Why do startups fail in India? This is one hot favourite question asked “very often” on Quora.
Finally, Failure is something people are talking about and i am not complaining about it.
You know a topic needs to be approached with a fresh mindset when everyone is talking about it. Yet, no one wants to discuss it because we want to celebrate success.
Before i get down to listing the reasons for startup failures in India – here is what you must know : the much celebrated, hyped startup India scheme of government that was supposed to provide help to startups in India has failed miserably.
Quoting from the article “in a survey of 33,000 startups, over 80% say they have received no benefit from Startup India, and over 50% say that the single biggest challenge to business remains corruption / bureaucratic inefficiency.”
Well – if the government is hell bent on failing us, how about we at least stop living in the fantasy land and give them credit where it is due. This is what i have done – they are now the second most reason for failures of startups in India.
Moving forward – The failure of a business is a bitter truth we must all know. I mean, if we can celebrate success – why can’t we mourn (i am kidding). Let me rephrase it “Why can’t we learn from failures of startups”.
In the last 4 years, I have updated four lists of startups that failed in 2016 to 2019.
Here is the list for you:
- Failed startups in India 2019
- Failed startups in India 2018
- Failed startups in India 2017
- Failed startups in India 2016.
And recently, i added another list from the Oz – List of Famous Failed Australian Startups and Businesses.
You might want to ask “Why a list of failures? – Why not a list of successes?”
Well! Isn’t the newspaper already filled with all startup success stories? Haven’t we read enough of entrepreneurs exiting with millions of dollars?
You can call me a party popper or Cynical for picking up a topic, people rarely want to talk about but here is the reality – 8 out of 10 startups fail.
And there are very few which survive the first 3 years of a business.
With number being so lopsided towards failure, I ought to discuss failure more than success (do not forget – the name of the blog is lessons at startup. I am here to give you the lessons that I learned during my entrepreneurial journey. For me, the biggest learning have come from failures than successes)
In 2019, a lot of funded startups winded up their operations. Until then, every startup started with an innovative idea (most of them picked from USA) was funded and predictably, most of them has already started failing in last few years as little or no thought process was involved in the business expansion plans of these startups.
The question on everyone’s mind was “what is wrong with Indian startups? Why are they failing despite so much funding?”.
What astonished the VCs was the fact that some of the failed startups had the best of talent from IIMs and IITs as founders. and when they launched, they were in a market touted as the next big thing in Indian Industry.
Despite having a combo of “money-brain-market” at their disposal, the startups are failing.
I agree Money is important.
Running a startup without Money is like running a race on one leg.
You will never finish the race.
Why do most startups fail in India? Is funding the only reason for failure or there is more to it than we can see.
I have failed many startups ( I am going to be shameless in admitting my failures).
Obviously, money was one of the prominent factors for failure but it was not the only reason which led to the closure of some of the startups.
As a matter of fact, You will be surprised to know only one of them failed “mainly” because of Money troubles.
Table of Contents
What leads to startup failures in India:
Since I am India, let me add few specific points to why startups fail in India from the perspective of a True Indian who has spent last 10 years slogging his (you know what) building a business from scratch.
The Copycat Approach:
I thought of starting one myself. Predictably, the venture failed.
I refer such ventures as “the copycat” Ventures.
You see a successful venture. You build a clone hoping your venture will see the same success as the original venture.
99% of the times “the copycat” ventures fail.
We still get a lot of clients who want to build the next fiverr, Airbnb and uber of the world with a USP of their own.
Almost all the clones I have done for clients have bombed. The clones with the “twist” barely survive the market.
The copycat approach is not just restricted to Business Ideas. You see a lot of startups trying to ape the marketing strategy of other startups.
India Startups are doing a damn bad job of copying model of startups of other countries.
Quoting from an article ““Since 2015, as many as 1,503 startups have closed down in India. And the major reason is due to the replication of Western business models, and not lack of subsequent funding from the investors,” says Rishabh Lawania, founder of Xeler8, a market intelligence platform recently acquired by a Chinese venture capital firm.”
That sums up my analysis in one quote :).
Rule No.2: Never forget rule No.1.” – Warren Buffet
You are bound to have money troubles if you:
- Do not plan your business finances in a planned way.
- Mix your personal finances with business money.
You pay your office expenses from personal money and vice versa.
- You Spend like a King on unnecessary stuff. You are lucky if you buy something tangible which you can at least sell when you have hit the bottom.
You will be penniless when you spend extravagantly on ads, the marketing team for fast customer acquisition. (caution for funded startups).
Tomorrow, when the company goes bust. All you will have is the copy of invoices from ad agencies and salary slips of employees who worked to fulfill your dream.
And you won’t be able to sell anyone of them to make something of your bad decisions.
- Lose money to clients by not getting paid on time or bad project delivery.
Lack of Money will put your startup in an ICU.
You will not have money to pay your staff. You will not have money to pay the rent. And none of the two entities likes to wait. We worked in government for a good 3 years without realizing how much the government can choke fund flow.
The salaries were delayed.
Office rent was never paid on time. We, the so-called bosses never got paid for a good amount of time.
Why did we work for 3 years despite such a scenario?
Well. The thought of getting the “big payment” was too much of a temptation for young entrepreneurs like us to resist. By the time “the big payment” came, we had paid a fortune from our pocket.
We lost some good employees who left us because of a delay in salaries. Our office owner almost threw us out for reasons known to you by now.
And we had vendors who refused to supply drinking water, coffee to the office any further.
One fine day we decided to stop working with the government directly.
8 out of 10 times they fail miserably.
Before you point India’s current rank – 77 in the ease of doing business (source : https://www.livemint.com/news/india/india-jumps-14-notches-in-world-bank-s-ease-of-doing-business-rankings-11571882591868.html), here is what you must know -a jump of 14 places means nothing for a country that aspires to be one of the best countries in the world.
We still struggle with simple things like bad infrastructure, red-tapism, abrupt tax decisions, etc.
Let me elaborate to you on why India is not an easy place to do business (one by one):
- Red-Tapism in India:
You will not understand the word if you are not from our part of the world but red-tapism has significantly helped businesses close. Red-Tapism here refers to “our slow bureaucracy process” where files move slower than tortoise and corruption moves faster than a hare. Please do not relate the above example to slow and steady wins the race because, in India, the slow processes kill startups and Businesses.
I know there will be swords out for my throat when I write this but how many of you can claim to get a pot-free road to your office or 24 x 7 electricity in your office (Delhi-ites, please do not pick up your hands. You are the envy of the nation. I am talking about the mango man of the country).
Our system is corrupt from top to bottom and it’s not that we do not indulge in it. I mean, as a startup or a small business owner why would i want my work to slow down?. So, I happily pay bribes here and there to keep the wheel moving. Why have all the trouble when a little profit from your company can help you cut corners? 🙂
Market Not Ready for Innovation
They are innovative and disruptive. The aim is to change things for good.
But is the market ready for the change?
I worked as a consultant for a Job portal for small cities. My job was to build a business plan and guide the marketing team. The product “A web-based Job portal” worked on a unique business model.
They sold memberships of a job portal in tier 2 cities to job seekers.
Our employees were to intimate job seekers before anyone knew about the job posted on the website. We mixed online with offline to create a product that was high maintenance with low returns.
So our online mode failed, as the market was too dependent on the offline medium. Our offline medium failed, as we charged peanuts for providing a time-consuming service.
The whole “Innovation” backfired.
The venture failed despite high investment from founders.
The above-listed reasons were India specific, however – there are other common reasons that lead to failure of startups. I am writing to them to help you avoid the pitfalls while building your startup.
Other common reasons for the failure of startups:
Lack of Ownership:
We started ArrangeMyParty with a lot of hope. The plan was to connect party planners with party seekers on the internet.
The concept of the internet marketplace was just catching up in the country.
It was a virgin market waiting to be tapped. At least, that is what we thought.
We were the pioneers – the early starters. We hired a new team, renovated an existing office of one of the founders and spent a good amount of money on the website.
We launched the startup with a lot of enthusiasm and energy. Only to see the startup shut shop within a few months of launch.
Why did AMP (Arrange My Party) fail?
It took me years to figure out the reason for the failure of the venture. It wasn’t money or bad idea which failed the venture. The Lack of ownership led to the slow death of AMP (as we referred to Arrange My Party).
All the founders of the company had their own established businesses. At the end of the day, the new venture never had a full-time owner.
It was an orphaned kid, who went for adoption from time to time to different owners. Since no one knew who was the real owner, the staff had a gala time working on the project.
They partied in the office. They Played cricket and had the time of their life!
They also refused to make sales citing a lack of market demand as a reason for no sales.
The venture died a slow death within a few months of launch.
I recently faced the same issue with another startup Pinksis started by someone close to me. The original owners were to be the main stakeholders of this venture. I was to consult them.
Within 2 months of launch, the venture was a headless chicken.
We had to close the firm.
The Unplanned Approach:
Our initial ventures were without any plan.
We relied a lot on our hard work and instincts to take the business to the next level. We had no idea on how to set targets for the business and teams.
We forgot the basic fundamental of life “Failing to Plan is Planning to Fail”.
One fine day, I would walk into the office and declare “We plan to touch X amount of top line in the next 6 months”.
The next day our HR started hiring the marketing team to help us meet X amount. We did all the stupidity with no regard for the basic fundamental of a business called “Planning”.
No wonder, we kept failing.
I was busy with marketing. The partner did the techie stuff and business ran on auto-pilot destruction mode.
It took us a good year to figure out what was wrong.
Today, I make it a point to keep up some spreadsheets with targets for everything in the company. For Project Management, we are streamlined using teamwork to run our operations
I know you will find it foolish on how a business can run in such an unplanned way. Well. I have worked with founders who have no idea on how to make plans.
They are just one step away from imploding.
Bad Customer Service:
When we forget we are there because of customers. They are not there because of us. We start digging our own grave. Arrogance leads to us getting blinded to customer’s woes and bad service does not need any publicity.
The day your trusted lieutenants decide to march against you is the day your army loses. Have you heard of industries getting closed because of strikes? Trust me it is one of a known reason for the closure of businesses in the manufacturing sector.
When the partner is at each other’s throats for every disagreement, you know the new business/startup is just around the corner from the shutting shop. This is why you should understand the advantages and disadvantages of a partnership business before deciding to partner with someone.
Comfort Zone Issues:
Nokia was the market leader living in its own comfort zone. They had their own OS which they did not evolve with the market. When the market shifted to Android, they stuck to their good old OS and bad old handsets. I don’t have to write further on what happened to their success story. The bottom line is Entrepreneurs and startups cannot afford to be in their comfort zone. They always have to think ahead of their competition and market.
The best of products suck when marketed improperly. While the worst of products sell when they are packaged smartly and sold efficiently. Such is the magic of good marketing. Businesses fail when they forget marketing is an important part of the business.
There are so many articles out there talking about why do startups fail in India. I just added one to the list based on some real-life experiences. I hope you find it useful.
As they say “Failures contribute more than success to your learning curve“.