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Why are Indian Startups failing?

Indian startups are failing at an exponential rate. But why is that happening? What can we do to avoid this?

Thursday September 29, 2016,

5 min Read

With the current trend of hoards of startups being established in the market, it’s only natural that not all of them will survive. In fact Indian startups have already started failing at an exponential rate.

According to the Economic Survey 2015-16 released by the Government which was tabled by finance minister Arun Jaitley - India has more than 19,000 technology-enabled startups.

Even though most of these companies are started by people with a lot of knowledge and experience they are still ending up in the ditch. Why is that? Why do these startup companies fail to stay afloat in the current market scenario regardless of continuous investments and the finest of brains backing them?

Let’s take a look at the primary factors responsible for the undoing of these startups –

Impatient Founders – Novices with little or no experience in dealing with such massive pressure could be one of the foremost reasons for the destruction of a company. Once they realize that things have started heating up, they run away. Let’s take the example of Dazo – which was being funded by the largest investors. Dazo began as an internet kitchen with its own chefs and some tie ups with restaurants. The pressure to scale up made Dazo swivel towards disaster. They were more focused on tech rather than the actual food and logistics this made them dependent on many restaurant partners whose quality of food and delivery factor were beyond its control.

Timing and Audience – When starting a startup you must very well have a target audience, without an audience you have no one to cater to. People starting startups are not looking at the market scenario, the Indian economy largely consists of the middle class which has little or no use for products such as –

1) A mobile app which can act as a remote control for their television or A/c.

2) An app that is just for home delivering medicines.

3) A social networking site for the unemployed.

4) A car finder app anyone?

Such products and services are not required by most people at least not as of now. Our grandparent’s aren’t tech savvy which means an app that connects older people is of no use for them.

The timing of launching a startup is another crucial factor; timing can decide whether it will spiral upward or downward. A very important example here would be of - Back in 1993, Apple launched a handheld device. It was officially called MessagePad but was popularly known as Newton, the device was overpriced. Its technology was revolutionary for its time. The main feature - handwriting recognition software was highly inaccurate. In 2010, when they had gotten back in the mobile computing business they launched the ‘Ipad’ which was an instant hit. Timing played a key role in the success of the ‘Ipad’.

Excessive Equity dilution – Most of the startups end up giving up large portions of their equity in the very beginning, this results in conflicts as more and more investors start pouring in. In most cases the founders when more and more people start coming on board it causes a lot of conflict given different opinions of different people. The founder of any company launches into operation with certain goals and vision in mind which others may or may not understand.

A prominent example of this could be – Back in the day in 2006 when Facebook was just two years old, even though it was generating revenue of 30 million dollars, it wasn’t profitable. They received an acquisition deal of 1 billion dollars from Yahoo. Zuckerberg who was just 22 then and owned 25 percent of the company - turned it down. Peter Thiel revealed how everyone wanted Mark to take the money but he didn’t. When Mark was asked why he simply replied that he wouldn't know what to do with that much money and he would up starting another social networking site with it. He was only able to do so without anybody butting in because he owned a considerable amount of equity.

Lack of innovation – Somewhere between to trying to make it big and dealing with the success when it comes, startups may lose their lustre when they start bringing out new things. Innovation is a key factor in any business. Which is why it’s important that everyone has the same vision and that the startup keep experimenting with its products and services.

A young and vibrant team which is in sync with this is another important factor which will help keep the startup up and about in the game. Google is still very much at the top of its game because of the constant new changes that they bring about, which keeps the consumers as well as the investors hooked.

While starting your own company is not a bad idea at all, how you go about it is what will decide the fate of the company. Keeping in mind certain points and not giving up too early will probably help you become a successful entrepreneur. We need innovations and innovators to keep moving forward. Besides haven’t you heard that saying – ‘Once an entrepreneur, always an entrepreneur!’.