India – Starting Up or Closing Down?

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The Indian government’s initiatives to encourage entrepreneurship and self-employment took on a renewed zest when the Startup India campaign was launched in the beginning of 2016 by Prime Minister Narendra Modi. The concept of startups has been around in the Indian biz ecosystem for quite some time. Startups enable youth to become ‘job-givers’ rather than ‘job-seekers’. They also help in the introduction of new products or services which were not identified earlier. Household names like Flipkart, Ola and Paytm started out as startups which then went on to establish a strong foothold.

In a recent survey conducted by Delhi-based research firm Xeler8, it has been found that over 40% of all startups set up after June 2014 have already closed down. Lack of funding, lack of innovation and overcrowding of many companies within a single sector were identified as the main reasons for their closure. The average age of the founders of these failed startups was around 27. Although 75% of these founders gave up their interest in entrepreneurship, the rest were ready to venture again.

More than the entrepreneurs themselves, the ones most hard-hit by this are the employees who were laid off. Most startups in the initial stages receive hefty funding from venture capitalists and angel investors. These are external companies or individuals willing to invest in a startup expecting a return on investments in a period of few years. Young startups are then willing to hire (or in most cases, over-hire) fresh graduates by promising high packages and fancy designations. The workplaces are more often than not excessively swanky. A few years down the line when the funding dries up, the vibrant paint peels off to reveal the ugly plaster underneath. Employees are laid off, sometimes even without warning or compensation of any kind. The designations held by them earlier and the nature of work are not recognized outside their parent company. Finding a new job according to the expected job profile becomes very difficult.

IIT Bombay’s Placement Cell famously blacklisted nine startup companies. They were barred from appearing in the upcoming placement season for a variety of reasons including revoking offers and delaying the joining dates of the selected candidates. The e-commerce firm AskMe fired 4000 employees in mid-2016, in addition to not paying their salaries for the previous couple of months. The indicators point strongly at the slow-death of India’s startup culture. The government too is worried about the pace with which the benefits of Startup India campaign have been claimed.

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A declining startup culture is extremely worrying for India’s economy. We not only lose the benefits of increased jobs, we also lose potential employees. The trust that people have had in startups will lose sheen if they cannot promise stability. The success of a startup depends on the founders and the leadership team. This initial team is responsible to reach out to investors, collect funds and develop a strong business model.The decline in startup culture will make building this leadership team a difficult task in itself.

The key to a healthy startup environment would be to invest in innovative thinking rather than infrastructure. Focus must be on building a durable and resilient plan, rather than on short-term fixes to boost popularity. Moreover, startups need to have the support of other founders which will help each other grow mutually. It is also important to not give in to the pressure of the investors who push to over-hire in the race to earn early returns.

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