1. What lessons food start-ups can learn from TinyOwl crisis

What lessons food start-ups can learn from TinyOwl crisis

Startups in the food tech space have been feeling the heat for some time. This could be the start of a long season of bubble bursts and job losses in the sector

By: | Updated: November 16, 2015 10:48 AM
TinyOwl, Gaurav Choudhary, Saurabh Goyal, Tanuj Khandelwal, Shikhar Paliwal

TinyOwl downfall started earlier in September when it decided to let go 200 of its employees and this news came along with Zomato’s sudden move to fire 10% of its global force.

From startups like Dazo and Spoonjoy shutting shops to Zomato and TinyOwl experiencing the brunt of layoffs, the past few weeks have been taxing for the food space in the startup  ecosystem with people calling it as the consolidation of the food tech space in India. The most talked about startup these days is TinyOwl, a Mumbai-based food delivery company, which is there in the news for all wrong reasons. Started by five IIT graduates—Harsh Vardhan Mandad, Gaurav Chowdhary, Saurab Goyal, Tanuj Khandelwal and Shikhar Paliwal—TinyOwl initially came across as one of the most promising startups in the country.

Launched in 2014, TinyOwl essentially has two products—one is the TinyOwl app which enables its users to order food from nearby restaurants and the second model is called TinyOwl homemade for ordering food from local chefs which was launched in Bangalore two months ago. Backed by Sequoia Capital and Matrix Partners, the startup has raised $27 million so far. With  10,000 plus restaurants on board, the company claims to receive over 7,000 orders everyday. “We all thought that TinyOwl will emerge as the leader in the food tech space given the rate at which they were growing, the strong team it had and its founders being very passionate towards the business model. But eventually things started falling apart because of poor managerial and hiring skills,” recalls an ex-employee of TinyOwl.

The downfall of the company started earlier in September when it decided to let go 200 of its employees and this news came along with Zomato’s sudden move to fire 10% of its global force. With two of the most prominent names in the food space resorting to mass-firing, many in the industry concluded that this could be the end of the food tech vertical which was once flourishing with every other investor trying to mint money from this segment.

Later in October, the company announced that it had raised a funding of R50 crore from existing investors—Sequoia Capital and Matrix Partners. “The recent funding came across as the saving factor for the company as it would fetch another 12 months of runtime for the startup,” said a source from the company. A few weeks later, the startup announced its move to initiate separation process and scale back resources as they are planning to restructure their entire business model. Followed by which Harsh Vardhan Mandad, CEO and the co-founder of Tiny Owl came up with a blog which said ‘Some difficult steps towards the big dream’ indicating their move of shutting shops in Delhi, Hyderabad, Pune and Chennai which meant letting go off more employees. “The move was very abrupt and fast, none of us were prepared for it and it was bound to agitate us,” an employee adds.

And the whole hostage crisis began with all the founders facing the brunt of the disgruntled employees. A top management source told FE that Gaurav Choudhary was taken hostage for more than 36 hours in Pune while another co-founder Saurabh Goyal was taken hostage in Delhi for a day. Tanuj Khandelwal was taken hostage in Hyderabad and Shikhar Paliwal in Chennai. Employees resorted to this extreme measure after the company allegedly refused to pay salaries after sacking them in September. However, the management had a different story to tell, “We have accounts to prove that all the salaries have been paid. Until we get a written confirmation from them that no physical harm will be caused to any of us, we are not going to clear the dues,” a company source added.

Eventually all the co-founders were released after negotiating with the employees that all their settlements as per the employment terms will be settled, according to which the employees will be given a month’s salary along with a month’s notice period after they put up their papers. However agitated employees had demanded for two months salary along with two month’s notice period and the refusal from the management’s side to fulfill this demand triggered the whole revolt. Nevertheless, those who have resigned and agreed to abide by the contractual terms are now getting their settlements cleared and those who have demands beyond the employment terms will have to wait for a while till they come up with a decision on it.

According to most of the former and existing employees at TinyOwl, the founders could have handled the whole separation process in a better manner. While they do agree that the employees did go over board by holding a co-founder as a hostage for over 36 hours, at the same time they think that Gaurav shouldn’t have gone to Pune in the first place. “Gaurav was never in direct touch with them so obviously making them understand the whole situation was a tough task for him, but at the same time holding him as a hostage and calling politicians and goons to put pressure on a 24 year-old co-founder was not ethical either,” a former employee expressed.

While many in the industry assume that the founders were too young and immature to handle such big a team, former employees of TinyOwl say that the whole crisis is a pure case of financial mismanagement. “Young entrepreneurs these days get funding very easily but as they scale up to build a sustainable business they realise that next round of funding is not that easy to come by until and unless you don’t prove that your business model is fundamentally strong,” adds the former employee.

Another employee says that the main problem at TinyOwl was that they couldn’t retain talent in the company. “They did hire really experienced people and they deserved to lead the team and eventually most of them left. Retaining good talent has always been a problem in the company,” adds the former employee.

Though one set of employees couldn’t stop ranting about the company and management, another set of employees feel that hiring and firing should be considered as part and parcel of working in the startup world. “We all are aware of the risks associated with working in a startup and I think the employees in Pune went over board by resorting to such unethical measures. I never had a problem with the company or the management, though the whole process of laying off was too fast and abrupt but anyway there mistakes happening at both the ends,” adds another former employee.

Even other founders in the startup fraternity feels that unnecessary attention is being given to what Tinyowl and Zomato is going through. Albinder Dhindsa, CEO and co-founder of Grofers, who recently acquired Spoonjoy, a Bengaluru food startup, said, “There were not going to be 50 players anyway. Now there will be more opportunities of acquiring as the sector slowly consolidates. And frankly, this will happen every time there are more than required players in the market and the market is hot. I think there was too much attention given to the Tinyowl incident. Startups were shutting down, winding operations and firing people three-four months ago also.”

He further added that startups fire employees all the time and people are ready to work with these companies with the mindset that this will be risky and in no way is a stable job. And most companies have given disclaimers also. And because there is a general slowdown in the market and there is no alternative job opportunity, because of which people are getting  a little sensitive about firing and getting fired. Earlier, when people were laid off they would get a job at some other company easily.

Swiggy, a Bengaluru-based food delivery startup, which also competes with TinyOwl, has raised $18.5 million and is launching its services in Chennai. When we asked its co-founder about the present condition of the food tech space with prominent competitors resorting to mass-firing he too had something similar to say, “Financial discipline is what most of the startups are resorting to now and food tech sort of grabbed a lot of attention during its initial boom. Other industries are also facing a similar situation and  going forward only few players will remain in each vertical.”

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