In the midst of the booming startup scene in both Indonesia and globally, the phenomenon of startup bubble burst looms. This phenomenon is typically marked by massive layoffs. Even large startups are not immune to the bubble burst. So, what are its implications for companies, and how should one respond? Let’s delve into the details!
What Is a Startup Bubble?
In economic terms, a bubble burst refers to a situation where the prices of products or assets rise drastically but also decline rapidly. In the context of startup companies, this term is related to the fluctuation of stock prices that affects the valuation of the startup. Startup bubble bursts are undoubtedly detrimental to startups.
The drop in prices, also known as contraction, occurs during the “burst” moment. The significant increase in prices is often caused by changes in investor behavior. However, the performance of the startup can also be a contributing factor to the occurrence of a bubble burst.
Causes of Startup Bubble Burst
Several factors contribute to the phenomenon of startup bubble burst, including:
- Market Share Decline: A decrease in a company’s market share can lead to a startup bubble burst. This occurs when the products or services offered by a company fail to compete in the market, resulting in unsatisfactory performance for stakeholders and investors.
- Selective Investor Funding: The selectivity of investors in providing funding is a factor in startup bubble bursts in Indonesia. With the increasing number of startups, competition for funding becomes intense. If investors become more selective, it becomes challenging for startups to secure the necessary funding, especially if their performance is unsatisfactory or perceived as too risky.
- Improvement in Pandemic Situation: Many startups emerged at the beginning of the pandemic, offering solutions to facilitate people’s activities. However, as the pandemic situation improves, these startups face difficulties in selling their products.
- Saturated Market: A saturated market occurs when the demand for products or services has peaked. Some startups in Indonesia experience this condition, making it challenging to sell their products, in addition to the improved pandemic situation. Moreover, a market highly responsive to promotions and discounts can lead to the loss of consumers if not offered frequently, though excessive promotions can disrupt cash flow and company revenue.
Stages of Startup Bubble
Several stages unfold in the startup bubble phenomenon:
- Displacement: Investors show interest in new ideas or innovations with future potential.
- Boom: This stage sees a significant price increase, drawing attention from the market and investors.
- Euphoria: A golden period for startups with a substantial price hike, and investors provide substantial funding without immediate profit considerations.
- Profit: The focus shifts to making a profit, with investors selling assets to gain profits. Smart investors can predict when the bubble burst might occur.
- Panic: During the bubble burst, businesses panic, and asset prices, which previously soared, plummet drastically. Investors rush to sell their assets before incurring more significant losses.
Effects of Startup Bubble Burst
The startup bubble burst results in several significant effects:
- Massive Layoffs: One of the immediate effects is a large-scale layoff, as companies struggle to generate revenue and pay employees.
- Recruitment Delays: Companies may postpone recruitment processes as a consequence of the startup bubble burst, especially when new startups secure significant funding but later face difficulties.
- Realization of Overhiring: Companies may realize they’ve overhired during periods of funding abundance. Consequently, layoffs occur to reduce the workforce and save costs.
- Salary Reductions: Difficulty in obtaining funds from investors can lead to salary reductions as a cost-cutting measure, impacting employees who receive both cash and stock-based compensation.
Preparing for a Startup Bubble
Considering the potential risks, employees should prepare for a startup bubble burst by:
- Enhancing Job-Related Skills: Improving relevant job-related skills is crucial, as companies tend to value competent employees.
- Proving Value to the Company: Showcasing one’s value through improved skills, high performance, and meaningful contributions can enhance job security.
- Expanding Networks: Networking helps broaden connections, which can be beneficial when seeking new job opportunities.
- Building an Emergency Fund: Creating an emergency fund can provide financial support during the job search process.
- Boosting Digital Literacy: In the current tech-driven era, possessing strong digital literacy is essential, as many business processes rely on technology.
By understanding the startup bubble burst phenomenon, employees can better prepare and remain vigilant in facing potential challenges.
