Why Startups Fail in India?

Introduction

• Are you planning to start your own new business?
• Do you want your Startup to be more successful?
• Do you know why 90% Indian startups fail within 5 years?

A report by IBM for Business value and Oxford Economics found that 90 percent indian startups fail within the first five years.

One of the major reasons behind the failure of Indian Startups is the lack of innovation based on consumer’s needs.

 The lack of technical innovation in India has led to venture capitalists restricting funding, resulting in slow decay of entrepreneurship in India.

If you too are an entrepreneur and struggling to retain your Startup, the following points will help you figure out why startups fail in India.

Reason #1:Every founder can not be the CEO 

There can be only one CEO, even if there are many founders. Only one person sets the vision, and the others execute after there is broad agreement over what needs to be done. Too many people trying to display the big picture is a waste of time and shows role ambiguity. “Too many cooks spoil the broth” comes in when everybody is the boss. Direction comes from a single person and that position must be stable, secure, and given space to experiment, with a reasonable error margin.

Reason #2: Missing Innovation around Customer’s Money Making Model

Undeniably, the major reason why startups fail in India is the lack of exactly needed innovation to cater to the problem of customers, due to which no Indian company could dominate the world market so far.

 They lack the innovation to invent a product or service which can make people’s life easy by understanding their need. 

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Reason #3: Negative Cash Flow, Negative Working Capital

Another most important reason behind the failure of Startups in India is negative cash flow and negative working capital. 

Continuous cash inflow is necessary to run your business. Even if your book of accounts is showing profits, delay in payment may hurt your working capital to continue the operations. In the absence of adequate working capital owing to delay in cash inflow, you start searching for funds to continue the business, which after some level fades away investor’s trust in you. 

Reason #4: Expansion with Negative Margin

Many Startups in India, without having adequate gross margin, go on expanding their business by giving heavy discounts and deals.

Commons reason why startups fail in India are:

• They don’t build long term plans for a source of profit to cover their profit margin and acquire market.
• In the quest of selling at the lower price, they keep on compromising with their gross margin and end up being bankrupt.
• They don't build more revenue model.

Reason #5: Lack of Talented Manpower

If you don’t build a team of highly capable, enthusiastic, energetic, and talented people to execute your plan and vision, chances of making your Startup long-lasting would be less.

You need to work on: Competency mapping, Competence assessment of your manpower, and Convert your ideation into execution. 

Reason #6: Scalability with Recurring Revenue Model

To boost the scalability of your business, you need to create a strong base of regular customers to maintain your recurring revenue. Many Startups go on “making new customers, at the cost of losing existing ones”.

While engaging new customers, they are unable to retain their present customers, which disturb regular inflow of revenue and consequently hurt their profitability and scalability.

Reason #7: Mixed Marketing Signal and Wrong Positioning

The main reason behind why startups fail in India is that most of the Indian entrepreneurs don’t know how to position their product or service in the market, who is their perfect customer and who is not their perfect customer.

They launch their product or service, without proper segmentation of customers through studying customers. It is imperative to position your product on the basis of its identity, price, value, feature, and reliability after studying consumer behavior. It's marketing and branding strategy will be based on its right positioning.

Reason #8: Releasing Product as a Laggard

The untimely or delayed launch of a product is the prime reason why startups fail in India, which plays the most crucial part of its market share and profitability.

Indian Startups launch their products or services so late in the market that the market becomes saturated, which compels them to give schemes, discounts, and offers, and end up ruining their profit margin.

Reason #9: Save Yourself from Getting Outcompeted

While launching your business, you need to observe your competitors and be prepared to tackle any disruption caused by them.

 

Reason #10: Missing the Process of Converting Feedback into Feed-Forward

Taking into account the customer’s feedback and the complaint is what helps you bring appropriate changes in your product or service. “If you ignore their feedback and complaints, they will switch to your competitors”.

Customer’s complaints about your product signify that he wants to be with you, but the only thing that he is expecting is to bring change in your product.

Reason #11: Business Model of Complete Eco-System

Digital giants like Facebook, YouTube, Amazon, and Android are examples of those who have built a huge ecosystem by converging all stakeholders and customers on a single platform that could cause disruption in the market if they plan to exit.

Identify the reasons for your debacle. Correct it and streamline it. Definitely, you will be the next Unicorn. From the above 10 points, you would be able to understand why startups fail in India and direct your strategy accordingly to make it successful.

 Reason #12: Unrealistic Discount

Many startups are giving unrealistic discount to attract customers. This leads to more investment with low profits. Such kind of startups will more likely to run into losses, which results in shutting down.