Why is the Indian Startup Ecosystem the worst in the world?

Why is the Indian Startup Ecosystem the worst in the world?

Despite having the world’s third-largest startup environment, 80-90 per cent of Indian firms fail during the first five years of existence. Startups have received a lot of attention in recent years all across the world, including in India. As the number of companies grows, more support from various sources has been accessible. Prime Minister Narendra Modi wants India to be a centre for entrepreneurship.

Various government programs, such as StartUp India and regulations to assist new firms to appear to be failing. The company can provide an effective solution through technology and creativity, resulting in socio-economic progress. The Indian startup environment has changed dramatically during the previous two decades. Bangalore has emerged as India’s principal startup hub, but substantial activity has lately been seen in Mumbai, the National Capital Region (NCR), and a few smaller locations. As a result of all of these activities and possibilities, India now has the world’s third-largest startup ecosystem.

Despite having the world’s third-largest economy, India is still the world’s worst startup ecosystem. Ninety per cent of Indian startups fail during the first five years, according to statistics. In 2019, the number of startups declined by 35% from the previous year to 5,462. Regarding the Startup ecosystem, India has reduced from 17th place in 2019 to 23rd place in 2020 out of 100 nations. However, the drop is not unexpected; this trend has been ongoing since 2016. While the government’s StartUp India project generated a lot of buzz, it failed to improve the health and feelings of the Indian startup ecosystem. 


What are the main causes of the Indian startup ecosystem’s decline?

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Well, the most prevalent cause for failure is a lack of creativity — 77 per cent of entrepreneurs feel that Indian startups are lacking in distinctive technology and fresh business strategies. The absence of competent labour is another factor that has a significant influence. Lack of finance, little formal mentoring, bad corporate ethics, and massive infrastructural issues are other factors.

Instead of developing their business strategies, Indian startups are more likely to copy global corporations to local servers, such as Ola for Uber, Flipkart for Amazon, and Gaana for Spotify. However, India has yet to produce meta-level businesses such as Google or Facebook.

On the other side, China, to which India is frequently compared, developed local services such as Baidu, which replaced Google, and Alibaba, which replaced Amazon. In 2016, however, two Indian firms – Asian Paints and Gillette India – were included in Forbes’ list of the world’s most innovative companies.

Since 2015, 1,503 firms have been shut down, with the main cause being the duplication of western technology rather than the development of their business plan. Logistics, the food business, and e-commerce, according to the researcher, have the largest number of failures. Apart from them, many new high-net-worth individuals with bad company ideas were the cause of significant startup failures over the last two years owing to a lack of due diligence.

Investors have burned their hands a number of times in recent years, and they are increasingly wary, making funding more difficult. As a result, the dream of being an entrepreneur is fading among Indian youth.

It’s not all doom and gloom, though. The fact is that a business that started its journey five years ago – and was successful – is now producing more money every year. In the beginning, cautious investors are only investing in tried-and-true company strategies in the hopes of greater returns.

In the Indian Startup Eco-system, there is a demand for outstanding technical talent as well as global commercial abilities as a result of emerging technologies such as Artificial Intelligence and Machine Learning. Despite the numerous hurdles that new entrepreneurs face in India, the country’s economic openness and big domestic market provide a substantial benefit.

When a startup is groaning under the burden of a pandemic owing to a lack of demand and supply chain manufacturing during the present COVID periods, according to a Nasscom survey released in April, over 40% of companies are on the verge of shutting down this year. Imagine how tough it will be for a startup in the midst of a pandemic when major corporations have their hands full dealing with the issues. 

Are you curious as to why certain businesses fail? We discovered some of the primary causes behind this and some strategies that entrepreneurs may use to combat startup failure.

Here are nine reasons why businesses fail, as well as strategies you can do to avoid them:

1) Lack of innovation

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According to a poll, seventy-seven per cent of venture capitalists believe Indian businesses lack originality or innovative business strategies. According to a survey by the IBM Institute for Business Value, 91 per cent of companies fail during the first five years, with lack of innovation being the most prevalent cause.

Although India is claimed to have the world’s third-largest startup environment, it lacks meta-level companies such as Google, Facebook, and Twitter. Indian startups are also noted for copying foreign startup models rather than developing their own.

According to a list of the world’s 50 most inventive firms, ChaiPoint, Ola, Saathi, and Swiggy are among the most innovative Indian startups.

What steps may companies take to avoid this?

In business, innovation helps in a variety of ways, including beating the competition, standing out from the crowd, making challenges easier to solve, and increasing efficiency. Here are a few things that entrepreneurs should think about:

  • Avoid copying successful foreign startup concepts in India without first conducting thorough research and gaining a thorough knowledge of the Indian market. Startups require highly skilled technical and innovative personnel.
  • Before pursuing ideas that are currently hot, consider the idea’s long-term viability.
  • Find the proper resources to help your business succeed via innovation.


2) Lack of funds

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Tazzo, a bike-rental business, closed its doors in 2018. According to one of its investment partners, the cause was a bad product-market fit, which resulted in funding drying up. Despite having received a significant amount of money, the firm was forced to close due to a lack of a viable business plan.

There are several startup concepts floating around. However, to convert ideas into reality, money is required. Those obtaining investment must develop scalable and successful business strategies for the firm to flourish. One of the most common causes of startup failure is a lack of capital.

Insufficient funds are a significant stumbling barrier for many companies. One of the most common problems for firms that acquire initial investment is their difficulty in raising more money.

What are the most important things to think about?

  • Effective business and revenue models are essential for startups.
  • Startups must emphasize revenue and profit equally as they do on goods and services.
  • Budgets must be used wisely.


3) Lack of concentrate

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When asked about one attribute that contributed to their success, Bill Gates and Warren Buffet said the same thing: focus. Let’s look at an example to see how attention might assist.

Grubhub is an online meal delivery service. The organization decided to focus solely on meal delivery from the start. A firm like that might provide various additional services, such as food pick-up, catering, and more, but the owners elected to focus solely on delivery.

They could execute technically and operationally while also effectively growing the firm.

Here’s how you can stay focused as a startup:

  • Look for both positive and negative comments.
  • Don’t go overboard. Make a decision and concentrate on only one item at a time.


4) Market and Product Fit

A substantial majority of businesses fail for one simple reason: their goods aren’t needed by their customers. Is your product benefit to customers? Are there people that want to buy your product?

Is your product in line with the cutting-edge concepts that your firm is built on? Often, entrepreneurs strive to produce goods fast that don’t have a market or try to increase the need for a product that doesn’t have one. What are your options for avoiding this?

  • Learn everything you can about your consumers and how they feel about your goods.
  • Before you spend money on pricey marketing campaigns, use word of mouth to get new consumers.
  • Create a connection with your consumers.
  • You won’t be able to please everyone, and you shouldn’t try.


5) Gaps in leadership

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The founders and key team members’ visions drive the majority of companies. Knowing how to lead a brand, a company, and a team is significantly more vital than having a fantastic concept. Another typical factor for startup failure is a lack of vision and effective leadership.

“A great firm may be built by a principled founding team, but an enduring company requires a leadership structure that is applied early in its existence.” Some entrepreneurs are born with leadership skills, while others must learn them through time. This might be one of the causes of the failure of a startup.

What are your options for avoiding this?

  • If you lack leadership abilities, outsource the position to someone who can do it better than you.
  • Learn about leadership and put it into practice.
  • Find a mentor who can assist you in developing your leadership abilities.


6) Inability to adapt

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We now live and work in an always-on culture. It is necessary to keep up with the intricacies and developments. Agility may provide startups with a competitive advantage in such a culture. Hindustan Unilever Limited, India’s largest consumer products company, decided to work with startups in 2015. The reason they did so may surprise you. They did it to restore their agility. The shift aided the organization in imbibing the agility and adaptability that startups are known for.

There are a variety of teething problems that startups face. Aside from that, they are continually confronted with problems for which they must develop answers. Because change is unavoidable, it is critical for startups to stay adaptable and agile to thrive.

Startups may ensure organizational agility by using the following practices:

  • Continual education
  • Having a mobile workforce is advantageous.
  • Investing in research and development
  • Be willing to change your mind.


7) Failure of the business concept

Many entrepreneurs believe that having a decent product, an excellent website, and a large advertising budget will be enough to attract clients and business. They overlook that client acquisition and retention are expensive and that the startup needs a fail-safe business strategy to survive and profit.

Here are two questions that entrepreneurs might ask themselves to help them develop a viable company model:

Is there a scalable approach for your firm to attract customers? Are you able to locate one?

Are you able to monetize those clients once they’ve been acquired? Will the income generated by that customer be more than the expense of acquiring that customer?


8) Inadequate talent and competence

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Surprisingly, a lack of ability and expertise causes 23 per cent of businesses to fail. It appears to be one of the most straightforward problems to resolve. However, this is not the case. What are the causes behind this?

1) Recruiting the proper individuals takes a lot of time and effort for startups. Startups may confront the issue of replacing a bad employee with a better applicant in the event of poor hiring decisions.

2) Most companies are cash-strapped and can’t afford to hire expensive specialists or experienced staff.

What can entrepreneurs do to address this problem?

  • Their hiring practices should be meticulously planned.
  • Create alternate working techniques with competent specialists, such as working as a freelancer or on a project basis.
  • Give applicants a real problem to tackle to make recruiting procedures more stringent and rigorous.


9) Ignoring customer

Founders of startups frequently have too much on their plates – fundraising, recruitment, overall management, and so on. Customers may not be on their to-do lists at all. This is a significant issue that many entrepreneurs are unaware of, and it might very well be the reason for a startup’s failure.

When startups commit to customer-centric, making decisions becomes more accessible, their focus narrows, and word-of-mouth improves their appeal. On the other hand, customers know what they want and may assist startups in improving their products and services.

Here’s what you should do:

  • Customers should not be ignored.
  • Respond to client questions, complaints, and suggestions.

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