5 Reasons why did startups fail in India? - Smashers Hub
According to Nasscom and CB Insights data, India has the third-largest ecosystem for startups, yet 80-90% of Indian startups fail within the first five years of their inception. I am wondering why startups fail? Here are some key reasons behind startup failure in India, explained in detail and supported by data and anecdotes from experts who have spent decades analyzing this problem. Read on!
Lack of innovation
The majority of Indian startups try to fill a gap that already exists. For example, there are hundreds of online grocery delivery services available. If a company comes up with a better solution, it won’t compete against an existing service with entrenched consumer behaviour. Often, entrepreneurs don’t want to innovate but copy and paste a current business model and serve customers served by someone else. Indian entrepreneurs need to understand that not every consumer will buy their product or use their service because it is available on-demand.
Lack of funds
Most Indian startups today rely on external financing to meet their operating expenses and cannot function as independent entities. This severely restricts them from long-term growth opportunities. If a startup doesn’t show potential for generating revenue early on, it is unlikely that investors will fund them. It is quite common for a startup to be financed through debt instruments like non-convertible debentures (NCDs), where entrepreneurs pay back these loans instead of paying dividends to shareholders. Ultimately, without the ability to raise capital through equity financing or convert existing debt into equity, many Indian startups fall flat.
While Indian startup culture is beginning to mature, many entrepreneurs fail because they cannot find capable leaders. As a recent study by Tracxn showed, many founders lack experience and expertise. It is especially true in large cities like Bangalore and Delhi, where investors are reluctant to fund startups with experienced leadership teams. Though venture capitalists want to support promising ideas, without experienced management behind a business plan, it can be hard for them to choose which companies to invest in.
Lack of focus
Early startups need to be focused on two things: building an incredible product and attracting users. Until you’ve nailed both, don’t even think about scaling or monetization. Don’t get distracted by shiny objects until you have a strong foundation. Entrepreneurs often enter a market without really understanding their customers—or even trying to understand them—which is why many companies fail to join a call within a few years.
Before a company goes to market, its founders need to develop an intimate understanding of who they’re selling to. They should have a deep experience of their customers and what they value and where their pain points are to create products that tackle those issues—and build relationships with their customers from day one.
Without knowing exactly who your customers are and what will motivate them to buy your product, you’ll be unable to provide them with enough value for them to pay for it. You might think you know how to solve a problem, but if no one is experiencing that problem or if there isn’t any clear way for them to find out about your solution, then you won’t get anywhere. On top of all that, if no one understands why your product is valuable or needs it in their lives, how do you expect people to buy it?