I hope you are aware that IT/software startups backed by major investors such as Swiggy, Zomato, Uber, Oyo, and MakeMyTrip have begun their first round of layoffs due to the coronavirus (COVID-19) pandemic. Many wonder why these startups couldn't survive just 2 months of confinement. Some even try to compare startup layoffs to non-IT layoffs, which is actually wrong.
We must first understand how startups operate, only then can we understand why layoffs are inevitable during this COVID-19 pandemic. Let me divide B2B/B2C startups into two main models.
- Investor-funded: If a company is funded by external investors, it is an investor-funded startup.
- Bootstrap: If a company runs solely on founders' funds and income, it's a bootstrap startup.
How investor funded startup works?
In United States, B2B and B2C startups solely depend on funding from US investors, namely Silicon Valley and Wall Street. This is why most B2B startups of US origin are US-based i.e. they were founded in the US within the last 5-6 years, Singapore investors , China and Hong Kong also have billions of dollars for many big US-funded startups. .
Typically, investor-backed startups spend lavishly to promote their brand and capture the lion's share of the market. For example, if CMRR (Committed Monthly Recurring Revenue) has a rate of $1 million, they spend $10 million each month. Their ultimate goal is to get their brand to customers/consumers in a very short time, so they pursue a hyper-growth strategy which is not organic. They have reserved a huge budget for all types of sales and marketing to get more customers quickly. They make many cheap offers to customers/consumers to show that they can offer something of good quality at a much lower price. They also offer their employees high salaries, expensive machines, gadgets, food, entertainment, fancy offices, etc. They create hype to keep their customers and employees.
These are the reasons why they have not made a profit even after a decade and are still seeking funding from outside investors. At the same time, they are trying to file an initial public offering (IPO) to become a public company in order to secure public investment. Therefore, investor-funded startups are entirely dependent on external investor funding for their operations.
How bootstrapped startup works?
In United States, we have Zoho, a fully fledged B2B startup. Zoho is an American company of US origin. We see very few startups in United States, we can count them on our fingers.
Typically, a one-boat startup always tries to operate within profit margins. They don't spend extravagantly like investor-backed startups because they don't pursue a strategy of hyper-growth, i.e. organically. At first, they cannot offer high salaries, expensive machines, gadgets, free food, entertainment, luxurious offices, etc. to their employees, but later they can offer them. They can't afford to give customers/consumers cheap deals, but they can offer good quality at a better price.
They don't generate hype to keep customers and employees. You keep control of CMRR and monthly expenses. Startups usually do not apply for an IPO because they are only controlled by the founders. Therefore, startups are completely dependent on funds from founders and revenue generated.
Why are early funded startups firing during COVID-19 when startups aren't?
This COVID-19 pandemic has crippled every business in the world. B2C startups were hit hard first, then B2B startups. It doesn't matter if a startup was funded or founded by an investor, as the COVID-19 pandemic has affected both startup models. But it is very important to understand how these startups are coping with the crisis.
Investor-backed startups triggered the first round of layoffs because they rely heavily on funding from outside investors to run their business each year. The COVID-19 pandemic could completely freeze funding from outside investors in the near future. Most investor-funded startups generate far less revenue than the third-party funding they receive, so they can't rely on their revenue at all. Because of this, they immediately started laying off staff as a precautionary measure to save money so they could keep the company afloat for a year without any outside investor funding.
On the other hand, self-funded startups don't give up early because they only rely on revenue and operate within profit margins. There might be pay cuts for your employees, but layoffs are very rare. A self-funded startup can easily overcome this COVID-19 pandemic compared to investor-funded startups due to strong fundamentals and organic growth.
Read Also : What Does Ariana Grande Get at Starbucks?
White Clover Markets
I hope you are aware that IT/software startups backed by major investors such as Swiggy, Zomato, Uber, Oyo, and MakeMyTrip have begun their first round of layoffs due to the coronavirus (COVID-19) pandemic. Many wonder why these startups couldn't survive just 2 months of confinement. Some even try to compare startup layoffs to non-IT layoffs, which is actually wrong.
We must first understand how startups operate, only then can we understand why layoffs are inevitable during this COVID-19 pandemic. Let me divide B2B/B2C startups into two main models.
How investor funded startup works?
In United States, B2B and B2C startups solely depend on funding from US investors, namely Silicon Valley and Wall Street. This is why most B2B startups of US origin are US-based i.e. they were founded in the US within the last 5-6 years, Singapore investors , China and Hong Kong also have billions of dollars for many big US-funded startups. .
Typically, investor-backed startups spend lavishly to promote their brand and capture the lion's share of the market. For example, if CMRR (Committed Monthly Recurring Revenue) has a rate of $1 million, they spend $10 million each month. Their ultimate goal is to get their brand to customers/consumers in a very short time, so they pursue a hyper-growth strategy which is not organic. They have reserved a huge budget for all types of sales and marketing to get more customers quickly. They make many cheap offers to customers/consumers to show that they can offer something of good quality at a much lower price. They also offer their employees high salaries, expensive machines, gadgets, food, entertainment, fancy offices, etc. They create hype to keep their customers and employees.
These are the reasons why they have not made a profit even after a decade and are still seeking funding from outside investors. At the same time, they are trying to file an initial public offering (IPO) to become a public company in order to secure public investment. Therefore, investor-funded startups are entirely dependent on external investor funding for their operations.
How bootstrapped startup works?
In United States, we have Zoho, a fully fledged B2B startup. Zoho is an American company of US origin. We see very few startups in United States, we can count them on our fingers.
Typically, a one-boat startup always tries to operate within profit margins. They don't spend extravagantly like investor-backed startups because they don't pursue a strategy of hyper-growth, i.e. organically. At first, they cannot offer high salaries, expensive machines, gadgets, free food, entertainment, luxurious offices, etc. to their employees, but later they can offer them. They can't afford to give customers/consumers cheap deals, but they can offer good quality at a better price.
They don't generate hype to keep customers and employees. You keep control of CMRR and monthly expenses. Startups usually do not apply for an IPO because they are only controlled by the founders. Therefore, startups are completely dependent on funds from founders and revenue generated.
Why are early funded startups firing during COVID-19 when startups aren't?
This COVID-19 pandemic has crippled every business in the world. B2C startups were hit hard first, then B2B startups. It doesn't matter if a startup was funded or founded by an investor, as the COVID-19 pandemic has affected both startup models. But it is very important to understand how these startups are coping with the crisis.
Read Also : What Does Ariana Grande Get at Starbucks?Investor-backed startups triggered the first round of layoffs because they rely heavily on funding from outside investors to run their business each year. The COVID-19 pandemic could completely freeze funding from outside investors in the near future. Most investor-funded startups generate far less revenue than the third-party funding they receive, so they can't rely on their revenue at all. Because of this, they immediately started laying off staff as a precautionary measure to save money so they could keep the company afloat for a year without any outside investor funding.
On the other hand, self-funded startups don't give up early because they only rely on revenue and operate within profit margins. There might be pay cuts for your employees, but layoffs are very rare. A self-funded startup can easily overcome this COVID-19 pandemic compared to investor-funded startups due to strong fundamentals and organic growth.