After the record year – that’s why gorillas and co. are resigning so many employees
Gorillas, Klarna and Co.: Several start-ups have cut a significant part of their workforce. Certain departments are particularly affected. There are several reasons for this. And the prospects are also rather modest.
“There are days in your life that you will never forget,” says Gorillas CEO Kagan Sümer in an email to his staff. That day is May 24th, 2022 and it is the day that the express delivery service announced mass layoffs. Around 300 people lose their jobs.
On the same day, billionaire fintech Klarna announced that it would lay off around ten percent of its 7,000 employees. Since Berlin is the second largest location for the payment company, numerous people are also affected in the federal capital.
And the list goes on: several startups have laid off a significant portion of their workforce in recent days. There are several reasons for this development.
The wave of layoffs began a few weeks ago in the USA and has now reached Europe. The reason: the crisis on the capital market. “2022 has been a difficult year for the start-up ecosystem so far,” writes Nuri CEO Kristina Walcker-Mayer in a blog post.
The fintech has just laid off 45 of its current 200 employees. “Starting with the massive corrections in tech and fintech valuations […]then the interest rate turnaround in the US and the rapidly rising inflation – the market is currently experiencing seismic shifts.”
2021 was a record year for start-up financing
Tech stocks such as Netflix, Delivery Hero and Alibaba have also collapsed on the stock exchange. Funds worth billions, such as Tiger Global and Softbank, whose portfolio consists largely of listed companies, have suffered severe losses as a result. If they were to sell the shares now, the returns would be much lower. Correspondingly less capital would be available for new investments.
The US Federal Reserve announced at the beginning of May that it would raise interest rates in order to compensate for inflation. The European Central Bank also wants to follow suit in the summer. Accordingly, loans will then become more expensive – and risky tech investments less attractive.
What should also not be ignored, however, is that last year was the year of financing records, never before has so much money flowed into the start-up ecosystem. Many tech companies received investments in the three-digit million range and thus recorded billions in valuations.
“Now we are returning to the level before the hype,” says M&A consultant Mark Miller from Carlsquare in an interview with “Gründerszene”.
Investors pay more attention to their money
Nevertheless, investors will not issue checks as quickly in the future as they did last year. In their growth phase, however, tech companies need several million euros to maintain their business and offset the immense costs.
As long as the financial market is unstable, lenders pay more attention to their money and primarily finance start-ups that are on the way to profitability. The bosses of Nuri, Gorillas and all the other start-ups who have now taken austerity measures know that too. So far, the path has been more in the direction of aggressive growth, but today it is more in the direction of break-even. This is the only way they can remain attractive to VCs.
M&A consultant Julian Riedlbauer, on the other hand, advises founders to rethink their business model with a view to running costs as well as customer loyalty and recurring sales. Tech companies need to become more efficient, but without losing sight of growth.
Less expansion, less recruiting
Layoffs are a quick step to cut costs. This often affects employees who are looking after expansion or teams abroad whose location is being closed at short notice.
According to the founders, the vet app Felmo has cut jobs in the expansion team, among other things. Gorillas also wants to focus on its core markets and possibly withdraw from low-margin countries.
In order to establish themselves in a market, companies first have to spend a lot of money: hire new employees, if necessary look for new space for offices or warehouses and, above all, win new customers with discounts and advertising. It may take months or years for this to pay off. Therefore, gorillas and Felmo, among others, rely on regions where they are already close to breakeven.
Since personnel costs are cut and growth is curbed, the start-ups need fewer recruiters – HR positions are therefore also often eliminated. At Klarna, this area accounts for around 25 percent, according to the industry portal Finanz-szene.
The Turkish express delivery service Getir wants to reduce marketing costs as a cost-cutting measure, according to an email. Therefore, job cuts often also affect employees in marketing. Felmo has also fired employees from customer support.
Gorillas CEO Sümer ended his letter with the following words: “I know that you are frustrated. It was that frustration that made me start Gorillas after I got laid off myself.”