FIITJEE withholds employee salaries for second consecutive month: Here's why
What's the story
FIITJEE, a leading entrance test preparation company, has withheld employee salaries for the second consecutive month amid stagnant growth and increasing competition.
The company which is backed by Matrix Venture Partners, paid only 50% of January salaries last week.
In fact, media reports in February suggested that FIITJEE had suspended January salaries due to cash flow concerns.
However, the company's management stated that this move is intended as a "wake-up call" to encourage employees to improve their efficiency.
Rights and duties
'Salary not matter of right, has to be earned'
In a series of emails, FIITJEE's management communicated to employees that the company is not facing an immediate liquidity crisis.
The salary suspension was described as a deliberate move to "motivate" employees to work harder.
Dinesh Kumar Goel, the founder and Managing Director of FIITJEE, stated in one email that salaries are not a matter of right but need to be earned by fulfilling job expectations.
He emphasized the importance of efficiency and clear goals in running the centers effectively.
Fading performance
FIITJEE's performance and future plans
FIITJEE, founded in 1992 by Goel, operates over 100 study centers across India with approximately 4,000 employees.
Despite its early success, the company has struggled to match that performance in recent years.
Goel stated that none of the centers have achieved the same level of success as the first one in Delhi.
He urged employees to implement strategic advice and work with renewed focus to improve their center's performance and fulfill commitments toward investors and shareholders.
Conditional salary
Salary release tied to performance goals
FIITJEE's management has linked the release of salaries to the achievement of specific performance goals.
Employees were asked to commit to these goals within seven days, after which salaries would be disbursed based on their achievements and commitments.
The company also stated that the entire center team is required to commit to this plan with their signatures on oath.
They credited half of January's salaries and withheld February's pay, citing inefficient performance and lack of entrepreneurial spirit among employees.
Future growth
FIITJEE's financial standing and future outlook
According to data from Tracxn, FIITJEE raised $20.1 million in 2009 and was valued at $347 million.
However, the company has been registering negative cash flow for about eight of the past 10 financial years.
In FY23, despite a 21% increase in scale, it reported a loss of Rs. 69 crore against a profit of Rs. 37 lakh in FY22.
The company's management has urged employees to analyze why competitors were profitable while FIITJEE centers were "burning money."
Industry insight
Edtech industry challenges amid slowing demand
FIITJEE's struggles come at a time when the edtech industry is grappling with slowing demand, waning investor interest, and a trust deficit triggered by issues at industry leader BYJU'S.
Over the past two years, many edtech start-ups have had to adjust their strategies to survive, including mass layoffs, reduced marketing and advertising spending, and halting growth in certain areas.
These challenges highlight the competitive nature of the Indian coaching space where start-ups and legacy brands compete for domination.