5 Reasons Why Startups Fail

Attracted by phenomenal talent that is leveraging technology in a massively successful manner, the startup business has never had it so good in India. Today five of the top seven Indian startups valued over $1 billion (more than Rs. 6,400 crore), have been founded by IITians. 2014 saw 3100 startups and the numbers projected for 2020 are 11,500. This new trend is obviously changing the entire business scenario in the country, as more new ideas, more technology and more disruptive business models enter the market.

But how long does this dream survive? Reports say80% of the startups shut down within the first three years of setting up shop. Globally, this number is 90%. So only 1 out of ten new ideas survive the test of challenges that new businessface. What’s the reason? What should be done to avoid this situation? Let’s understand why the failure happens and what’s the winning strategy.

So, what is the problem with Indian startups? With everything going for them, why do more than 80% fail?

In the quarter OND of 2015, USD 3.84 billion was pumped into Indian start-up ecosystem, reports say. So what’s wrong? Why isn’t this money becoming the lifeblood of small, young companies?

Across the board, and with inputs from owners of failed as well a successful startups, these have come up as the points to ponder:

  Getting the right Team

The team here is not only employees. It is as critical to have the right co-founders as well. Trying to make a formal setup doesn’t always work- a small team cannot afford a dedicated CEO or CTO. All roles have to be shared in the beginning, or else designations become a financial burden, and a reason of rift between team members. This scorches the very fabric of the company, even at birth.

While Indian colleges, especially those churning out engineers, have a fairly good standard, only about 15% of our total engineers produced every year are employable. The ones in the crème de la crème bracket get jobs in better brands, whose salaries a start-up can never match.  According to a study by yourstory.com, a website for start-up entrepreneurs, almost 35% of the failures were caused by an improper team. And of course, there is the little matter of HR rules and regulations that need to be followed, proper employment practices, which may not be enforceable in startups due to size limitations.

Connect the Dots- The Gap Between Sweat And Revenue:

The highly competitive market situation drives startups to scale up fast and that needs funding on the go. Failure to get money is a huge reason for the failure of a startup.  Most people start with an eye on funding, and every strategy leads to that end. It is often the first reason to fail.

Need Big Daddies:

Business experts in startup space are far and few. With support from a mentor, more startups would see healthier times. Even good ideas, products and technology cannot help if there is not sufficient business experience and the ability to strategise. That comes from experience and only mentors can disseminate that.

 Lack of a Good Branding Strategy

Again, a business is not about ideas, enthusiasm, technology and money only. Its, market placement, its value for the customer and the message that it needs to carry, in order to sell, is crucial too. In fact the branding strategy should birth along with the idea- “here is a product and here is why you need it!”

Adds Vamsi of Vedantu,” after the initial setup and once you have a team, you can find a solution to all business challenges. Then the biggest issue is the product- solution market fit.”

To ensure this message reaches the market, an able marketing team is a crucial part of the founders’ initiative. The message is your calling card, and it has to be strong, loud and clear. Lack of conviction there will derail everything.

Lack of domain knowledge:

While everyone knows the food industry has loads of opportunities, not everyone can run a restaurant. At the same time, not all places and cultures or foods can make an online food app a success. Moreover, in India, consumer behaviour and preferences change every 50 odd kilometres, so it’s risky domain. These things come only with domain experience. So trying to foray into an alien domain just on the over-confidence of education or funds is never smart. Unless one has grounds experience of the industry, it’s not wise to step there.

Another factor is the fixation with Silicon Valley startups success stories. What works there, will not work here in India, and this fact needs to be understood clearly. For the Indian market, you need an Indian business model.

SO WHAT’STHE WINNING STRATEGY?

There is only one winning strategy: go it with passion, fight it out with a strategy and have confidence in your dream!

But seriously, as Sanjay Anadram, a venture partner with Seed Fund, an advisor to Ojas Ventures & KARSEM says, “There is no one strategy. In fact, the strategy includes being aware of the dynamics in the market, being open to listening and learning from it and from others. Strategy is always evolving in response. The goal posts in many cases too shift depending on the feedback from the market. People, attitude, learning ability, customer orientation, speed, communication are some of the key attributes.”

Of course, you need some attributes to see you through this stage of business,”Humility, Confidence, Communication, Deep understanding of the market and eco-system, ability to attract the right people around you,” adds Sanjay.

Vamsi Krishna of Vedantu, an educational start-upcomments, an insider’s view of what NOT to do, “…you will need to think of a startup as your lifestyle. If you think of it as just an easy way to make money, you should NOT be doing this,” he emphasises, “that should NOT be the reason. You should NOT be thinking of setting up a start-up from a funding perspective. That is a hypothetical approach you are taking, it’s a common mistake. You cannot NOT think of it as a long term perspective…because then the whole thing gets very short lived.”

Sumit Datta Choudhury, Founder CEO ‘Gaia Smart Cities’, Business Leader, Author & Motivational Speaker and Coach,speaking from experience. He has been Vice President and Partner at IBM, and has held various CXO roles at Reliance group (including CIO ) earlier in his career, ”Believe in yourself and get a few others to believe in you. You need a team. You cannot do it alone. Build something that will make the world a better place. Keep thinking about this all the time. Be sincere in your effort and take people in your journey.”