Top 12 reasons behind Indian Startup failures

Commencing a profitable business is undoubtedly a tedious task for all. India since past years have found so many start-ups gyrating itself up. Now many such firms also have seen themselves to shut down. A recent study, “Entrepreneurial India,” by the IBM Institute for Business Value and Oxford Economics found that 90% of Indian startups fail within the first five years. Not sure to what extent the 90% figure may hold true, but the fact is that large number of startups in India have failed including some big and well-funded ones.

Let us look at the reasons behind such crisis moments:

  1. Lack of innovation77% of venture capitalists surveyed believe that Indian startups lack new technologies or unique business models as per the survey by IBM. Repetition of ideas, replication of entire system – make the Indian Start-ups to fail. Few notables are Dazo (an application for food delivery), Tiny Owl same as Food panda, Ask Me and others too did the same thing. They invested tons of amounts and had high end qualified workforce; all did fail in the past years.
  2. Incorrect product market fit – The product selection must be at par with the customer’s requirements. Building something which no one wants or solving a trivial problem for customer is a recipe for failure. The fit must be validated as early as possible.
  3. Bad timing – Sometimes, everything is fine except the timing to enter market. There were start-ups that were too ahead of their time while others that were too late to enter. An OLA in early 2000s would have made no sense.
  4. Lack of stamina – Tireless effort is required to successfully build and run the startup through challenging times. Lack of passion & stamina is also one of the key causes of failure.
  5. Competition in the market –People with a tremendous amount of fund fail to understand the fact that competition in the market like Flipkart and Oyo rooms have aced in the market creating huge entry barriers for new players.
  6. Too much focus on technology – Some of the startups in Food-Tech were more focused on tech rather than the actual food and logistics business. A right combination of business and technology focus is needed.
  7. Insufficient skills – Entrepreneurs often face issues in terms of unskilled manpower. Thus, the individual in lack of skill and practice often has to shut their business down. Some startups have strong tech founders other lack in technology. A good advisory board is also vital to sound of business plans.
  8. Proposing and recruiting high salary packages – The business owner most of the time crave for good manpower and thus offer the high salary to individuals who may not be a fit for the organization. This, in turn, leads to complete shattering of the business.
  9. Incorrect Unit Economics – Excessive funding results in startup burning more money without thinking about unit economics. But when they are not able to raise successive rounds of funding they have to shut down.
  10. Not responsive to dynamics of market changes – A person who is not aware of the dynamics of the market can hardly survive on the same business. If something is not working, the team needs to pivot or alter the course based on new learning. Thus, one must know the scalability and flexibility of the same.
  11. Too much Equity dilution – Giving up large portions of equity in the very beginning results in too many investors coming on board. This causes a lot of conflict given different opinions of different people regarding how business should be run.
  12. No Business Plan –  Many Indian startups write business plan only to raise funds. Not having a well thought out business strategy and business plan from the very beginning can lead to one bad decision after another.

 If Indian Startups avoid the above- hopefully, their chances of succeeding will be much more. PlanThyBusiness.com can help startups in creating world class business plans which can help them avoid some of the above failure traps.

 References:
https://blogs.timesofindia.indiatimes.com/strategic-insights/why-indian-startups-fail/

https://www.techinasia.com/insights-from-25-failed-startups-in-india-2016

https://www.entrepreneur.com/article/289926

http://www.iamwire.com/2017/01/7-main-reasons-startup-failures-india/147454

http://www.yo-kart.com/blog/top-reasons-why-many-startups-in-india-have-failed/

https://yourstory.com/

https://economictimes.indiatimes.com/small-biz/startups/10-startups-that-shut-down-in-2016/articleshow/56022024.cms

https://www.indianweb2.com/2016/08/25/20-indian-startups-shutdown-in-2016/

 

 

 

 

 



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