In a striking development, Sharan Hegde, the CEO and co-founder of 1% Club, a startup that promotes financial literacy and freedom, announced the company’s decision to lay off 15% of its workforce. The cost-cutting initiative marks the first such move by the company since its inception in 2022. This decision has sparked criticism and debate, particularly from former employees questioning the company’s financial management practices.
The Layoffs: A Necessary Move?
Sharan Hegde, also known as an influencer, co-founded 1% Club alongside Ragav Gupta to empower individuals to achieve financial freedom. Despite this mission, the company recently faced scrutiny after laying off around 40 employees, accounting for 15% of its workforce. Addressing the layoffs, Hegde acknowledged the irony of a company dedicated to financial education needing to resort to such measures.
In a candid LinkedIn post, Hegde admitted to making mistakes in hiring and managing redundant expenses. He explained that while the layoffs were unfortunate, they were necessary to ensure the company’s long-term growth. “This is our first cost-cutting exercise since inception,” he wrote, emphasizing that the company remains financially stable and focused on future growth.
A Former Employee’s Critique
Not everyone sees the layoffs as a necessary step. A former employee, who chose to remain anonymous, expressed frustration online, criticizing the company for failing to uphold the financial responsibility it preaches. Posting on Reddit, the ex-employee shared their disappointment, stating, “Day before yesterday, they blindsided me with a layoff email. Turns out, around 40 of us are getting cut, including people who literally moved cities for this job.”
The employee also highlighted what they perceived as mismanagement, pointing out that the company had hired over 150 people and established a high-end office in Jogeshwari, Mumbai, despite having limited funding. The timing of the layoffs, immediately after Diwali holidays, further exacerbated their discontent. “I’m pretty pissed and feel for everyone else who got axed with me,” the employee remarked, adding that the layoffs disproportionately affected various departments, including video editing, content creation, and graphic design.
Hegde’s Response: Profits Over Investments
In his LinkedIn post, Hegde responded to the allegations of financial mismanagement. He revealed that the company’s lavish 5,000-square-foot office in Mumbai was funded entirely through its profits, not investor capital. According to Hegde, the Rs 10 crore investment from Zerodha co-founder Nikhil Kamath remains untouched, earning an 8.5% interest in a fixed deposit. “Our investor’s money is currently invested in an FD earning 8.5% interest,” he clarified.
Despite the layoffs, Hegde provided a positive update on the company’s financial health. He shared that the 1% Club is generating an annualized revenue of $8 million with an impressive EBITDA margin of 35-40%. With nearly 85,000 active paying customers, the company has also achieved profitability while working on new financial products and services. “We have already launched some of these products and they are performing well,” he noted.
Admitting Mistakes and Offering Support
Acknowledging the company’s rapid growth, Hegde admitted to making mistakes in hiring and managing expenses. “I started this company from my bedroom with just five interns two years back, and fast forward today, we have almost 200 employees,” he explained. “When you grow at such lightning speed, you are bound to make some mistakes.”
To address these mistakes, the company is now leveraging AI-driven cost-saving measures to enhance efficiency and profitability. Hegde emphasized that the layoffs were not taken lightly and assured that the affected employees were provided with severance packages based on their tenure. He also pledged to help the laid-off employees secure new opportunities by connecting them with peers in the industry.
Criticism of Financial Practices
The layoffs have brought attention to the company’s financial decisions, with critics questioning whether a company advocating financial literacy could have better managed its own expenses. The former employee bluntly stated, “Here’s to hoping they figure out ‘financial literacy’ on their own, because they clearly need it more than their customers.”
However, Hegde defended the company’s financial discipline, asserting that both he and Gupta funded the company’s growth through their own resources. “We have been running this company bootstrapped without ever using investor capital because we are super strict with our financial planning and diligence,” he wrote.
Hegde’s Journey: From Influencer to Entrepreneur
Sharan Hegde’s entrepreneurial journey began long before 1% Club. A mechanical engineering graduate from a Bengaluru college, Hegde later pursued an MBA at Columbia but chose to drop out. He has also worked at renowned firms like KPMG and PwC. In January 2021, Hegde launched his YouTube channel, “Finance With Sharan,” to promote financial literacy. The channel, featuring over 500 videos, boasts 3.29 million subscribers and has established him as a prominent voice in the fintech space.
Looking Ahead
While the layoffs have undoubtedly raised questions about 1% Club’s management, the company appears committed to moving forward. Hegde’s transparency in addressing the situation, coupled with the company’s strong financial performance, suggests a willingness to learn from past mistakes. However, the criticism from former employees underscores the need for a more nuanced approach to growth and employee management.
For now, the 1% Club remains a profitable venture with ambitious plans for the future. Whether it can rebuild trust and sustain its mission of promoting financial literacy remains to be seen. As Hegde aptly concluded in his post, “This is a tough but necessary step to ensure our long-term growth. We are committed to doing right by our team and customers.”