The woes of Byju’s

Just as everyone thought the layoffs winter can’t get any more frigid and worse, looks like Byju is going to be laid off from Byju’s.

Every Edtech company has three components 1) Education 2) Technology 3) Business and management. That Byju Raveenran is an accomplished tutor is a well known fact. That his classes and method of teaching had immense potential to go online was also there which was why Byju’s grew exponentially in a short span of time and attracted the attention of global investors. So problem areas are not education and technology. Byju’s current woes are all on the business and management side.

There are several well known cases of VCs asking founders to focus on product development and appointing CEOs and hiring executives to run the business. Now that VCs are seeking to oust Byju Raveendran, it is puzzling as he had no prior experience in running a company then why did the VCs allow him to be the CEO and bring in his wife and brother to run the business. Byju’s situation was not at all complicated. Raveendran had to focus on education and the company needed a technology head with the potential to grow into CTO who could build a technical team from scratch. The VCs could have had easily set up the executive and management teams. Raveendran and his family members are not just the problem, the entire executive and management teams need to be dismantled and built from scratch.

I have heard several instances of Byju’s sales team being aggressively persuasive with the parents of children and making the parents feel like they are doing a crime by not giving their children Byju’s online classes. Raveendran seems to have clearly forgotten his own USP that made Byju’s touch the skies. It was the quality of his classes and word of mouth. Companies like Apple and Bose rely on the quality of their products to attract and retain their customers. Raveendran simply had to follow the golden rule. So what changed him?

Market valuation of a company is usually done based on the numbers on its financial statements and its business potential in the market segment it is catering to. Investors would ideally look at the past 3 years of financial performance for assessment. What they look at is profit margins, but with a catch. Ideally they would want to see increasing revenue and decreasing cost or expenses but even if the revenue remains flat for a couple of years they want to see decreasing cost because it shows efficient money management. This does not seem to be the case with investors and investments anymore. Market valuation can be conservative or inflated based on many factors. In the case of Byju’s it had huge potential with its online app, then covid struck and we literally started living on the internet. Byju’s valuation became like an endless pit because its business potential exploded into touching the entire population of the country. When investments started flowing in like water Raveendran spent millions on acquiring other edtech companies and running promotion ads with Lionel Messie and Shahrukh Khan and sponsoring events, notably sports events. The beleagured company’s valuation is now down by 95% from its heydays in 2022 which goes to show how inflated valuation can end up destroying companies (https://m.economictimes.com/tech/startups/macquarie-slashes-byjus-valuation-by-98-after-julius-baer-protest/articleshow/108165302.cms).

Terming startups that are loss churning machines year after year as unicorns is I believe the biggest crime investors and VCs are doing. Budding entrepreneurs all want their startups to get investments and become unicorns regardless of how poor their financial performance is because they know they can have swanky lifestyle, hire and fire employees when their business strategies fail miserably and can get away with everything even if their companies go bust.

Raveendran’s knowledge and teaching acumen were his heart and soul and investments pouring in acted as injecting venom into both. This is what happens in every case where we get more money than we really need. Education is more like the traditional barter system, we give money in exchange for knowledge. When we make education into a business, everything related to business takes hold, such as competition in the market, having to invest first to get returns, invest more for higher returns, commercialization and giving up on the core values of education.

Raveendran is accusing the investors of trying to oust him as the CEO of Byju’s and from the board of directors along with his wife and brother. He is also peeved now that investors have blocked access to money he has raised to pay salaries to his staff (https://www.reuters.com/world/india/indias-byjus-cant-access-rights-issue-funds-pay-staff-2024-03-02/). He needs to understand that investors are only looking to recoup their investments for which he has to either pay off all their money or step down and let them run the company. He doesn’t have a third option no matter whatever he tries.

VCs can do well by not being confrontational and convincing Raveendran to give up the executive positions and shift his focus back to education for the sake of his company and his future. If he gets ousted, the reality will hit home hard when he starts a new life without Byju’s especially if the investors decide to retain the name of the company.

The startup ecosystem is all about money and nothing about innovation

The recruiting head of a startup company based out of my home state in India contacted me recently for a senior role. Seemingly buoyed at my profile being a good fit for the role, she immediately set up an online interview. I went through the company website and checked out the team. When the interview invite came, I saw that the CEO was in the list of attendees and checked his LinkedIn profile. Turned out he had done all his education and all his work experience was with companies in my home state. He has never stepped out to work and has experience only in working with small to medium local companies and not with large and multinational enterprises. Having the polar opposite of his background I would have been a complete misfit in his company. Just as I had thought, during the interview it was evident from his body language and his way of speaking that he had no intention of hiring me. Couple of takeaways from this.

1) Recruiters look for match between job description and candidate profiles and largely ignore the cultural fit aspect. It isn’t about the organization culture but the specific team culture for which the hiring is being done and the tone of the culture is set by the hiring manager which is defined by the manager’s personality, technical and people management competency and at times even their academic background. In the case of startups the CEO/Founder sets the tone of the organization’s culture. When candidates are rejected before/after interviews cultural mismatch is one major reason which is never mentioned. Whenever people have asked my opinion about joining companies I have told them any organization is fine what matters are the role, the manager and the team’s culture. At the lower levels of the corporate pyramid, team culture doesn’t matter much but assumes significance as responsibilities grows with roles.

2) The head of a department in a government engineering college in my home state once told me that students are no longer interested in completing their degrees and are obsessed with starting companies. This startup culture is being fueled by the glorified stories of Bill Gates and Mark Zuckerberg being college dropouts and going on to build Microsoft and Facebook, Sabeer Bhatia founding Hotmail and selling it to Microsoft and by the relative ease of acquiring funding now. The new trend is the growing obsession of having one of the CXO designations. Startups are largely associated with innovation which has distorted the meaning and purpose of innovation. Innovations have impacted, improved and drastically changed the entire human race. Radio, TV, Telephone, Fan and Penicillin are some of the best examples. For me, an air conditioner is not an innovation because it is still a luxury and hasn’t reached the majority of human population but a mobile phone has. How many of such innovations do we see coming out from the startup ecosystem and impacting humanity positively? Now it is all about money, go-to-market strategy is all about commercializing ideas and monetizing them, raising funds, achieving breakeven, becoming profitable, paying back investors, equity and financial ratios and percentages. The concept of innovation and business being for the people and by the people has largely eroded away. When I asked the CEO what his future plans for his company was he replied that he wants to expand internationally but not in India. Someone who knows nothing about international work culture is having lofty aspirations to go global with his business. Clearly, his focus is on generating higher revenue by leveraging on the weaker Indian Rupee compared to the Dollar and Euro. With such narrow vision these startups and CXOs aren’t going a long way ahead.

Understanding the Better.com layoff fiasco

A lot is being said and written about the layoffs at better.com and people I know are mortified by the way the CEO terminated the employees over a video call. When we hear such news, our natural response is to assess them with our emotions.

Business is all about revenue generation, profits and financial statements. Money and emotional quotient (EQ) never goes hand-in-hand. When business goes down, it is not the matter of if the business will bounce back. It is all about time. How long can a company sustain itself before business picks up again or it is forced to consolidate its finances is the burning question. Reducing the workforce is one of the ways to reduce the company’s expenses. Hire and fire is not the way to manage people but is a very efficient way to run businesses especially when the supply of people far exceeds the demand for them in the market.

It is not really lack of empathy on the CEO’s part, just that emotions cannot come in the way of doing business which is why he says in the video that he cried the last time he fired his employees and he hopes to be stronger this time. Termination over video call is undoubtedly terrible but it helps to keep the emotions out unlike in a physical meeting. If his job is to make the company profitable, consolidation is also his call. The timing is also not so bad I suppose because companies open up for recruitment in January.

This isn’t a one-off case, IBM closed down business units and terminated 15,000 employees globally in 2014 and WeWork reduced 20% of its workforce in 2020. We are not used to seeing layoffs in the traditional businesses but in the startup ecosystem we can expect to see a lot because its all about investment and ROI and companies are accountable to its investors for everything it does and doesn’t do.

The company receiving a cash infusion and supposedly going public according to this article is irrelevant in the context. An external cash injection is not necessarily the sign of a company bouncing back as exemplified by how a consortium of banks kept on infusing cash flow into the now defunct Indian airline Kingfisher when its business floundered and showed no signs of picking up. IPO is just an eyewash to cover the investments of the company’s investors and help them reap profits as this post about Zomato’s IPO journey illustrates.

So irrespective of all the backlash, after the global market devastation caused by COVID, expect this to become a precedent if market conditions do not improve.

Does our jobs match our personality?

This is the analysis about the jobs we do and our personality I have searched for many years. The classifications Jordan Peterson has made are quite simple but the underlying factors are extremely complex. From the business/corporate perspective, entrepreneurial/creative types have a synonym. Innovators. The problem with innovation though is, it can only be a continual and not a continuous process. So there will be time periods between innovation when management becomes crucial. The best example is Apple and its products. Every time Apple releases a new version of its products into the market, the focus shifts towards maximizing sales. What he says about innovative people starting a company and then the company getting swamped with manager type people is absolutely correct and there is a reason for it. Any innovation ultimately leads to revenue generation (or cost saving) which happens through projects for which managers are required for project and people management. Then there will be finance management, facility management, etc. Problem arises when the company’s focus shifts entirely towards revenue and profits. This is why Apple has a pipeline for new versions of its products and Bose apparently spends 60% of its profits on R & D. These are conscious attempts to maintain innovation at the heart of these companies.

The difference between entrepreneurial/creative and managerial types have blurred in recent times because of the advent of startup culture and venture capital funding. Entrepreneurial/creative people have always been risk takers but investments were hard to find in the past. Now, with investments readily available, it has become possible for even managerial type people to become entrepreneurs. Moreover people with managerial background get hired or elevated into top executive posts because companies focus largely on revenue and profit generation. The corporate mindset of not changing what is working fine led to the demise of companies like Kodak. Companies getting filled with managerial type people is the reason why there is always a gap between any form of innovation (that includes corporate restructuring and changes in business strategy) & management which needs to be addressed through change management processes.

What he doesn’t talk about though is at the individual level, whether individuals are doing jobs that match their personality. In the past, every profession was important in a community so a blacksmith’s son was raised to become a blacksmith. Now, education, job, social status, even marriage is associated with money. So very few people get the opportunity to evaluate themselves and choose their professions. The academic ecosystem smothers our creative side and prepares us to become good employees in the corporate world but not good leaders. Working for a few years in a particular role in a company is not a yardstick to become eligible for promotions but that is the culture companies follow. So corporate employees are majorly neither entrepreneurial/creative nor managerial types and this is why their careers stagnate and another important reason why companies stop being innovative.

Corporate employees are largely under the illusion that spending time equally in the office and at home is what leads to work-life balance. Our lives are so intricately interconnected that it is impossible to separate our professional and personal lives and here also the common denominator is money. We have to go to office to work to earn money with which we meet the needs and commitments of our personal lives. Doing what truly interests us and we are passionate about is the key to finding the balance between our professional and personal lives. The other important aspect is to have an engagement, activity or hobby that provides us gratification in our personal lives and the confidence we gain from it will spill over and improve our professional lives.

The future of startup funding

The concept of startups has defined the decade from 2010-19 and altered the landscape of business which continues strongly as we step into the next decade. While every company we know was a startup at some point in time without the tag of a startup, the startup ecosystem differs from the context of funding.

There was a time not so long ago when employees in companies used to come up with new ideas. Many of those ideas became alive and that’s how companies developed broad portfolios of products and services. But ironically, more than 95% of the ideas never saw the light of day and ended up in the garbage bin. Why? Funding or rather the lack of it. Companies discard them if they do not see a USP in a minute. Many such employees became entrepreneurs by taking great pains of taking the leap of faith by quitting their jobs and starting from scratch. Funding empowers such employees to take the leap by helping them put their entire focus on their ideas with the knowledge that if they can come up with an idea-to-market strategy, their chances of being funded will be very good.

The big boys of the corporate world watched the startup ecosystem grow without really doing much about it and I believe they missed a trick here. They could have had easily set up a startup ecosystem within their environment, selected more ideas, funded them and let them evolve as stand alone units for a certain period of time. For the employees there would have been nothing better than being able to develop a new idea while getting paid and having the security of a job in a company. We will definitely be more successful when we do not have the fear of failure and we will work with focus and passion on new ideas.

Where has the present startup ecosystem evolved? I believe nowhere. I see so many people bit by the startup bug and all they are looking for is funding and eventual acquisition by a big company. I am not at all surprised that even with the broad funding ecosystem available no startup has been able to grow to the level of an Apple, Google and the rest of the big companies. Easily available money is never a recipe for success. This is why investors analyze the risk taking capacity of startup founders by looking at how much time and money have they invested on their own. Investors also look at financial statements of the last 3 years if available and their minimum criteria is that companies should not be running in losses.

What could be the next stage of evolution for the startup ecosystem? I believe extending the funding ecosystem into the academia. All students of undergraduate and graduate courses have projects in their final year. Investors and VCs should create incubators, select the best projects from colleges at the state level, put them inside the incubators and give them guidance and funding. This in turn leads me to believe that companies are missing another trick here. I know of technology MNCs going for campus recruitment from engineering colleges and selecting students based on the results of aptitude tests. The final year projects of students are largely disregarded. Companies can easily decide to hire students based on their projects, select the best projects and set them up as stand alone units within their environment. Both the options can change the entire academic environment drastically. Companies have always complained about the misalignment between academic syllabus and the expectations of companies about the knowledge and skills of the students without coming up with a lasting solution.

As more startups flounder and run into losses after getting funded (like WeWork), the funding ecosystem will most likely stagnate in the long run. Investors and VCs should catch people when they are younger, bursting with ideas, ready to learn more and are flexible to be molded into any environment and situation. This I believe will make the startup environment better and more successful.