startups fail in india

A recently released study by IBM revealed some pretty damning facts about the Indian startup scene – only 1 in 10 startups manage to survive for more than five years. IBM’s study, titled “Entrepreneurial India” is based on interviews with over 1,300 Indian executives including startup entrepreneurs, venture capitalists, government leaders, heads of established companies and educational institutions.

Interestingly, the biggest reason behind the failure of 90% startups who fail within their first five years is the lack of pioneering innovation, something that many thought leaders have been telling for long. 77% of Venture Capitalists who surveyed believe that importing an idea from developed market, likes of US, is killing the innovation capability among Indian entrepreneurs.

So what are factors which dictate the survival rates for Indian startups?

Demand And Timing

The most basic element dictating the success of a startup is the product/service itself. If there isn’t sufficient demand or need for what is being offered, the business is doomed to fail. Often entrepreneurs misjudge the requirements of the market, leading to shutdowns.

Similarly, timing is equally important – sometimes, being too far ahead of the curve can also negatively impact success. Case in point – Mobile Wallets didn’t take off in India until demonetization took place. Then players such as PayTM pressed their advantage and tasted the success.

Ctrl C + Ctrl V: The Real Killer

According to the report, 77% of venture capitalists believe that there is a tendency in the Indian startup community to import successful business models from abroad instead of innovating. This is not a sustainable practice due to the unique nature of the Indian market. Several foreign models simply don’t translate correctly.

Unsuitable Workforce

The report highlights 70% of venture capitalists believed that acquiring talent with the requisite skills was a major stumbling block. Due to a lack of an entrepreneurial culture and formal training, as many as 80% of Indian engineering graduates are considered unemployable.

This is not the first time when Indian workforce is being criticised. Quite recently, another study also highlighted the same concern stating that 95% of India IT force is unemployable. The apathy is, some of the industry leaders are not ready to read the writing on the wall.

Premature Scaling

The death of many promising startups, scaling must be handled very carefully. Scaling ravages a startup’s funding, and startups may find themselves running out of cash fast if the ROI is insufficient. Premature scaling may also cause startups to fall into the “sunk cost trap” and unable to adapt quickly to changing scenarios.

Funding Challenges

65% of venture capitalists identified lack of funding as a challenge for Indian startups. Aggressive growth is vital in the early years of a startup. If the business is unable to reach its milestones in time before its cash dries up, then attracting more investors can become extremely difficult.

Crisis Handling

It is inevitable that every new startup will face a crisis or significant roadblock. It is essential to act quickly, intelligently and decisively Even one mishandled crisis can spell death for a burgeoning startup.

But, the IBM report is not all bad news for Indian startups. India’s economic openness (76%), skilled workforce (60%) and large domestic market (57%) remain significant advantages for upcoming startups. There is also an increased desire to collaborate and invest in startups. 80% of executives from established companies believe that collaboration with startups accelerates new ideas. However, it is essential to be mindful of the pitfalls that have been the bane of many failed businesses thus far.