Investigating The Phenomenon Of The Wave Of Layoffs In Startup Companies

Gojek, one of the startup companies that has successfully developed into a unicorn. (Doc. Goto Company)

JAKARTA - Startups based on digital technology platforms or known as startups have thrived in the last decade. Moreover, after the emergence of Gojek and Bukalapak who managed to take advantage of opportunities by offering new lifestyle trends that are more practical.

So that from being just a startup, Gojek and Bukalapak did not take long to become unicorns with a company valuation of over US$1 billion. Not only in Indonesia, both of them have also spread their wings to the Southeast Asian market at this time.

According to data from the Indonesian Information and Communication Technology Creative Industry Society (MIKTI), by the end of 2021 there will be 1,190 startup companies in the country. The majority or 39.59 percent of them are in the Jakarta, Bogor, Depok, Tangerang, and Bekasi (Jabodetabek) areas with a total of 481 startups.

Those who have large capital, of course, are eager to recruit employees in the hope of following in Gojek's footsteps. Like a tit for tat, their optimism grew stronger during a pandemic when all activities were carried out at home through digital devices.

"If successful, they will not only get huge financial benefits, but also extraordinary recognition for their success in realizing these innovations," said Agus Sugiarto, Head of the OJK Institute in his writing entitled 'Photographing the Failure of Start-ups' in Media Indonesia, Monday, July 25, 2022. .

Illustration of a startup company. (Pixabay)

But at the end of 2021, a storm hit a number of startup companies that had to carry out mass layoffs. This is done as an improvisation so that the company can continue to adapt and be in tune with market dynamics and industry trends in Indonesia

One of them is Mamikos, a boarding house search startup. Reportedly, Mamikos had to lay off more than 200 of its employees.

"Taking into account the current market and macroeconomic conditions, Mamikos restructured to make the company structure healthier and more sustainable. The restructuring effort was carried out with a change in focus, one of which was a reduction in employee capacity," said Mamikos Co-founder and CEO, Maria Regina. to reporters, Friday (22/7).

Not Bubble Burst

Are startup companies experiencing symptoms of a bubble burst, the same symptoms that plagued the property world in 2013-2015?

Bubble burst is a condition when the value of the asset rises rapidly beyond the intrinsic value of the asset. These events are often associated with changes in investor behavior.

Launching katadata, although there has been a reduction in employees at a number of startups, this event cannot be called a bubble burst.

“Not like the internet industry of the 1990s. Even if there are explosions, this is still fairly normal," said Chairman of the Supervisory Board of the Indonesian Fintech Association, Rudiantara.

Illustration of internet bubble burst. (Pixabay)

According to him, the current perspective of startup investors has changed, they no longer want to 'burn money'. Investors prefer startups that have survived, at least they can generate income, even if it's not much.

The CEO of Mandiri Capital, Eddy Danusaputro, also assessed that the startup valuation that had occurred in the last few years was indeed quite high, prone to bubble bursts. However, it can't be called a bubble burst yet

"The efficiency that occurs in many startups as it is today is actually something positive," he said, quoted from idxchannel in June 2022.

Most Startups Fail

Like a business, the more players, the stronger the competition. Of course there will be selection. If you don't innovate, it is certain that startup companies will go out of business.

Agus Sugiarto describes reality with a recent study conducted by Kotashev (2022). Studies show an astonishing number because 9 out of every 10 startups that are established will experience failure in continuing their business.

The study also showed 70 percent of them experienced failure within 10 years after standing. For a period of 5 years, the failure rate is 50 percent and for the second year it is 30 percent.

“The news about the failure of startups in various countries is no longer surprising news. However, the number of startups that go out of business in a short period of time is actually more interesting to study,” he wrote.

Mamikos, one of the startup companies that was forced to lay off employees. (Doc. Marketing Communication Lead Mamikos)

Agus describes the factors that cause startup companies to fail. First, the product or service being sold is not acceptable to the market. This could be because new products from competitors are more attractive to the market.

Second, limited capital. The ability to innovate and discover something new will be a tremendous allure.

"However, without the support of sufficient cash capital, it is relatively difficult to continue to advance and develop," continued Agus.

Third, the inability to market the products and services offered by startup companies. Fourth, there were divisions within the management team, which resulted in the release of several experts who previously pioneered the establishment of the startup.

Fifth, the operations of their business activities become less efficient so that the ratio between selling prices and production costs becomes unbalanced. Sixth, too often do the money-burning strategy in the hope of strengthening sales and income.

Head of the OJK Institute, Agus Sugiarto (right).

Indeed, as Agus wrote, startup companies are the backbone of the digital economy. They are the ones who are able to create millions of new jobs without involving the government so as to reduce unemployment in the community.

“The government needs to provide guidance and training for small startups, especially in the field of financial management and marketing. The government also needs to provide tax incentives and support funds with low interest, especially for startups that are strategic and have a large economic impact," said Agus.