The bubble burst phenomenon that has hit startup companies or startups has recently been alleged to have resulted in layoffs and bankruptcy. As a result, many employees have experienced layoffs (Termination of Employment). Several startups in Indonesia that reportedly experienced a bubble burst include JD.ID and Zenius.
Really, what is a bubble burst? What causes this to happen, and how does it relate to layoffs? To find out the complete answer, read this article to the end!
What is a Bubble Burst in a Startup?
A bubble burst is an economic condition that tends to fluctuate, causing rapid increases and decreases. This condition occurs when the price of an asset increases to a point above its actual value. However, despite experiencing rapid growth, this price increase also has the potential to fall in a short period.
The rise and fall of asset prices have made several startup companies feel the impact.
Moreover, suppose the startups rely on capital from investors who want to buy their assets. If asset prices are unstable, investors will tend to change their buying and selling patterns and make the company experience the impact.
Causes of Bubble Burst
Things that cause a bubble burst include increased asset prices that exceed the asset’s actual value. This price increase was also triggered by changes in market behavior towards traded assets.
On the other hand, a bubble burst can also be caused by inflation or price increases that occur regularly and gradually from year to year.
This price change is associated with investors spending their wealth on various assets. They become more selective in choosing investments, especially if assets have potential.
This price change is associated with investors spending their wealth on multiple purchases. They become more selective in choosing investments, especially if assets have the potential to experience high levels of fluctuation. This then spreads to the performance and performance of companies, especially startup companies or so-called startups.
Bubble Burst’s link to layoffs:
If many price increases are associated with changes in investors’ investing patterns, then what is the connection between the bubble burst and releases? If a company’s asset price experiences a sharp decline after a drastic rise, this will undoubtedly make investors think twice about investing their money there.
That way, the company will experience a reduction in the amount of incoming capital. When funding at a startup is reduced, they tend not to survive and have the potential to lay off their employees to save expenses.
This is also in line with data which states that around 10% of startup companies cannot survive in the first year of establishment, and 80% cannot pass the first five years. In the end, only 10 percent of startups will be successful because they have passed the five-year critical period.
The Role of the State for Startup Progress
With the bubble burst phenomenon plaguing startups, the state is vital in creating a supportive climate for startups.. Not only providing adequate infrastructure and education facilities to develop quality human resources, but the state must also take part in resolving this dynamic market price movement.
One of the critical roles that the state can take is to provide easy and fast access to loan funds. Capital is a concern for many startups, and data shows that 41% of startups have cash that can only cover three months of their needs. However, with easy access to capital loans from the state, startups can have more resources to develop their businesses and generate more profits.
Apart from capital, the state can also support startups by creating pro-employee schemes. This will be very useful at critical times such as layoffs. In Germany, such a policy has been implemented through a program called Kurzarbeit.
When there is a crisis where companies must cut spending as much as possible, the Kurzabeit program allows company officials to apply part-time schemes to employees instead of laying them off. On the other hand, employees can understand the company’s conditions better and agree to reduce working time and pay.
However, this can happen because the German government is willing to provide 67% of the “lost” pay to employees for 12 months. Thanks to the Kurzabeit program, Germany emerged from the crisis that threatened their country in 2008-2009.
Considering the bubble burst phenomenon that can hit startup companies, the state’s role as venture capital is also essential to support the development of startup businesses and become a safety net to minimize losses. Of course, this can only run with the startup actors’ active steps.
The good news is that all these things can be realized by collaborating with a business management consultant who provides comprehensive business solutions like Skha. Visit our service page to get complete information about Skha services. In addition, there are also various Skha job vacancies that you can try to register for.