Mensa Brands, India’s fastest unicorn, has laid off 200 staff across all departments. Most layoffs occurred at India Lifestyle Network (ILN), which operates brands such as MensXP, iDiva, and others. Mensa purchased ILN from Times Internet in December 2022. The firm employed between 750 and 800 people before the layoffs.
Now at this juncture, layoffs are not a very big thing to hear of. But terminations from such a company that became a unicorn in just six months and had shown outstanding profits in its very first fiscal sounds slightly doubtful. It considered how such an establishment of profit could be in such a position that it had to say goodbye to its employees.
Well, on a broad level, we will try to decode why these startups, once claimed to be the unicorn behemoths, are entering into a firing spree. However, one thing is for sure layoffs will not stop any soon, as the pandemic has drastically changed the way of working. None knows when it will be the last day in their company. But we can figure out some ways through which we will be able to handle these layoffs with much fewer worries. These can include concepts of critical thinking, effective communication and upgrading skills.
Causes of layoffs at unicorn giants like Mensa.
Lack of capital infusion.
It is always highlighted that the first step is the most difficult; if you cross it, there are no hurdles ahead. However, some philosophies are best suited in novels as they do not work in real life. The same happened with startups as well. The initial funding was very remarkable for many startups. Whatever valuation the founders said, they got money on that. However, when the business started running on the market, problems started coming to the surface, declining the value of those over-inflated valuations.
Hence, at this juncture, investors are very much careful about where they want to invest. Overall, the unicorns or companies with optimal cash flows predicting an upward momentum will be funded. However, the rest of the companies may witness a harsh slash of a cool funding environment, eventually leading to one of the causes of layoff.
From the very childhood, we have gone across the learning that whosoever cheats will get punished. Some got punished during cheating while others got punished, not during cheating, but afterwards when their act of cheating was proved with evidence. Similar is the case with startups. Many companies displayed good profits and optimal operations during their initial stages; however, their financial irregularities started showing their true colours after a while. Two such examples can be BYJU and GoMechanic.
Who doesn’t know the name of BYJU today? The once-crowned edtech giant was supposed to transform the way of education in India. Everything was going quite smoothly. But then one whistleblower stood up, and the rest is history. Not only in financial fraud, BYJU is also accused of unethical practices, not only with their employees but also with their clients. Extreme targets to their sales executives, silent attachment of loans to parents without their knowledge and consent and mis-spelling of courses are some of them.
Secondly, in the case of GoMechanic, the founders themselves accepted that they had given hefty paychecks to higher management positions, which eventually led to financial irregularities and, in turn, a lack of funding and layoffs.
The race of becoming unicorns and enjoying stardom.
It is reasonable to argue that not every successful business must become a unicorn. Let us not forget that it took more than three decades for the soft drink brand Thums Up to reach a $1 billion valuation in 2021. Furthermore, entrepreneurs may lose sight of the fundamentals in their drive to become a unicorn. Unacademy and Vedantu, two edtech unicorns, were on a hiring binge last year. Perhaps it is time for businesses to value their product more than the fame of being a unicorn.
The lack of creativity or, ultimately, the need for creativity.
Most businesses seek to attract cash, create buzz, and be acquired. However, the emphasis should be on having a firm develop sustainably, generate more jobs, and come up with world-class ideas. How many of the 100-plus unicorns that have emerged from India have been able to create world-class products? There aren’t many. Because most of them are duplicates, let’s say they did well, but the next wave may be about invention and uniqueness, longevity and sustainability. Perhaps it is time for entrepreneurs to prioritise value above valuation.
The wrong process of operation.
Revenues and earnings alone may not indicate a startup’s financial health. Interest income on the significant stock capital they obtained would help them exhibit improved financials in some circumstances, but not for a long time. When new money is scarce, such props are less available, and profit or loss is a better predictor of their direction. The rise in revenue is another factor to consider. Many startups were able to reduce their losses by scaling back their activities. If profitability comes at the expense of expansion, it will be challenging to reward current investors.
Unicorns with a high cash burn rate.
At least a dozen unicorns have lost more than they have earned or have spent more than INR2 to make INR2. PhonePe, Meesho, Unacademy, Eruditus, Licious, MyGlamm, Livspace, LEAD School, Cult.fit, OneCard, Open, and Hike are examples. BharatPe and ShareChat, for example, spent INR9 or INR8 to earn every rupee in FY22. Vedantu spent INR5, and Eruditus and Cred each spent INR4.
In the financial winter, spending 4x to 8x of their income to establish a user base is no longer acceptable. Several high-cash-burn firms are struggling with fundraising and valuation. Many of these businesses have reduced their spending in the last year. Some of them will have to make more complex decisions.
A person might desire to start a business to make money. One does not start a business to lose money. Because how long will it take to get funded? It is difficult for investors to continue supporting losses if they are ongoing. It is not necessary to be a unicorn to spawn a business successfully. It is not required to be a unicorn if one has a sufficient market share. All that remains is to develop it profitably. Only when the company’s principles remain strong can it function smoothly and prevent layoffs.
Proofread & Published By Naveenika Chauhan