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Not a Recession! Is this the reason startups lay off employees?

Ever heard of the dotcom bubble? The economic phenomenon of 1998-2000, when the internet first started gaining popularity in the world. At that time, the equity or share value of information technology companies jumped sharply.

Unfortunately, the value of shares (equity) does not coincide with the company's good business performance. So at that time, fundamentally, the valuation was too high compared to its true value.

The increase in the qualitative value (valuation) is only based on positive sentiment, that the technology company is developing innovations that are unfair advantage. Namely, innovation that is different from traditional companies, and tends to be disruptive so that in the future (hopefully) it can dominate!

Well, the same thing since the dotcom bubble happened today. Roughly 20 years later. This time the name is startup bubble!
Reasons for Startup Laying Employees

From the story of the dotcom / startup bubble, we can already formulate, under the global recession is not the only factor that is the reason why startups are starting to shake at this time, namely:

  1.      Weak business model. Because it is too focused on valuation to get serial funding. Thus, profitability tends to be a victim.
  2.      Too dependent on funding and valuation. These startups will continue to live, if there are still venture capitalists who buy shares and disburse funding.
  3.      Valuation depends on GTV (Gross Transaction Value). GTV is the value that is obtained when users transact on digital platforms. The funny thing is, there is no cost component in this GTV. In a sense, to produce a transaction of Rp. 20 billion would seem fine, even if you have to sacrifice a cost of Rp. 100 billion!
  4.      Rely on foreign Venture Capital. The global recession could become a scapegoat if many startups depend on foreign funding for their business. If they are in a recession, it will be difficult to invest in high-risk portfolios such as tech startups.
  5.      Money-burning culture or culture! Marketing-marketing for the benefit of user acquisition is the only goal of a startup. In fact, supposedly, the main budget should be for the benefit of innovation to produce a better unfair advantage.
  6.      Online disruption is coming to an end. Since the pandemic era ended, people have slowly returned to their offline activities. Therefore, the era of offline to online migration ended, changing online to offline.
  7.      Poor user loyalty. Because user acquisition only focuses on marketing aspects, be it advertising or big discount promotions, the impact is that users become opportunists. If there are competitors who offer better promotions, they tend to move. This is very influential on the ratio of poor customer retention!
  8.      Instant grow, Instant fall! When they are struggling to get funding and are fortunate because of the lockdown during the pandemic, startups tend to be aggressive in recruiting employees (hiring). Not only hiring, but also the average salary for startup employees is very high with excellent facilities. Even though the company is not yet profitable!


So, out of 8 estimated reasons why startup businesses tend to be vulnerable at the moment, it turns out that only 1 point is affected by the global recession, namely point 4, the rest are their business models and processes which tend to be misdirected.

So that businesses that normally pursue profit (profitability) only focus on pursuing funding. That's not a sustainable business model!

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