Why Start-Ups Fail-in Indian Context

“….Tom & Jerry Private limited, a start-up obtains $6M funding…RuralStep, a startup from so and so city, gets acquired by the so and so Group…ABC Capital invests $1.2M in Indian start-up hailing from so and so town…..” Yes, the headlines of almost every day! Ask the son of your neighbor what he is doing or what he aims to do. Take my word for it… in 89.99% cases, they are “starting-up”! Yes… they are starting up. Such is the aura of the start-up hype. All that everyone is doing is starting up. Now, before you take up your swords and scabbards against me, let me tell you, I am not against start-ups. I am against this start-up hype! I am against this unplanned upsurge of starting up which more often than contrary results in a suicidal jump off from the cliff. In a survey conducted by a leading website, it was found out that 9 out of 10 startups fail. Alarming Indeed!  If starting up is such an “In-thing” and every start up is getting funded or acquired by biggies, then why exactly there is  such a doomsday situation? “Why Start-Ups Fail-in Indian Context” is our initiative to explore and find out the same.  index

1) No Market for Hosted Products:

Steve Jobs once said, “A lot of times, people don’t know what they want until you show it to them.”  Start-ups have literally taken this to their heart! They completely ignore the importance of market study and embark on a treasure hunt of their own. Result? Customers do not take up the products. There is no market. The start up shuts down. Reality Check-Stop Generalizing! Everyone is not Jobs. Everyone does not have a specialized team of creative designers hired from almost all parts of the world who by their very nature bring in the intrinsic market insight. Everyone does not operate in the same business line. What is important here is the context. Do you take Crocin for acidity and Eno for fever? No. Why? Both are medicines. It is because what works for fever does not work for acidity. Similarly, what rule applies to a product start up does not apply to a service start up. Most often start-ups have ideas whereas customers are interested in products. Here lies the conflict of interests. And let’s face it. The idea of having a chocolate cake is tempting but actually having it is what that matters. Hence, you need to stop generalizing and start categorizing. Conduct a fully helmed market research. Is the market ready to absorb your ideas? If not, in what stage is it? Can you actually convince the market? Will it be more profitable if you delay it by some time? In short, do things at the right time.

2) Wrong or No Marketing Techniques:

Oh yes… this is the mother of a folly! Start-ups spend all of their times deciding on the components of their products, the quality of the products, the techniques used to develop these products. While undoubtedly these are important, they miss out on a very important aspect-Marketing! Walk into an Apple Store. You will find that all computers and iPads in the Apple Store are loaded with apps and software and connected to the Internet. The customers can actually touch these, use these and then think about buying these. Now walk into a normal retail store with normal computers on display. The devices are turned off and the screens are black. Just the visualization would explain what I am trying to say. We are living in an age where packaging is the first and last thing. Your highly intellectual product is of no use if you cannot arouse your customer’s interest. Start-ups today ignore the most economic and easily available medium of marketing-INTERNET. Strange…isn’t it? Almost 90%of the start-ups are in IT and ITES sector, yet they would not use Internet. Digital marketing is close to absent in India and blogging is non-existent.

3) Expending more than required and in wrong areas:

What appalls me most about start-ups is their outlook towards expenditure or use of their resources! They would bargain over incorporation costs, legal drafting costs, trademark costs even and would spend gallons on glassdoor office space, crabtree switches, glowy neon boards! Complete catastrophe! While you start up, you are at your vulnerable best from legal perspectives. This is the area wherein you should not compromise quality over trivial price differences. What I mean to say is you need to plan and prioritize your expenses. In most of the cases, you do not require a commercial space for operating from Day 1. A similar trend is seen while scaling up. Who does not want to scale up? We all do. But is it the right time? Almost 29% of businesses fail because they ran out of money. For every one business that manages to bootstrap successfully, there are at least ten that run out of cash. This is because mainly they don’t budget properly. They end up putting their limited resources to non-fruitful areas. Most start-ups do not have the abundance of resources. There is no such thing as a leap of faith. Either calculate your leap or do not leap.

4) Absence of a right team:

A very common thing that I have often heard from Investors is that they do not invest in the business, they invest in the team. Remember the childhood story of a bundle of sticks? It is easier to break a stick but it is tad difficult to break a bundle. Sounds clichéd but indeed united you stand and divided you fall. A founder is nothing without his team. A team makes or breaks a start-up. Most start-ups end up choosing co-founders or team members on a surge of emotion and without any rationalized thinking. In the initial stages, the roles of team members also are not clearly demarcated. As a result, the entity crumbles when a team member exits. I agree that for few people in your entity, there can be no clear job descriptions and also that there are no clear cut solutions to exits and fallout. However, over-dependency on certain team members under the assumption that they would stick with you till the sky sheds blood is a fool’s dream. Select your team carefully, create a proper balance between the members, trust them but keep your cards ready to back you up when the team stands split.

5) Ignorance of Legal Compliances:

Once upon a time, there used to be a saying, “Ignorance is Bliss”. Try saying this to a start-up who just paid Rs. 45000 as the additional Government fee for the RoC filings with the MCA. y. What greets you next is not our responsibilitIn today’s world, awareness is the key to success. Unfortunately, however, there is still an alarming level of ignorance pertaining to basic legal compliances among the businesses. For example: 75% of the start-ups approaching us for our annual maintenance services still have no idea that there is still a step called “Commencement of Business” which they have to fulfill in order to start their business. Most of the businesses do not know that they need to file their annual returns and financial statements with the Income Tax and RoC. As a result, the pile of additional fee goes on increasing, so much so, that when they actually come to know about the requirement, they are unable to afford clearance of these fees. Consequently, the company is either declared dormant or put under the strike off list. The start-up shuts down, if lucky, or gets dragged for prosecution, if unlucky. To know more on the business annual compliances, please visit our Business Maintenance page. Hence, we see that starting up might be the next big thing but an uncalculated and hefty approach towards it will only act as a nail to the coffin. Today when mostly the youth is painting the start-up canvas red, most of them overlook the minor details which are crucial for the survival of their entity. A little more cautious approach, a little more perseverance, a little more thought on the above points might just save the sinking ship. Food for thought! For starting up your own business, please visit our Company Registration or LLP Registration page. _____________________________________________________________________________________________________