After Zomato and TinyOwl, FoodPanda India has announced that it is laying off over 300 employees – What’s going wrong here?
FoodPanda is a known name in the Indian food ordering business – present in all top cities and most restaurants seem to be covered by them – they announced lay off’s today and the unofficial number of people fired stands at over 300. So what exactly is going wrong here? Is there something wrong in the food delivery business model in India (given the recent lay off’s at TinyOwl and Zomato)? Or is this is bigger phenomenon of the start-up ecosystem itself? Let’s look a bit deeper into this issue.
Why suddenly grow from 180 people to 1,200 in 10 months and then fire 300 people?
According to to official statement of FoodPanda, they rapidly grew from 180 people in February 2015 to over 1,200 in December 2015. It is a no-brainer that they realized they don’t need around 300 of these people and fired them now.
Now the question is – given these are start-up’s that have great brains behind them, are at the forefront of business model innovation, are changing the way consumers and businesses interact – WHY can’t they do their math correctly? WHY can’t they make a simple excel model to gauge how many people they require according to their business plan? WHY are the playing with so many people and families?
The C-level executives at these companies are not dumb people – they are indeed very intelligent. They know how to play in a country like India where intelligent labour is cheap and hence expansion at its cost is easy. It is far easier to get a multi-million dollar valuation + funding in India very quickly as compared to the west – the reasons – you can hire in huge numbers quick and you have great numbers to present to the investors as the up-side (given India’s population).
Let’s look at a simple graph on what are the phases of growth and stabilization of a typical disruptive start-up.
The first phase has the highest energy levels – everyone believes that they will change the way business works, they make sure investors believe that too and jump on to the bandwagon with millions. Then without much of in-depth knowledge of how stuff works in India (you cannot copy-paste FoodPanda’s business model of Brazil to India – we have hot breakfast for god sake!) they start hiring people left-right and centre!
Why won’t they? They have the investors money (which is also of a guy like you and me – read more here) ! So as and when something looks promising – a city or a state, a new investment within the business – they HIRE!. Hire more and more, and more! People don’t even get proper Job Description documents and are told verbally what they need to do. Some are overloaded with work and some sit idle. All is done with a belief that we are here to change the way world orders food (or whatever) and we cannot be defeated – we need to grow and become the biggest as soon as possible – acquire or crush competition.
Now comes the starting to walk phase, when reality stares them in their face – after millions have been spent on marketing (FoodPanda Coupon Code – remember?), repeat orders come only if they sell at a loss, customers really did not value what their proposition was etc. So without taking drastic steps, they start to align their operations to the new knowledge gained. As operations become streamlined vis-a-vis the reality on the ground, they need for more people starts going down.
Finally this phase converts to reality check – here is where the investors come back in the picture and ask the company “what’s going on?” Now the knowledge of the market is good, operations are relatively aligned to the market and the people hired to grow (both in terms of strength and valuation) are no longer needed. So fire the poor chaps is what the investors tell them.
So it is not that they fire with a heavy heart or something. They know this is going to happen, not just in food but in hospitality too (don’t want to mention the names just yet).
Bottom line: Start-up’s are making use of easy to hire and intelligent + large labour pool that this country offers to get disproportionate growth quickly, then stabilize, and then fire. It is a typical use and throw situation here. So next time the Naukri.com mail says the words “disruptive” or “start-up” or something like that, please think twice and question their business model yourself.
By Vicky Bahal in indiaopines blogs
The author blogs at his blog
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