Foreword
In the capital winter that lasted a year, now even the most retarded people feel that the winter has arrived. But this should not just be talked about in interviews and speeches by various bigwigs. Over the past year, tens of thousands of startups, and more broadly, startup employees, have been forced to live through a period of layoffs. These experiences deserve to be documented. Capital has its own cycles, and the market always comes back. But each of these stories of startup experience, reflection and pain as the tide rises and falls will be recalled again and again for a longer period of time to come.
1
Win Zhang, the founder of Love Fresh Bee, once thought that entrepreneurship was about taking a group of brothers and attacking the city as fast as possible. But now, the war is not yet won, and he has to ask his brothers to leave.
In May 2016, the summer had not yet arrived, but the sultry air had already enveloped the small southern city in advance. At 8 o’clock at night, Zhang Win stayed alone in the hotel room, with the air conditioning on, but still felt suffocated, in order to drive away the gloom wrapped around the heart, cigarette pack after cigarette pack, but also seems to be unhelpful.
He thought for a long time how to ask a person to leave his job. It was a regional manager of Love Fresh Bee, who went door-to-door with Zhang Win in the early days of the company, talking about joint rentals, and was willing to work and fight, and had the bloodlust that Zhang Win appreciated. Zhang won remembered that one time he went to the field with him to talk about cooperation. On the way back, he was so tired, Zhang won looked at all the heartache, shouted at each other to switch to the passenger seat to rest, he drove the most difficult section of the road over. Zhang Win said to 36 Krypton, his feelings for this person “and his own brother.
Although this regional manager is very diligent, but in the “2, 7, 1” the last elimination system, he stayed in the last “1” position for a long time. In the early stage of the startup, speed and the survival of the company are directly linked, and there is not enough learning time for him to learn and grow into a regional manager who understands supply chain, ground marketing and logistics.
The conversation lasted for four hours, and Zhang said that it was probably the longest four hours he had ever spent in his life.
“Brother, I will not hand over this work license,” at the end, the other party said, “I will try to work out well back.” Zhang win like a lump in the throat. “This feeling is really, really hurtful.”
In the past year, this pain spread to a large number of entrepreneurs heart. Xiao Hua, who was plucked as an industry elite to work for a mobile office platform startup, was fired before the end of his probationary period, and before he left, the vice president who plucked him in invited them to have a “farewell dinner.
“I would never have let you go if I hadn’t been forced to lay off,” said the vice president, full of helplessness and guilt.
It’s just that the speed is so fast that Xiao Hua can’t eat. “This year’s market is too bad, re-finding jobs also have to cut salaries, most companies are cutting costs.”
In a Baidu search, there are 263,000 news articles about “layoffs,” a full 38 pages, 30 of which occurred in 2016.
Rationally, this is a necessary move. A dollar fund partner told 36 Krypton that some time ago he ran into one of his founders, who took the initiative to report to him that the company had laid off several hundred people. He was very complimentary, “This is the kind of judgment that a CEO should have about the company, otherwise what? Waiting to die?”
“Since the second half of last year, it is generally the first to cut subsidies and marketing expenses; next, the marginal business and marginal departments can be streamlined to streamline; finally, it is to lay off people.” A partner of a fund told 36 Krypton.
Layoffs, has been the last move to deal with the winter.
2
Even the strongest unicorns with solid enough businesses are actively shrinking.
The merged Meituan Dianping just had employees sign a document called a PIP (employee development improvement plan) announcing new appraisal goals. Simply put, this company will implement a last-place elimination in its own sales BD system.
The specific rules are: the bottom 15% of employees in first, second and third-tier cities, and the bottom 20% of employees in fourth and fifth-tier cities will enter the elimination warning list, and will be laid off if they fail to meet the target in two months. For the company, which has at least 35,000 employees, this means that thousands of people may be about to lose their jobs.
Hungry is dumping all of its delivery teams to agents, which will reduce costs such as social security. Two months, that’s the transition period given by hungry. But after that, employees in the original system may also face either changing companies, or losing their jobs.
Xiaomi has quietly reduced the number of people it works with in its warehouses. In the country, Xiaomi has more than a dozen warehouses and nearly a thousand employees. The total number of employees in the warehouses and the much larger customer service department make up nearly half of Xiaomi’s workforce.
Akiyo is practicing frugality. Now when its CEO Gong Yu approves travel applications, he will ask each department to reduce the number of travel slots by one, and when he approves applications for purchasing product materials, he will ask for a 10% reduction in quantity.
In addition to laying off staff, Meituan also sold its controlling stake in Cat’s Eye Movie, which it had incubated, to Light Media. In the past year, Cat Eye has also followed up less on the movie ticket subsidy war instigated by Ali’s Tao Ticket and Tencent’s Weifilm Times. Hungry breakfast business subsidies have nearly come to a halt, an internal employee told 36 Krypton that breakfast orders have fallen by about 2/5 as a result.
36 Krypton interviewed seven venture capital institutions that do not want to be named, all said they have projects in hand in the layoffs. One of the investors admitted that “half” of the projects they invest in are laying off staff. An industry veteran who has been in the venture capital industry for more than a decade told 36 Krypton, “Most companies are facing the result of contraction and even layoffs.”
Layoffs! Layoffs! Layoffs! Entrepreneurs’ Winter Battle Royale
3
In the venture capital field, there seems to be an invisible but powerful hand around the throats of entrepreneurs who are still expanding, and their rivals.
Many companies have been beaten down by this force, or even disappeared. Koala shuttle, honey Tao, BoPai foster car, delicious seven seven …… last big news may still have received a huge amount of financing, the next second on the death list, the shortest before and after no more than a year.
In July 2015, A shares fell below 4,000 points. on August 26, global stock markets plunged, with the Dow Jones Industrial Index falling 1,000 points.
At the same time, Du Yongbo, Managing Director of China Renaissance, told entrepreneurs, “From now on, forget about the growth rate and GMV you’ve been patting your chest to investors. You have to focus on cash flow, to survive, and to plan the money you get at least on a 24-month time frame.”
“Some entrepreneurs just bury their heads in the sand and after a few months, they realize that the money is much less,” said one VC, “but we are on the sidelines, we ask for a meeting once every half month, how much revenue, how much money was spent, all of it, so that he knows what situation he is in.”
A dollar fund is even stricter, and for entrepreneurs who are still obsessed after being reminded, they simply take tough measures. Put the money in a joint account and don’t let them spend it. Every time they spend money, they have to apply for it and the investors approve it before they can release it, so as to force them to start thinking about then saving money. “No one wants the company to die, and this is the only way to go about it,” the fund partner said.
In September 2015, Zhang Win received a phone call from his angel investor, Zhuang Chenchao, the founder of Where to Go: “How many people are there in Love Fresh Bee now?” “More than a thousand people, I think.” Zhuang Chenchao asked again, “Think about it, if you only have a skeleton crew of two hundred people, can you maintain your growth rate?”
Zhang Win was silent, “Yes, but there will be bouts of pain. It will take a lot of effort, efficiency, and innovation.” Zhuang Chenchao told Zhang Win, even in the best time to go where, they always have a list of about two hundred people in their hands, “Once the company is in danger, I will be able to quickly adjust the structure.”
On September 23, 2015, the news that LoveFreshBee had gotten $70 million in financing broke the circle of friends of every LoveFreshBee employee. The employees of Love Fresh Bee were excited, thinking that this meant a new wave of subsidies, salary increases, and promotions. But Zhang Win’s first words at the internal meeting were, “We need to reflect, is the human efficiency reasonable? What do we rely on to make money?” He later summarized this meeting as a rectification meeting, “kill the wind of pride.”
After the meeting, Zhang immediately cut off the two business units of seafood and campus, and merged the two different sales teams responsible for the supply of ordinary small stores and gold stores, so as to unite procurement and sales.
Love Fresh Bee is lucky, at least there are still people to remind. “Both have to shrink. The difference is that some are proactive and some are reactive.” A fund partner told 36 Krypton that if it is a proactive adjustment, then the company’s situation is still manageable, but if it is expanding rapidly but suddenly suffers a setback, then the situation is dangerous.
The unfortunate entrepreneurs are still blindly rushing and expanding until they are ready for new financing, only to find that there is no one left behind to take over the baton. There is no choice but to lay off staff very quickly, and some can’t even pay out the compensation for layoffs, so they can only close down with a bang.
The users of Youth Cuisine recently found that all the items in the mall were sold out and no new orders could be placed, but yesterday it was clear that there was a lot of stock, “it seems that the previous order was the last one”, said one user. A person in the O2O field told 36 Krypton that the youth dish Jun burned so much money, but only a few thousand loyal users remained. eBags, house rice, beauty dish network, hot mom help …… these star companies are close to 50% or even more layoffs.
4
“The market shifted from ‘greed’ to ‘fear’ in the snap of a finger,” said Zhang Ying, founding partner of Matrix Partners. at the end of 2014, he felt something was wrong, but “It’s also impossible to tell exactly when the downturn will come, or even to conclude responsibly whether the downturn will come in 12 months.”
The Internet before mid-2015, however, was a different subgenre. Investments from the private equity and venture capital industries were on par with the entirety of 2014 in the first half of 2015 alone, with more than half of them going into the TMT (telecommunications, media and technology) sector, a record high since 2012.
The total number of financing cases reached 3,932 in 2015, compared to 302 five years ago. Inside these nearly 4,000 financing cases, most of them were invested in e-commerce, O2O, enterprise services, P2P and other fields. Looking back now, these areas, which seemed to be very prone to unicorns at the time, were where the cold wave storm swept through most fiercely. (Editor’s note: Unicorn companies, meaning startups with a valuation of $1 billion or more.)
“This is the law of the market,” said a VC partner. The special thing about this winter is that the tide of popular venture capital fields is “superimposed” on the difficulties of the real economy.
At the beginning of 2015, when Zhang Win was pushing with the Love Fresh Bee team, a store owner complained to him that business was getting harder and harder, “Customers are buying less stuff, and the rent has gone up so much that they can’t make any money.”
711 convenience store rent rent 12% year-on-year, large supermarkets, chain restaurant losses are also much more serious than in previous years, the news of store closures in succession in Wal-Mart, Lotte Mart, Carrefour staged. Data from the Ministry of Commerce show that major retailers (including department stores and supermarkets) closed a total of 121 stores in China in the first half of 2015, a new high in the number of store closures, and China’s manufacturing sector is also in a difficult position.
China’s GDP growth will probably drop to 3-5% this year, and the Chinese economy will enter a relatively long downward cycle, said Wang Ran of EK Capital. But according to the National Bureau of Statistics, from 1980 to 2015, China’s GDP grew at an average annual rate of 9.74%. The last time a figure of around 5% was seen was between 1989 and 1990.
Those wiser and more seasoned in the venture capital space anticipated the storm earlier.
At the end of 2014, Du Yongbo, managing director of China Renaissance and partner at Huasheng Capital, noticed that Tiger Fund and DST were not pitching many cases anymore, a harbinger of the market bubble, and that “top-tier venture capitalists were starting to pull back.” In September of the same year, Julian Robertson, the founder of Tiger Fund, said he did not know when the bubble would burst, but it would be in a “very bad” way.
Zhang Ying observed that the ratio of the S&P 500 index divided by U.S. GNP over the past 20 years, starting in September 2014, has once again approached 100%, which is Warren Buffett’s “single indicator” of stock market valuation. This metric has approached and exceeded 100% twice in its history, once in the 1999-2000 dot-com bubble burst and once in the 2007-2008 economic crisis.
But others are continuing to rush into this blind market.
After first-tier dollar venture capitalists like Tiger and DST stopped investing, PE funds specializing in traditional industries suddenly rushed in and picked up the slack; then another group of RMB funds rushed in and picked up the slack again. During that period, the investor heard many entrepreneurs tell him that they were “going to look for RMB”.
“Don’t bet on the strategic emerging board, don’t try to make money by market fluctuations.” A VC (note: Venture Capital, venture capital institutions) retrospectively concluded.
Now, the market is again lopsidedly pessimistic. As of 2015, China’s mobile Internet users are close to 700 million, accounting for 50% of the total population. In other words, the previous growth rate brought by the demographic dividend to the mobile Internet has gradually slowed, and with the real economy as a whole facing a slow downward cycle, the situation is really not optimistic.
“If this situation (GDP growth rate of 3%-5%) happens, the world faced by Chinese entrepreneurs and investors will be turned upside down, all asset values will be reassessed and all company values will be completely rewritten.” Wang Ran said.
So does this mean that the initial frenzied expansion of startups was fundamentally wrong?
“When the market is hot, there is no opportunity to compete in the market without expansion.” A VC partner says resources will only concentrate to the head. In addition, when Internet practitioners are going to a new industry and the original ecology is already mature, they must act strongly, which also means expansion.
5
Unlike the cold winter of 2008, this time the startups, to be combined with offline, have a large number of people and a large ratio of labor costs. When the industry was cold, it was time to take on the biggest expense – the labor cost of ground promotion.
In the eight-month-long, successive layoffs, Love Fresh Bee shrunk from more than 1,000 people to more than 700.
The life service sector, where Aishengbee is located, is suffering more than any other industry in this cold winter. 2014 to 2015 saw the birth of the most startups in the life service sector, and these two years were called the first year of O2O at that time.
In mid-July, Xiao Hua, who worked at Streak, received an email from the HR department informing him that he had failed the probationary period and was one day away from his transfer.
A week later, the top management of Streak went to Dunhuang for a meeting. When they came back, the layoffs officially started. “Many people were still running business and talking about cooperation in the morning, and received layoff emails in the afternoon.” An internal employee told 36 Krypton, including those who went to Dunhuang’s top brass, there were also people who left.
There are few employees who have been onboarded since March along with Xiao Hua: At the Beijing headquarters, Streak entered 7-8 new employees in each period in 1-2 weeks, and the pace of hiring didn’t stop until early July. Now almost all of these employees have not been transferred and received the same email as Xiao Hua the day before their probationary period was about to end.
Prior to that, about 70% of Streak’s employees were salespeople. In the layoffs, a large number of sales and first-line service staff were laid off, plus all the employees who could not be converted during the probationary period, which is about 700 people, accounting for nearly 30% of the original total of 2,500 people. Of the employees who remained, “some of the sales directors were demoted to first-line sales, and department vice presidents were demoted to directors.” Xiao Hua said.
“The capitalists probably felt that it was not cost-effective to have such a large sales team to support this existing bit of business.” An internal employee said.
New business is another contraction focus. The criteria for whether to adjust a business is: can any business survive without the support of the main business? Is there a value of its own?
During Xiao Hua’s interview, the other party said they wanted to make a one-stop enterprise office platform like Alibaba’s “Nail”, and hoped Xiao Hua would work with them to expand these new businesses.
When the layoffs took place, all the employees in the “platform business” were basically affected. The new platform business required huge capital and staff to expand the market, which would bring new losses and difficulties for a new round of financing.
When Zhang Win was looking for the latest financing, “when will it be profitable” suddenly became a question that almost every investor would ask, but no one had mentioned it in the previous three rounds of financing. At that time, everyone was concerned about the order volume, GMV (total sales = sales + cancelled orders + rejected orders + returned orders) and growth rate.
“Whether the company has revenue at the moment or not, from the financial model, it is going to be in convergence, losses are getting smaller. Either to feed themselves, or to show investors hope of profitability.” A VC partner said.
6
Investors, entrepreneurs, are starting to look at everything with suspicion.
“Prematurely trying to own the whole world.” Zhang Win summed up the first half of last year’s Love Fresh Bee, said. At that time, he felt that seafood and campus could increase user stickiness and attract more users to the platform.
One night in August 2015, just after ten o’clock, he took several department heads who had just finished working overtime to have a snack around the company. There is a grocery store next to the barbecue stall, came a small electric motor, the top tired high goods, milk, tissues, drinks, everything, at least two or three thousand dollars of goods.
It was at that moment that Zhang Win felt that the situation did not seem right. He started the business in order to try to improve the operational efficiency of the traditional small stores, but his efficiency, is there really higher than this small electric motor?
Love Fresh Bee had a cold chain truck, a system to count orders, a team of hundreds of people for ground promotion and logistics. But this small store owner, only a small electric motor, choose 10 o’clock at night without traffic to deliver as many goods as possible at once. Compared with the so-called Internet platform, which is more efficient? He asked the department heads in the audience, and they were all frozen.
Zhou Kui of Sequoia Capital and Zhang Win said, “You have to know how you die to know how to live well.”
“There are many ways for you to die. First, you blindly expand, there is no way to control the surrounding branches, and the management collapses; second, crazy subsidies end up being burned to death by money; third, your product is simply a pseudo-demand that does not exist.” Zhang Win said.
Recently an investor has asked Zhang Win very seriously, “If you were asked to re-elect two years ago, would you still choose Love Fresh Bee?” He thinks this thing is too hard, the supply chain, logistics, countless small offline stores, may be a tens of billions of dollars level company to bear the pressure.
“The most problematic companies are often the ones that have problems with the model and the users don’t really need this type of thing.” One VC told those companies he invested in to try and see if there was a change in order volume without investing in marketing expenses. If the data is falling badly, think of a new path.
The so-called new path includes switching to a new business model, transforming the type of customers served, for example, serving only a portion of the original users, or switching from serving C-terminal users to serving B-terminal users, etc.
In early June, Koala FM initiated a lightning layoff, “removing the entire audio and entertainment department in one morning.” “From 170 people cut to about 100 people,” an internal employee revealed, cutting nearly half of the people, “HR has frozen all the Headcount (note: staffing) and stopped recruiting people.”
In the same month, a new face came to Koala FM. He was the founder of Road Info, a startup acquired by Koala FM in early 2014, Li Jiangang. After the acquisition, the staff didn’t see him in the office for a long time. What’s even stranger is that the work that Qiu Qi had to report to the founder of Koala FM, Yu Qingmu, started to be transferred to Li Jiangang.
But Koala FM has already started to shift its strategy in the direction of the car network. “The business model of the audio industry is rather vague and not fully validated,” Qiu Qi said. The competition among previous FMs was mainly focused on content, with copyright being the main expense cost. But at a time when user habits and the market were not fully cultivated, each one was burning money for traffic, “and for profitability, it was not even thought of.”
After the layoffs, Koala FM announced a new financing of 170 million yuan from Junlian Capital a week later, and announced that the future will be “Koala car radio” products, access to the car system of mainstream car platforms. “Telematics is exactly what Li Jiangang was good at before.” Qiu Qi said.
The game company Touchtech, which has been forgotten in the public eye for a long time, has not been rumored to have raised funds after its failed IPO in 2014. “There have been people leaving one after another,” a former Touch control employee told 36 Krypton. Touchtech had rented nearly 13 floors in Wangjing SOHO piecemeal, and now only one floor remains for office use, while the others have been sublet out.
“The game company is completely a project to determine life and death, the project does well to survive and make big money, new projects are generally no one to invest money.” A dollar fund partner said to 36 krypton.
In January this year, CEO Chen Haozhi suddenly announced that the future main business will focus on online education and vocational training with game development as the main focus. It seems to have embarked on a completely different path from the initial one.
7
There is a group of foreign students in Zhang Win’s WeChat. After graduation, most of them stayed in Houston, with their own houses and children, and would take turns to have parties and BBQs at their respective homes every weekend, taking photos and sharing them in the group. Zhang Win enjoyed watching.
Zhang win sometimes feel that this life is also quite beautiful. After a pause, he added, “But what really makes you feel valuable, what really makes your blood boil, is still starting a business and doing what you feel is valuable.”
“Now the market is not good, the competitors’ subsidies have come down, we bend over to pick up the dime people do not necessarily look up, which is good for us instead, we are not so impatient.”
In addition, the capital not suitable for the industry will also exit the industry, more understanding of the nature of the industry money will stay.
Layoffs! Layoffs! Layoffs! Entrepreneurs’ Winter Battle Royale
Win Zhang will soon announce a new financing. He plans to keep this money for one year. For him, timely control of expansion, improving human efficiency and focusing on the main business can help Love Fresh Bee to extend its life cycle as much as possible and be profitable as soon as possible.
Investors expect that this winter will basically come to an end in the second half of 2017.
Huasheng Capital believes that the secondary market will affect the primary market first. “Chinese stocks have been quiet for a long time before, and the recent earnings performance of Ali and Jingdong are very good, and Yiren Loan has risen from $200 million to more than $1 billion, both showing relatively good changes. If the newly listed companies have a good performance by then, we can’t rule out that the growth space for primary market companies will reopen before the end of next year.”
“We are still in the best of times, even if there is the shadow of a cold winter now.” In the U.S., small and medium-sized entrepreneurs create and contribute 70 percent of GDP, and also really boost employment and stimulate the economy, Zhang Win said. Any road is stepped out by trial and error by one entrepreneur who has gone before and after.
8
“We recruited 200 people a month to do ground promotion,” the round-faced, glasses-wearing, bookish boy in front of me told me with a smile.
He is David, the founder of ofo, a bicycle sharing service on campus that solves the problems of losing bikes, buying expensive bikes, and finding bikes on campus, and has just received Series B funding. He was told by his investors to expand quickly and to take as many schools as possible as soon as possible to make it large.
“Now the market is not good, you are not worried about the follow-up financing after the burn?”
“No worries, there are already many institutions that have shown a willingness to continue to invest in us.” In the past less than a year, they have got three rounds of financing. In the winter time, new fields and good projects are receiving more attention than ever instead.
His field is nearly a brand new industry, and there has not been a bicycle rental business focusing on the inner campus in China before. Among his investors in this round are GSR Ventures, which has invested in Drip, which has won through frenzied expansion, and Matrix Partners, which has invested in Fast Taxi – the implications are self-explanatory.
Whether it’s summer or winter, expansion and contraction seem to be closely tied to the economic cycle, but there are no universal rules to be found. When entering any new industry, you have to make a noise, show your strength, and run faster and faster while competitors are still around. Because, capital will only gather to the head.
For some reason, the expression I saw on David’s young face was a little similar and a little different from several previous entrepreneurs who had experienced this round of volatility: a little excited, a little cautious, and with a bright light in his eyes when he talked about the new things he was doing.
(Reporter: Fang Yuanjing,Zhang Qing; Editor: Yang Xuan; Xiao Hua and Qiu Qi are pseudonyms at the request of the interviewees. 36 Krypton authors Xu Ning, Du Muyu and Mihawk also contributed to this article.)
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