Why (some) Indian Startups fail – case in point being Byjus and Paytm and some others on the verge…

Capt. Rahul Sharma
A HR professional / CHRO with over 30 years of experience with a strong background in Employee Engagement,PMS,OD,CM/ held senior-level HR, Trg and Security positions at several large organisations/ Army Veteran.

From an HR perspective, the downturns of Byju's and Paytm and others highlight crucial shortcomings in their organizational strategies and compliance with their own mission and vision, exacerbated by rapid expansion and disregard for regulatory and internal governance.

Byju's faced significant issues related to a toxic work culture and high employee turnover. The company pursued aggressive expansion, both geographically and through acquisitions, without sufficient consideration of the integration and cultural alignment of these new components with the existing structure. This aggressive approach led to unsustainable debt and a dilution of the company's core educational mission, as seen in the acquisition strategies that prioritized growth over financial sustainability or educational quality. Additionally, the delayed financial reporting and lack of transparency not only damaged investor confidence but also likely contributed to an environment where employees felt uncertain about their future and disconnected from the company's broader goals (Foundr Magazine India).

Paytm's challenges also stem from a rapid growth model that prioritized expansion over compliance and profitability. The company faced regulatory crackdowns due to persistent noncompliance, particularly with its Paytm Payments Bank. This noncompliance suggests a disregard for the regulatory environment in which it operates, an approach that can be risky for any company but especially for one in the financial services sector where trust and compliance are paramount. Moreover, the loss of board members from significant global investors and the resignation of key figures amid these regulatory challenges points to a deeper governance issue within Paytm, undermining employee confidence and potentially impacting talent retention and recruitment (Yahoo Finance).

Some other (unnamed) Fintech Start ups I know of some Fintech Startups which downplay the importance of HR and Financial reporting and indulge in unethical practices .. just to increase the valuation of the company and with an intent to attract gullible investors by hiding important facets about the company. The role of HR is much more than wishing employees their birthdays/anniversaries on WA or organising “Events”.  I shall publish a case study on such startups separately, highlighting their shortcomings and suggested solutions..

These companies' experiences underscore the importance of HR's role in building and maintaining a company culture that aligns with regulatory requirements and the company’s mission and vision. The cases highlight the need for strategic HR planning that encompasses compliance, cultural integration, talent management, and transparent communication as companies scale. For startups and established companies alike, these examples serve as reminders that neglecting HR and organizational culture aspects in pursuit of growth or valuation can have dire consequences on employee morale, company reputation, and ultimately, financial viability.

The HR Imperative in Early-Stage Ventures

The inception of any startup is a critical phase, where laying a solid foundation in HR is paramount. However, many ventures either entirely overlook this necessity or approach it as an afterthought. A strong HR infrastructure is not merely about recruitment and payroll but encompasses talent management, organizational culture, compliance with labour laws, and employee engagement strategies. The lack of such a framework can lead to high turnover rates, legal pitfalls, and a disengaged workforce, all of which erode the organization’s structural integrity. Some Founders feel that they know the pulse of employees and even if denied their dues of Timely salaries or delayed or no statutory benefits (PF/ESIC etc), they would be Happy. Employees want robust HR systems and when all “controls” are with Founder(s)/CEO(s),,. The company (and employees suffer and feel the heat)… Having a Pool table with frequent “Drink” sessions won’t make an Employee a Happy and Engaged Employee if his/her other “dues” are not taken care of.

Financial Compliance: The Achilles' Heel

Simultaneously, financial compliance—or the frequent lack thereof—poses another significant challenge. Startups often prioritize rapid growth over sustainable financial practices, leading to shortcuts in accounting norms, inadequate financial oversight, and sometimes even unethical practices like fund mismanagement. This shortsighted focus on scaling at all costs can compromise the enterprise's long-term viability, making it susceptible to financial instability and regulatory scrutiny. These unfair and (mal)practices expose them to Challenges from Regulatory bodies and result in the early demise of an Organisation.  Playing with “Books” to manipulate “figures” by doing unethical things which are clearly unlawful under various Laws like PMLA etc is a dangerous ploy, often used by some companies/startups to show their Books in a Healthy condition to lure potential Investors.

Navigating Greed and Ethical Compromises

Greed for rapid valuation increases can lead startups to compromise on these essential domains, seeing them as hurdles to aggressive growth rather than pillars of sustainable business practice. This greed often manifests in compromised hiring standards, underdeveloped internal controls, and the bypassing of necessary financial audits—all of which can culminate in organizational failures and reputational damage. Having the right person in the right job is very essential and the temptation of having (undeserving/incompetent) loyalists would hasten the downfall.

Cultivating a Sustainable Startup Ecosystem

For startups to transcend the typical pitfalls of early-stage ventures, integrating comprehensive HR management and strict financial compliance from the outset is non-negotiable. These elements should be viewed as strategic investments rather than operational costs, essential for cultivating a resilient and ethical business environment. Some Founders treat HR as a welfare function – wishing employees on their birthdays/anniversaries only, rolling out offer letters to candidates selected without any process by Loyalists without any professionalism, having biasedness in ensuring parity and most importantly paying scant attention to the Labour / HR compliances including, paying minimum salary, Payment of salaries/wages on time, non-deposit of statutory amounts of PF/ESIC etc. HR is generally (by these unprofessional lot) given to a family member or to a non-HR professional – to run, thereby diluting the importance of the HR function.

Senior HR and management professionals have a crucial role in mentoring and guiding these nascent companies to recognize the intrinsic value of these foundational practices. By embedding robust governance frameworks and cultivating a culture of compliance and ethics, startups can significantly enhance their survival prospects and pave the way for sustainable success.


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