Several of Indonesia’s prominent tech startups have begun to lay off employees as the ambitions of the past face up to profit pressures of the present, DealStreetAsia has learned.
Gojek , Indonesia’s most valued startup, laid off more than 100 employees in the final quarter of last year. The move affected both permanent and contract workers across different divisions nationwide, according to DealStreetAsia’s sources.
The layoffs came at about the same time that the company shut down several of its underperforming lifestyle services as part of its drive towards efficiency.
When asked about the development, Gojek said it does not comment on speculation.
India-headquartered budget hotel chain OYO has also downsized its Indonesian team, which since November has been led by former Asia Pulp and Paper executive Alfian Lim. The SoftBank-backed company, which concedes that it is in the midst of global restructuring, terminated the employment of more than 200 staff in Indonesia over the last few months. Another wave of layoffs is expected to take place as soon as March. OYO has also laid off workers in India, China and the United States.
In an email to DealStreetAsia, OYO confirmed the layoffs but stayed mum on the number of employees affected. The move, the company says, is part of its effort to consolidate and integrate several business functions and processes.
“As a consequence, a small number of roles that were previously available in Indonesia are no longer available. Hence, both parties have come to a mutual agreement, in accordance with the applicable Manpower Law, that these employees would look for a career outside of OYO,” an OYO spokesperson said.
Each affected employee, the company adds, has been provided with support including career counselling services and health insurance that will be available until June 2020.
Reddoorz, OYO’s Southeast Asia competitor, also confirmed that it has let go of workers. The company, which last year raised a $70 million Series C funding round, said that the recent termination of employment of “less than 50” of its staff was the result of a periodic review of the company’s performance appraisal.
“RedDoorz ensures that the transition process will be carried out as smoothly as possible for affected employees and hopes the best for their next journey,” the company said.
E-commerce startup Bukalapak, another of Indonesia’s highly valued tech companies, had earlier confirmed that it laid off about 10 per cent of its 2,500 employees as part of an efficiency drive.
The downsizing is a brutal reminder of what could be at stake when some of the region’s best-funded tech companies in recent years face the sobering realities of the bottom line. OYO, for instance, has had to reverse its blistering expansion pace after reporting $332 million of losses in fiscal 2019 — almost seven times its deficit from the year before. According to the New York Times, OYO shed more than 65,000 rooms, or about a quarter of its rooms offered, between October 2019 and January 2020.
Layoffs by this handful of prominent companies could be just the tip of the iceberg.
Winda Camelia, a senior recruitment consultant at Singapore-based hiring startup Glints, said data obtained by her company suggested that there have been significant layoffs in Indonesia over the last six months, quietly carried out by several startups.
Startups, particularly the larger and more “stable” companies, have also cut down on their hiring activities at the same time.
“Since mid-2019, the hiring trend has begun to decline for startups, especially for startups that have entered Series B stage and beyond,” she said. “Even up to this moment, hiring activities have been stagnant and slow due to several things — namely the tendency for startups now to focus on product development over team expansion.”
Camelia added that many companies are now mitigating financial risks by increasingly opting to offer contract employment, as opposed to full-time employment, for certain operational positions and functions, and even outsourcing them to vendors.
The drive for efficiency among startups in Indonesia illustrates the sense of urgency among tech companies and their investors globally to justify their valuations. This is particularly so after the dramatic bust of co-working space provider WeWork, which saw its valuation crash from an estimated $47 billion to $8 billion amid huge losses and governance concerns, as well as the tepid response to the initial public offering of ride-hailing major Uber, and a clutch of other unicorns.
“In the end, because one of the most aimed exit strategies is through an IPO, then both startups and investors have to shift their focus onto unit economics and profitability,” said FX Iwan, CEO of investment advisory firm Jagartha Advisors.
Iwan said the layoffs are “arguably the quickest and easiest way to improve the profitability of businesses.” However, it also comes with risks which companies must take into consideration.
Learning from the similar job cut scenarios at companies such as Nokia last year, Iwan said laying off workers carries its own set of costs, such as a fall in productivity and diminished morale, which can lead to operational errors.
“Additionally there will be certain direct costs, such as severance pay, boycott, bad press et cetera,” he said. “In the long run, layoffs may actually hurt profitability.”
Some venture capitalists, however, argued that layoffs might be an inevitable consequence of scale, and even be positive for the business.
“Once they grow big, startups will prioritize quality over quantity. Replacing three people with one high-quality person is not a problem. It is good for operational excellence and efficiency,” said Chandra Firmanto, managing partner of VC firm Indogen Capital. “When expenses are cut, and revenue increases, that will be a good time to exit and IPO.”
Layoffs, he added, is just one of numerous measures companies carry out in their efforts to cut costs. Others include cutting down inefficient marketing channels, travel expenses, and excessive office expenses.
“The efficiency move is similar to that commonly carried out by corporates. There is no need to panic. Startups will become more professional,” said Firmanto, who is preparing to take two companies to market on the Indonesian stock exchange next year.
Like Firmanto, East Ventures managing partner Willson Cuaca also played down any negativity surrounding layoffs, which he said was “very normal for startups” of all sectors and sizes.
With the recent job cuts and hiring freeze, Cuaca said that companies will be forced to be more careful in hiring, while job seekers will also need to learn from the situation and adjust. For example, job seekers may consider more than just the size of an offer in deciding whether to join a tech startup.
“The bigger the salary, the bigger the responsibility, and at one point in time the company will do a cost-benefit analysis to justify the manpower cost,” he said. “When there is no alignment, they will let you go.”
Sarah Yuniarni contributed to this story.