BYJU’s Layoffs: Amid Inflation, Debt, Can Indian EdTechs Ensure Their Profits?

Like education, IPOs of shares are new-age consumer goods to be packaged, marketed and sold at hefty profit margin.

Employment is not what it used to be, and you need to look no further than BYJU'S — Sponsors of India's cricket team, to learn that everything is not, need not be or will not be as glorious as it might seem from the fancy ads, high-value venture funding and the media hype that fans it all.

Image: Kamran Akhtar/The Quint

If you are a young, educated Indian looking for a stable and secure job, you are better off ignoring hot startups and looking somewhere else, say, the Union Public Service Commission(UPSC)— the place from where the government hires everyone from lowly clerks to high diplomats. But hey, who said state jobs are necessarily safe? Even the armed forces now have an Agniveer scheme that is well-packaged to find fighting recruits but without the old-world guarantee of long-term employment.

Employment is not what it used to be, and you need to look no further than BYJU'S — Sponsors of the Indian cricket team, to learn that everything is not, need not be or will not be as glorious as it might seem from the fancy ads, high-value venture funding and the media hype that fans it all.

EdTechs on a Firing Spree

Let's take a look at the layoff news for the week. There is a serious reality check underway in the so-called 'EdTech sector'. BYJU'S is laying off about 2500 people, or 5% of its workforce while Unacademy is letting go almost 350 that make for 10% of its employees. Practically (name of the company) has laid off employees by numbers, unknown as of yet; and Polish EdTech Brainly has laid off 25 of its 35 Indian employees. EdTech ventures as a whole have cashiered an estimated 7000 people in India in 2022.

Investment guru Shankar Sharma once jested cynically that a Fintech startup is nothing but a Non-Banking Financial Company(NBFC) with an app and two IITians. Stretching the analogy you could say, EdTech is nothing but a coaching centre with a video-centric app, a big brand and a few passionate teachers.

I hear you when you say FinTech is more than a hyped, non-banking financial company or that EdTech has offline centres and cutting-edge teaching styles that make Einsteins out of your neighbourhood brats.

Whatever the detail, three things do matter: Value-for-money, uniqueness and demand-supply equations. These three factors apply sometimes to the end consumer market, the job market and the financial markets that fund ventures. And they are all connected.

Not All Rainbows and Unicorns for EdTechs

As it happens, a huge number of so-called Unicorns that command billion-dollar valuations in India's startup ecosystem have been products of venture capitalist exaggeration. The financial industry generates a virtuous cycle first: Founders get motivated by high-paper valuations and start working hard to achieve that. Unsuspecting news media reporters buy the hyped numbers and help build the brand in a PR trick. New investors come in at higher valuations as stories are woven around a potent mix of surging young population that provides a growing market, served through new technologies that help them meet their aspirations.

This is the land of Bollywood's '3 Idiots' and we all know Indian parents love to see their kids well-educated, well-paid and then well-married. In essence, therefore, EdTech has become the new detergent soap to be sold to the millions as the next big thing since Surf. Before we knew it, what used to be a state-provided service became a corner-shop consumer goods shopped for by salwar-kameez-clad housewives.

Thank you, Byju Raveendran. Education is now a soap opera.

Amid the layoff news, BYJU'S has been busy hiring Lionel Messi as its new brand ambassador. The laid-off employee may well say that is not quite cricket and may be accurate in more senses than one. Get kicked out of a company and expect to see a fancy football kicker kicking off a new league in the EdTech.

Amid Debt and Inflation, Is Layoff the Only Way Out?

BYJU'S life that began in 2011 has thus far seen, (as per industry tracker CrunchBase) USD 5.8 billion in funding from 27 investors in 58 rounds. That includes debt.

Said to serve around 150 million people, BYJU'S is certainly a titan on the make. But, as we have learned from the mobile-wallet leader PayTm's IPO experience, ubiquitous value and financial valuation are two different things. There is a funny new ad out for Sony TV's upcoming 'Shark Tank' show in which a vegetable vendor values his business at 7 million rupees. Valuation has shifted from Silicon Valley to your mohalla's alley.

The catch: Valuations are not a joke in a global market where inflation is up, interest rates are being tightened and talk of a recession is nigh.

BYJU'S is now said to be trying to hive off its acquired Akash Tutorials unit with a valuation of close to USD 4 billion— about four times what it paid for the decade-old coaching chain barely a year ago. We don't know what is going on behind the scenes, but this much can be said.

Just like education, IPOs of shares are also new-age consumer goods, to be packaged well, marketed smartly, and sold at a hefty profit margin. Employee layoffs are part of the collateral damage in what is fashionably called 'the path to profitability' after the initial hype ebbs.

Dig deep, and you will find that many a unicorn or a decacorn (valued at USD 10 billion or more) is funded to capture the imagination of consumers as glamourous brands powered by a combination of speed, hype and chutzpah. Unicorns often do not rest on stronger intellectual property based on technological discoveries or patents. When the time comes for an IPO, profitability matters more than talent acquisition. It is here that iron fists come out of velvet gloves to do layoffs, howsoever sweet the manner in which jobs are knocked out.

The reassuring news is that unlike two or three decades ago when the dot-com bubble and a few other ventures saw brutal closedowns or layoffs, India's new generations know that a layoff is not exactly the same as a sacking. It is more about the company than the employee.

The stigma attached to job loss is no longer there though insecurities remain, as do the chances of a 25-year-old earning an annual salary package equal to the retirement savings of her dad.

Employees, or would-bes from Gen X/Y/Z/Millennial need to learn that startups are like latter-day relationships. Layoffs, like break-ups, are quite common. Be prepared for heartbreaks after fun night outs. Do not mistake a fling for a long-term relationship, or a wow honeymoon for a lasting marriage.

(The writer is a senior journalist and commentator who has worked for Reuters, Economic Times, Business Standard, and Hindustan Times. He can be reached on Twitter @madversity. This is an opinion piece and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)