Business as Usual, Even in a Downturn: No Layoffs or Cost-Cutting in Early-Stage Startups
Jodhpur-based entrepreneur Nirmal Gehlot, CEO of edtech app Utkarsh Classes, is a rare breed of tech founders. His startup has survived several inflationary periods since the early 2000s, without layoffs or spending cuts. After founding an offline coaching center for India-wide competitions in 2003, Gehlot ventured into the tech industry with an e-learning module launched using a mobile app in 2018 It was also a time when venture capitalists (VCs), angel investors and other institutional equity investors started to double down on the consumer internet space in India in segments such as edtech, delivery of food, fintech, health tech and many more.
But Gehlot stayed out of the investment frenzy and decided to start his new edtech app. The app now has over 9 million downloads across Android and iOS, as well as a monthly active user base of 1.8 million students who spend nearly 1.32 hours a day on the app. These are numbers that could have easily attracted VCs and other angel investments, but Gehlot remains self-funded to this day.
“After our online launch in 2018, Utkarsh Classes now runs 90 digital classrooms in Jodhpur, Jaipur, Delhi and Prayagraj. Utkarsh Classes is run by over 170 educators and almost 1,100 other employees, who receive a salary from our own treasury,” Gehlot told FE.
In FY21, Utkarsh Classes recorded revenue of Rs 129 crore with an Ebitda of Rs 51 crore. Gehlot said the company hasn’t had to lay off staff or cut expenses throughout its accelerated journey since 2003.
Even as hyper-funded tech start-ups backed by venture capitalists struggle to keep the company afloat with several rounds of layoffs and cost-cutting, Utkarsh Classes is in full hiring.
In fact, at least half a dozen seeded tech start-ups FE spoke to said they’ve consistently weathered economic downturns and periods of inflation without cutting pay or downsizing. . Most founders indicate that the freedom of decision and the ability to quickly reallocate funds and resources without worrying about the targets designated by investors has helped them, especially during economic downturns.
Great Learning, a Bengaluru and Singapore-based edtech start-up that offers online degrees for beginners and experienced professionals, has also remained largely seeded over its years of operation. The startup was recently acquired by edtech giant Byju’s in a $600 million cash and stock deal. It was initially established in 2013 by co-founders Arjun Nair, Hari Nair, and Mohan Lakhamraju with an initial investment of $100,000.
Lakhamraju told FE that VCs typically expect at least 30% IRR on their investments to hit the return target, and that a company should look for large growth multiples, which he says is n wasn’t viable for his edtech startup. “We felt that the learning goals we have could conflict with the investors’ goals, in which case there would be pressure on us to compromise on our learning goals. That’s why, at first, we didn’t think that our business model could subscribe to the venture capital model, which would have made our relationship with students purely transactional,” Lakhamraju said.
Also, Great Learning did not have a large board of investors, which is the case with VC-funded startups. Typically, in VC or PE funded startups, investors typically negotiate for a seat on the board, which can end up affecting decision-making – and in some cases also giving investors more power over management. .
“Being bootstrapped gives us the freedom to focus on the long term and not chase after quarterly results. We are only accountable to our customers, partners and employees, not to external stakeholders,” Praval Singh said. , Vice President of Marketing and Customer Experience at Zoho.
Founded in 1996 by Sridhar Vembu, Zoho is one of many SaaS startups that endured multiple economic crises and bear markers in 2003 and 2009. The booted venture reported a profit of Rs 1,918 crore during in FY21, compared to Rs 800.8 crore in FY20, according to its RoC filings. The startup reinvests a portion of those profits into product expansion and hiring. On July 18, Zoho announced that it was looking to hire at least 2,000 employees in engineering, technology and product development as it plans to expand into India and other foreign geographical areas.
Another Delhi-based SaaS startup, Wingify, which helps businesses increase their online sales, has also steered clear of venture capital funding throughout its years of operation since 2010. The CEO Sparsh Gupta said the company has never instituted any pay cuts or downsizing to cut costs.
“We don’t have a cost-cutting philosophy. We are prudent in our investments and our expenses. We are also carefully analyzing the impact of these expenses and have withdrawn from investments if the return on investment was not sufficient. Since Wingify’s inception, we haven’t had any layoffs or cutbacks to cut costs,” Gupta said.
Wingify was established in 2010 with frugal seed capital. Gupta told FE that in 2010, the startup purchased a website domain worth Rs.1,000 with a $5 website theme, and subscribed to $20 per month worth of servers and an additional $100 in computing and storage space costs. The company has only three members on the board, including the two co-founders and the father of one of the founders. The founders and management team own and direct all decision-making related to the business.
“We registered the organization with minimal administrative costs, and as far as running is concerned, we operate from home using our laptops, so it didn’t require any additional investment. This seemingly negligible investment came from our savings or our family. The most important investment we’ve made in hindsight was our time,” Gupta said.
Currently, Wingify has surpassed a revenue rate of $30 million and expects the year to end with a healthy growth of 30% over the previous year. However, Gupta and his co-founder, Paras Chopra, are convinced that venture capital and other equity capital are a “blocker” to what they are building and have turned down several offers from institutional investors in the past.
On the other hand, in the VC-funded ecosystem, more than 30 different tech startups in the country resorted to layoffs or restructuring in 2022 alone as investors spooked by tech stock market crashes in the states. United States and India.