Why Indian start-ups fail

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Why Indian start-ups fail

Thursday, 08 October 2020 | tushar manchanda

The approach of entrepreneurs should be to leapfrog and learn from failures rather than to succumb in the name of fortune

With the advent of technology and the culture of ‘Make in India’, the number of Indian start-ups has risen sharply. This has been strengthened by continuous support from the Government and improvement in the ‘Ease of Doing Business’ in the country. Plus, initiatives like Stand-Up India, Skill India, the Atal Innovation Mission and Start-Up India have established an ecosystem to encourage entrepreneurship and job creation for the State. However, despite all these efforts by the Government, 90 per cent of the Indian start-ups fail within five years of their inception as per a report by IBM Institute for Business Value and Oxford Economics. There are numerous reasons why a new firm would fail. In an emerging market like India, the needs of the people change frequently. Thus, the strategic model of a start-up needs to resonate with the changing needs of society. However, a large number of Indian entrepreneurs lack this skill. Typically, the age of founders of new businesses is in the range of 20-30. Most of them are fresh graduates who have an aspiration to grow in life and have high risk-taking abilities. However, despite such ambition and enthusiasm, their probability of being successful is very low. Since most of the entrepreneurs have very limited exposure, their understanding is limited in terms of what is required in the marketplace.

Most of the founders imitate a business model that is successful in the overseas markets. However, tweaking a model to suit the Indian geography may not be a good way to realise revenues from the business. This could fetch initial investments for the firm but may not help to retain the customers after trials, since this might not be what they are really looking for. While imitating an idea the vision is defined by the originator. This makes the scope of business limited and the team tries to adhere to what had been done earlier. As a result, the offering may not address the problem of the customers.

A lot of entrepreneurs in their initial phase think of expansion as scaling up is an important aspect that is associated with a new business. However, most of the founders from the premier B-schools forget about the viability of the model. Scaling up at a stage when the path is not clear scripts a dreadful fortune for the firm. The Indian sub-continent is a land of diversity and disparities, unlike the US where the culture is quite similar across the country. Thus implementing anything on a PAN-India level is difficult, unless a business has a stable model. Most of the teams end up in a perplexed state when they are occupied by too many issues and they lose track of their vision and how to solve the burgeoning problems. Eventually, the top talent in senior management often makes an exit in such scenarios.

There are even bigger questions that still remain unsolved. Why does this happen to start-ups in India? Why is an entrepreneur from India more innovative and productive when abroad? Why is there a race among entrepreneurs to upscale immediately? This basically dwells on the deep roots of Indian society, as our cultural barriers are strong enough to hit the vision of an entrepreneur. Failure, which is seen as the stepping stone and learning curve on the road to success, is not accepted in Indian society. In India, failure is frowned upon in all instances of life, whether it is school, higher education or profession. This tendency leads to a race to achieve something, or to fail at something and move on. If an entrepreneur fails at some point, that’s the end of the road. All possibilities of improving are ruled out and often a new career option is considered.

In the US and most other nations overseas, there is an approach towards company building. A start-up recruits top talent from the industry by offering perks. However, in India, new firms have limited access to talent. But for companies with a strong business model, there is a major talent pool available. This again boils down to norms that are being inculcated within the individuals at a very young age. Indian parents nurture their kids with a phrase called “job security.” Every household in India wants a promising job, a company that weathers tough times and the economic uncertainty of a slowdown.

There may not be a lucid solution or a paved path to avoid these issues. However, a step-by-step approach will help the entrepreneurs realise what’s required in the marketplace. One must realise that there are bumps and bottlenecks in the road to success. Further, failure will only indicate what’s not right for your customer. Over a longer horizon, this would result in a better value proposition for the end-consumer. The approach of entrepreneurs should be to leapfrog and learn from failures rather than to succumb in the name of fortune.

(The writer is ASM in a leading FMCG firm. The views expressed here are personal)

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