Incubators are boosters that help businesses get off the ground. They add value to start-ups and ultimately benefit the wider ecosystem
One of the major factors responsible for the high failure rate of start-ups in India is the lack of proportional growth of incubators. Ironically, the concept of incubators or accelerators — an organisation that shows the way for the start-up companies to speed up their growth and success — is still in the nascent stage while the start-up culture is flourishing with incessant growth. In a country where more than 1,000 startups are born every year, there are hardly 150 incubators and they, too, are failing to support a majority of endangered young businesses. Consequently, 90 per cent of the start-ups succumb to weak immunity even before their fifth anniversary. Though it’s encouraging that India enjoys the status of being the world’s third-largest start-up ecosystem, high failure rate is one big concern for all stakeholders, including foreign investors. To overcome barriers on the path of toddler businesses, there is an urgent need for a robust incubation system, one that runs parallel to the rising startup culture. But before ensuring sustainability to this culture, incubators must deal with the challenges they come across quite frequently.
Distance barriers: Ideas and entrepreneurs can be born anywhere and anytime — not just in Delhi or Mumbai but also in other big and small cities that have become a breeding ground for businesses. Despite the fact that 70 per cent of India’s population lives in rural areas, the maximum incubators are located in metro cities and Tier-I cities. Distance keeps many potential start-ups out of the reach of enabling systems. Although India’s communication infrastructure has improved significantly, everything related to business cannot be shared and understood over phone and emails. So, first of all, incubators must increase their physical reach to tap the growing opportunities in smaller cities and towns.
Lack of compatibility: Many a time, the aim of an entrepreneur does not align well with the vision of the incubating team because of the asymmetry between ambition and viability. It’s really difficult to convince a budding entrepreneur as to why an idea, as shared by him/her, scores low on feasibility and viability. Often, the entrepreneur wants to go with the original ideas without even considering the alternative of an incubator. This opinion clash reduces the enthusiasm of the mentors and the end result is that neither the client nor the incubators is satisfied. The best way to prevent these kind of conflicts is by conveying all probable challenges in the initial rounds instead of throwing light on them in the middle of the journey. So, keeping clarity during official as well as non-official communication is the best antidote for communication barriers.
Funding vs revenue: Enabling a business to generate good revenue is more profitable than improving its traction for more funding. Here, the focus of an incubator should be to maintain a balance between fund management and revenue growth. In the initial phases, most incubators focus on luring the investors and care little about untapping the market potential for business. Though this one-dimensional approach helps secure required funds for the business, slow growth in revenue increases the financial liability of the company even in the infancy stage. Hence, the goal of funding should be smooth functioning, market penetration and achieving revenue targets. If funding is merely increasing the liability of a firm and revenue is not growing simultaneously, then it is an alarming situation for the startup.
Ensuring scalability: High scalability means better sustainability — this principle applies to almost every business but is more applicable to startups, which should be more flexible to mould themselves as per changes in micro and macroeconomic environment. In fact, if a start-up aims to achieve high in the long run, scalability should be in its DNA. A young entrepreneur high on passion and less on experience cannot easily understand the need for scalability of his/her business. But a coach or mentor can never ignore it. So, incubators must help start-ups in adopting a flexible and agile framework through counseling as well as devising feasible modules.
Value addition: Start-up incubation is not only about immunisation of a business through appropriate funding, availability of space, recruitment of top management and exploration of market. The most promising attribute for any start-up is ‘value addition’, which offers an edge over its competitors. Usually, incubators serve all the needs. Such confined services can never ensure a better future. In contrast, incubators, that help start-ups in increasing their market share with value-added products or services, always succeed in achieving mutual goals.
(The writer is leadership and motivation director of a startup accelerator firm)
