progress from very close. Every time one need to give more than hundred percent and you feel satisfied once that target is achieved.”
While listing the positive points about working in a startup few things get noticed naturally which make the working culture a bit attractive. Young and like-minded team members, flowing zeal and enthusiasm, no office politics – just perform and get reward; these are the mantras behind most of the startups success story. But the catch is only few startups fly while rest never takes off from the runway.
Recently few startups have announced about the restructuring of their manpower resources. Housing announced in august about the firing of 23% of their entire workforce within three months. As per a report in ET, the real estate startup is tightening their cash burns, and stepping up focus on core technology and product. Business shutting, poor performance and over-staffing were named as the major causes for this Mass Firing of the staff. Renowned deals website-Groupon is laying off 1,100 people and closing down operations in seven countries, the company’s COO, Rich Williams, announced in a blog post. Food service provider TINY OWL had recently announced that they were going to fire 160 employees.
Here is FS labs analysis for: Why Firing is so Prominent in Startups?
Startup Hiring and Firing – Basic Model
To understand the hiring and firing phenomenon let’s divide the entire life cycle of startup in the following phases –
- Initial Phase – It’s the birth phase of startup when the founders have limited funds but high motivation to make their idea alive. A team of single digit numbered enthusiasts work day and night to make a business from the idea.
- Funding Phase – It’s the phase when startups get funding to grow their small scale business model to a large market based revenue model. Hiring starts with incoming funds. Unless well planned, hiring in this period often results in overstaffing.
- Growth Phase –It’s the expansion phase of startup with one single aim of capturing the market as much as possible. Continuous flow of funds is the driver behind this growth period unless company has secured a large customer base. Man power requirement again shoots up.
- Stability Phase – Once business is established now comes the time for restructuring, cutting unnecessary costs and planning better resource management. It’s the maturity phase of startup when most of the market has already been captured and major focus is on business sustainability.
The type of people involved during all the phases are as follow-Founders, Entrepreneurs and employees.
The relationship between startup lifecycle and the persons involved in it is quite simple-
- At the initial phase of startup lifecycle, the requirement is only of founders to do a proper analysis of some problem and provide a solution for the same.
- At the funding phase of startup lifecycle, the requirement of entrepreneurs and employees is high to understand the market base and making the best strategies to capture it.
- Growth phase of startup requires large amount of employees to execute the defined plans.
- The most critical phase id stability phase when the entire business model gets stabilized and requires only moderate volume of employees and entrepreneurs. Stability phase is the phase when most of the firing takes place.
Man power requirement keep on varying as per the various phases of startup life cycle. FS Labs analyzed the trend of hiring and firing and comprehended the major reasons of this rapid hiring and firing culture in startups.
Following are some reasons behind extensive hiring & firing –
- Inexperienced Founders: Hiring a resource just because you think he will add “some” value to your organization could be detrimental. These values need to be defined properly. What value an employee will add to the startup – this thinking is often kept at bay while founders select second line of command. Founders most often choose like minded people, friends or business associates for such job. Founder’s inexperience in hiring often bring in wrong employee. These employees are the first lot under threat of firing as they may be the underperformers.
- Funding Promotes Hiring Spree: On receiving funding, Founders most often go on hiring spree on the name of business expansion. They try to get the best talent pool from market by bidding high cost. Poor thing is that how to utilize such talented pool is not well planned. Down the line, once funds dry or company starts facing tight operations, this talent pool is shown a way out.
- Employee from Corporate are Sometimes Not a Good Option – Employees who were previously working with good performing corporate companies find it difficult to adjust into startup culture. Load of work, tight timeline demands, customer requirement, decision making – all are fast paced. Well established corporate companies have a set pattern for every challenge, decision making, meeting timeline etc. Work in corporate is though demanding but not as fast paced as in case of startups. Such, corporate to startup entrants, generally find it difficult to work in startup culture.
- Unplanned Expansion: Manpower is a resource which is difficult to manage. Any company could leak handsome amount of money just because of over staffing. Startups, while trying to expand their business go on hiring spree. They hire not because they need a resource but they do it because every other growing startup is doing so. What they need to know is every resource comes at a cost. NPA is always a liability for banks. This is true for startups as well.
Take case of housing.com and tinyowl – over staffing is one of the major reasons for recent employee base restructuring.
- Market Competition: Rising competition forces startups to secure available resources. In case competition is enlarging its standby fleet of workers, most of the current startups go on hiring spree to match competition. Again standby fleet of workers is bound to be laid off the track down the line.
- Change in Startup Requirements: Skill sets required at the beginning of startup is often considered “of no need” down the line when business has expanded enough. Altogether a new set of employees with different skills are required to keep business sustainable. This leads to major firing of manpower in startups.
- Performance and Other Issues – Startups are most competitive environment in terms of performance. Founders often keep a close watch on each and every resource as number of resources is quite limited. Nonperformance, non suitability to the job profile can be another reason for firing.
Here is Better Strategy for Hiring and Firing:
Initial phase of expansion is one of the most important phases for any startup. Planning the resources at very beginning is of utmost requirement.
Interns – Interns are the college goers who have free time of 2-3 months during their vacation period. Interns have emerged as an option for startups to avoid the full time expenditure on employees when the future of startup is not clear.
- Flexible workforce with a “can do anything attitude” which could serve well to the requirement of startup.
- Cost optimization as interns cost lower than regular employees.
- Limited and defined time span issue of manpower management.
- Limited knowledge of Startup Business Model.
Contract Employees – Contract based employees are appointed for definite time span. Contract based employees are a nice choice among startups as well as established industries as flexibilities as compared with regular employees are more in terms of manpower management.
- Cost optimization as these are less costly than regular employee.
- Manpower management
- High skill sets as compared with inters.
- Risk of getting less skilled employees as people prefer regular jobs over contract based employment.
- Less motivation as employees are engaged in next job hunt all the time
Startup Consultancies – Limited in numbers but startup consultancies are good option for startups as well as employees as it creates win-win situation for both. Consultancy can hire adequate skill sets and keep them on permanent payroll while startups can get the employees as per need.
Thus startups can decide the best suitable strategy to avoid the massive firing and hence the reduced reputation in market. Manpower requirements planning during the initial phase itself will avoid the issues of hiring and firing in future.
We hope you liked our analysis. Stay tuned for more. Wish you luck for your startup.