The resignation of Daraz CEO Bjarke Mikkelsen sent tremors throughout the company, as it was a sign that a cost-cutting effort was about to start, with as much as 25 percent of the workforce of the country’s biggest ecommerce company about to lose their jobs, including many members of senior management. Daraz was probably the country’s biggest start-up, and the possibility of its being in trouble means that the whole start-up ecosystem is in turmoil. Unfortunately, the Daraz crisis is not a one-off, as other start-ups have either had to close their doors or at least cut back. Though Daraz is certainly undergoing a crisis, it will probably pull through. However, that is probably not going to be true of other start-ups.
This probably has to do with the fact that the start-ups are all built on venture capital, which was once plentiful and in search of relatively lower returns, but as the US Federal Reserve slowed raised interest rates, better and safer returns became available elsewhere than in start-ups. Money, which at one time had been thrown at start-ups, began to dry up. As much of the money had not been spent on expansion, but on operations, start-ups started to go under. With young, and thus inexperienced, people at the helm, only those start-ups that survive this winnowing will receive fresh venture capital when they come back into fashion. One problem is that the focus was not on turning a profit, but on growing market share. Venture capital had come in to make money, which did not happen.
What is happening at Daraz will probably hit not just ecommerce but also fintech. The whole world, Pakistan included, is gearing up to apply new technologies to old problems, and it is the start-ups which will find new ways of doing things. Of course, part of the problem may be that the start-ups seem determined to fit into the paradigms set by the old capitalist economy. Whether or not the new technologies are so powerful that they call forth a new ideology is something future economic historians will judge, but before that judgement, more start-ups will come and go, and those that stay may face the same sort of turmoil as Daraz is now doing.