The veil of pretence has been taken off. All that conference speak of disrupting traditional business models and blitzscaling is now replaced with consultant talk of “strategy realignment”. Or what the rest of us plebs call: mass layoffs.
First, it was Airlift firing 31 per cent of its staff and closing all markets other than Karachi, Lahore and Islamabad. Swvl quickly followed suit by laying off 32pc of the workforce and now Truck It In has swallowed the bitter pill too.
Imagine raising millions of dollars and spending all that money on welcome gift boxes to get some quick culture points on LinkedIn and then firing your employees at the first sign of distress. Do companies have to resort to desperate measures like laying off one-third of the staff in such turbulent times for the sake of survival?
Of course, fast-growing startups generally have to hire and fire fast to keep up. No one knows the future anyway. Fair enough, except that there were signals to see which way the winds were blowing. The venture slowdown became imminent half a year ago and inflation has been spiralling for much longer. Not that otherwise you shouldn’t get the fundamentals right.
Imagine raising millions of dollars and spending all that money on welcome gift boxes to get some quick culture points on LinkedIn and then firing your employees at the first sign of distress
Forget that too for a minute. Take Airlift, which until two weeks before its announcement was looking to hire resources for the same markets now closed down. Are we really saying that something so significant happened during that specific 15-day period that warranted such a step?
The management must have known where things were headed but continued to onboard more people. At the very least, it shows a serious communication gap between strategy and human resource departments and an utter failure of planning for even two weeks ahead. Not to mention this is the second time they have done mass layoffs, the first in the wake of Covid-19.
Call me cynical, anti-progress or whatever, but you just don’t play with people’s livelihoods like that. Social media is full of former employees sharing their stories about how they had joined these companies a week, month or even a day before their respective managements made the fateful decision of “strategy realignment”.
Shrugging it off merely as founders’ ambition or startups being risky is not only extremely callous but also disingenuous. It was a failure on the part of senior leadership only for someone else to bear the brunt. To seek some sort of accountability from that lot is only fair.
And this is not the benefit of hindsight at play. Many raised concerns over the unsustainability of startup business models and how they will unravel only to hear the obvious but hollow responses like this is not exclusive to Pakistan or tech players shouldn’t be judged using traditional financial metrics.
It worked for a time: burn cash for indefinite periods until you figure out unit economics at some later point or achieve that magical monopoly power. But as it turns out, tech companies are now suddenly talking about achieving that previously godforsaken goal: profitability. Better late than never, right? Well, only if you ignore everything their numbers scream.
Swvl serves as an interesting case study in this regard since its data is publicly available after it was listed on Nasdaq via a Special Purpose Acquisition Company. For starters, it posted a gross loss of $10.6 million in 2021, meaning the revenues of $38.3m weren’t enough to cover the cost of sales of $48.9m. This is just the tip of the iceberg as general and administrative expenses took the mobility startup’s operating loss to $100.5m while net loss stood at $141.5m.
One might argue that these losses are part and parcel of any startup and reduce over time and may even cite the gross margins “improving” from -173.5pc in 2019 to -27.6pc in 2021 as evidence. Except that operating and net margins have worsened to a mind-boggling -262pc and -369pc over the last year.
Now the company wants to become cash flow positive by 2023. For context, it stood at almost negative $62m in 2021, meaning Swvl is up for a pretty bumpy ride ahead. How will they achieve this turnaround? Basically cutting back on loss-making categories which apparently intracity commute was, given they shut it down in Pakistan on June 3. And focusing on more lucrative verticals, which appears to be business-to-government though no breakdown of margins is available.
Also keep in mind that all talk of margin-positive categories is still on the gross level, not net. So once you take out the general and administrative expenses of $74.7m, the financial picture becomes bleaker.
This is not the end of Digital Pakistan or funding. Deals will slow down and dollar value will dip more, but eventually, they will bounce back. Perhaps more ferociously than the last time and we’ll be back to business as usual thanks to selective amnesia. That’s the way markets work, after all. But whenever that happens, founders should have the decency to take some responsibility for their people instead of treating them as disposable, even if it costs a few percentage points of growth.
Employees also need to do their own due diligence: if an offer seems too good to be true, maybe it is. Given macro troubles and lack of social protection, they should also familiarise themselves with the associated risks of joining startups.
Published in Dawn, The Business and Finance Weekly, June 6th, 2022