Looking at Reasons Why Startups in India Fail

India has the third-largest ecosystem for startups with opportunities for more than 7.46 lacs jobs. Yet, a staggering number of business ventures fail within the first 5 years. Why?

Highlights

· Most of the startups failed in India in Covid-19 and post Covid-19 stages

· Most of the business failed to survive and grow.

India boosts over 105 unicorn startups. Out of these only 23 of them are profitable. Shocking right?

Sadly, the rest of the startups in India act as a resource sink for billions of funding from venture capitalists and investment organizations, globally. 2022 has been somewhat of an “Annus Horribilis” for startups in the Indian economy. Huge ventures like Unacademy, Byju’s, Cars 24, and Ola are losing piles of money with massive employment layoffs.

Fundings have gone down by 37% YOY and the saddest reality is that only 10% of Indian startups are living up to 5 years. But, why such a sad state of Indian startups? Once regarded as the fastest-growing startup ecosystem in the world has almost become a failure junction. Why?

Adaleza Morales , the Irish Digital Marketer discuss about the startup statistics of 2021 —

And most importantly, what is the solution to this pondering problem?

After some research, here are the probable causes of the failure of startups in the country.

Lack Of Innovation

A survey shows that 77% of venture capitalists think Indian startups lack innovative business models. The reason why most startups fail to survive the first five years is due to this reason.

The irony is that India has the third-largest startup ecosystem but it lacks big names like Facebook, Twitter, or Google. Most Indian startups also replicate global businesses, which isn’t a bad thing necessarily, but it becomes difficult to create your niche when you replicate someone else.

That’s what is stated in Twitter by an user —

However, startups like Swiggy, Ola, Saathi, and Chai Point are some of the most innovative companies in the world. But, due to many existing global businesses, repeating a model without proper research can be harmful in the Indian market.

So it pays to invest some time to learn about some of my blogs in :

India’s Growth Story — How IT Exports helped the Indian Economy Post 1991?

Social Media : A Guide to Improve Your social media ROI In 2022 And Beyond

Poor System of Hiring and Training Process

The profitability and scalability of a startup are largely dependent on the quality of its employees i.e., its workforce. Even before launching a product in the market, a leader must build a cohesive team that benefits the brand in the long run.

A lot of startups in India focus only on hiring experienced mindsets which refrains them from bringing new ideas to the table. See, we need the experience to hold down the fort. But unique ideas often come from eligible freshers who want to go beyond expectations.

Jennifer Kim , the Former Head of People for startups discuss about the poor hiring process adaptability by startups —

Additionally, hiring candidates only on the basis of salary can cost time and money for any organization. Bad hiring takes a toll on the team members, especially if the company is in the initial years.

A proper hiring system along with training not only makes a candidate qualified for the job but also fit for the office environment and expectations.

Weak Sales and Marketing Team

While it is absolutely fine for organizations to hire marketing and sales agency for their promotions, you need the strong backing of the in-house team as well. The majority of the founders only focus on production and other technicalities, ignoring the marketing aspect of the product.

This can be a major reason for the failure of startups as hiring only an agency without research can be very risky. Good products need good marketing. And for that, you need to hire experts who understand your product well.

Lack Of Startup Funding That Suits the Business Model

There are millions of ideas floating around. Although many companies do get funding, it often doesn’t align with a scalable business model.

In 2018, a bike rental startup Tazzo stopped. The reason? A nonprofitable business model led to the drying up of the funds. The company did raise a fair amount of funding in its initial days, but a product needs to be market-fit to continue making profits.

For most startups, production eats up a budget for marketing. This leads to companies not reaching their target base of consumers. Many companies also face a problem with follow-up startup funding.

Pranjal Kamra (building Finology.in for India) counterpart lack of funding issue and states that —“No startup fails due to lack of funding, it fails due lack of paying customers”

They get the seed money for production, but by the time the product is set to launch in the market, there aren’t follow-up funds for the execution or sustainability.

Product Market Fit

Lack of funding brings us to our final reason — building something that nobody wants. Whenever you build a service or a product, there should be a need for that in the market.

Product market fit is a quotient that many startups in India don’t work on. Do your target customers understand the need for the product? Is it making their life easier, better, or saving costs?

If your product doesn’t solve any issue, there is no real value for the product in the market. A lot of times startups quickly develop a product without proper research or developing an MVP.

How To Make an Indian Startup Successful?

There are three elements to consider before making a business.

· Considering customer lifetime value

· Aligning your business model with the national agenda

· Building an MVP for scalability and growth

Considering Customer Lifetime Value

Customer lifetime value is the money you make from your customers throughout their entire journey with you. To make a startup in India successful, you need to consider the customer lifetime value or CLV of a product. This is where you understand product market fit and basically build something that has a need and real value in the market.

Aligning Your Business Model with The National Agenda

India as a nation is developing at a fast rate and there are lots of initiatives for startups. When you align your business model with a national agenda, it provides you with startup funding. For instance, companies that are involved in Electrical Vehicles are getting immense support from the government. Why? This is because it’s the government’s vision to reduce carbon emissions in India and EV startups are surviving due to government support, funds, or donations.

Building An MVP Before Launching a Product

All successful companies like Amazon, Dropbox, Spotify, Zappos, and Twitter — everyone built an MVP or Minimum Viable Product before launching the actual one in the market. An MVP has enough features to satisfy an initial base of customers.

MVP development helps you get the necessary feedback which can then be used to develop a complete product. With an MVP, you can essentially create anything. MVP development helps you to obtain seed funding from angel investors or venture firms. You can also gain an in-depth understanding of your customer profiles and what they feel about your product.

Conclusion

See, as an entrepreneur, you cannot please everyone. And you shouldn’t try to do that. However, you must introduce a product in the market that has a need and desire.

Although the sound of a startup might sound very cool, being a leader of one is a completely different experience. As an entrepreneur, you need to understand what works and what doesn’t, so that it doesn’t affect your business.

Dror Sharon — Tech Entrepreneur & CEO of Consumer Physics, advice to avoid these pitfalls Munger’s golden rule

There isn’t a golden rule to avoid failures. However, one can take practical decisions like hiring the right team, performing extensive market research, and developing an MVP before launching the product.