First Principles | Tech layoffs are the need of the hour

It depends on whom you look to for guidance. “To fight the battle tomorrow, you must survive today,” is the perspective Bengaluru-based investor Krishna Jha of Telnet Ventures offers. Jha used to be an entrepreneur.

When the same question was asked to the founder-CEO of a Software as a Service (SaaS) company, he yelled over the phone: “All these venture capital firms screwed us. They compelled us to expand and now they insist we let go of people and cut costs.” Talking from his office in Singapore, the New York-headquartered company has an office in New Delhi as well. Ironically, he requested that he not be named because it might impact future fundraising efforts. Two prominent private equity firms helped him raise nearly $100 million.

How can you decode these different narratives? Look at sub-text.

The unnamed founder-CEO, having done with the venting, says, “When you raise funding, you choose to sup with the devil.” But he speaks with the benefit of hindsight unavailable to most. In the late nineties, a young man who just graduated from IIT Kanpur decided to create a SaaS-based business. India is now on the cusp of becoming the world’s SaaS capital.

He felt that this was an area few people understood and so he decided to move to Singapore, then New York. He figured that the investment environment would be more open to him. What he hadn’t reckoned with was how brutal investor expectations can get when it comes to the returns they expect. India is different from more mature financial markets such as Singapore or New York in that they are willing to listen to newer stories and take longer waits.

This is why he managed to keep his promise and convince investors that he had started the company even when the dot com boom was bust. He has seen downturns such as the 2008 financial crisis, the collapse of Wall Street in 2012, and the latest pandemic-induced bust in 2020. Through all of it though, he expanded operations because “investors insisted I must”. He was told that if he doesn’t, he “wouldn’t grow” and “would have to stay content with being a mom-and-pop shop.”

Jha explains how booms can happen and why bust cycles are inevitable. People are always laid off when there is a bust. “Entrepreneurs must do that to survive.” His own experience as a founder in an earlier avatar offers him perspective. Jha felt the need to let go of people after he saw a bust cycle and realized that it would be hard to find funds. Jha recalls not being able to perform operations beyond the bare bones. He allowed people to go in small numbers, hoping that things would improve tomorrow. Over time, however, he figured, it is a painful way to die, things don’t change overnight and investors hold on to their money until the fog clears.

He learned a valuable lesson after he had stopped thinking about it. “While it appears like slash-and-burn, what you are doing is buying time to think through what to do next.” As funds come in, you start re-hiring or looking for the talent you may otherwise have overlooked to build a more resilient operation.

This is not to suggest funders and founders don’t commit excesses when there’s easy money; or that they do not do things such as hire more people than needed so their entities are dolled up on paper to attract other investors. Jha and the founder of SaaS agree that there is truth to this. They also agree that the current funding freeze and job cuts will have a positive impact on overall economic growth. Businesses will become more resilient. The pain is very real right now and must be endured. That’s life!