Why Are Indian Startups Failing?

According to some news, top Indian startups Flipkart, Paytm, Swiggy, Zomato, Hike and Shopclues have together recorded ₹ 7,726 in losses in March 2018, even though investors are ready to provide for them the required firepower to expand operations. Flipkart is now owned by Walmart and Warren Buffet’s Berkshire Hathaway just acquired 3-4% stake in One97(Paytm) for ₹ 2,200-2,500 crores. It was the billionaire’s first investment in any Indian company. Despite these investments, India is still home to struggling innovations.
Global Innovation Index (GII) ranked India 57th which is way behind China, Japan and USA. Meaning to say that, although India has provided a positive economy for the startup ecosystem to flourish using Startup India (a Make in India initiative), the startups that are cropping are merely ‘clones of western ideas.’ As we know, Ola in India is trying to replace the presence of a global company UBER, Flipkart is trying to cater to the local needs of e-commerce demands and competing with the e-commerce giant, Amazon, other examples include OYO for Airbnb, Gaana for Spotify etc.

Evidently, despite being the third largest startup ecosystem, India lacks innovation. According to a recent study by IBM and Oxford, 90% of startups fail 5 years after inception due to the exact same reason, lack of innovation. 77% of venture capitalists believe that Indian startups lack new technologies or unique business models. Some other reasons cited by Forbes for the imminent failure include lack of skilled workforce, inadequate funding and lack of mentors. It has also been observed that most of the startups cater to the IT sector when in fact India is in need of startups in areas of health, education, sanitation, transportation (not another Ola idea), alternate energy management and others. These fields have more scope in both areas of innovation and improvement of the quality of lives of people in the country.

Lack of innovation is not the only reason that Indian startups are failing, lack of vision, lack of market understanding, poor competency and poor execution are all some patterns observed in failing businesses in the recent days. They can all be traced back to the absence of skilled labour and mentors for budding entrepreneurs. India’s education system can be blamed for most of the reported hassles. Delving deeper into the education system failing the students, we can observe that the lack of innovation in Indian children should not come as a surprise considering that the education system in the country does not give a child an opportunity to think outside of the box. The monotony is something that all the young adults, just moving into the workforce in India, are trying to escape.

India is constantly scrutinised for performing badly on the GII every year, it is to be noted that the ranking has steadied in the last few years owning to some successful startups like Paytm and Swiggy. India is a following market according to experts and cannot be blamed for adopting ideas from the West. What should be blamed is the poor competency levels. India does not have meta-level startups to compete with Google, Facebook or Twitter. On the other hand, China which has a similar population and economy, whom India often deems fit to compare its developments with, has built its own search engine called Baidu to compete with Google and Alibaba has displaced Amazon quite some time ago. Unsurprisingly, its India’s competency that is severely bruised. This can be connected to the lack of new technologies and new business models.

In accordance with the IBM study, the startup ecosystem is crucial for India’s entrepreneurial economy to thrive and the important facets of the improvements include inputs from established companies, startups, venture capitalists, government and higher and better-quality educational institutions. The inputs have significant roles to play and reap rewards in fostering development of India’s economy. Indian executives have correctly identified that India’s economic openness is a business advantage, our country has ample venture capitalists ready to invest in innovative business ideas. For instance, recently banks like HDFC were seen aiding acceleration of fintech innovations through mentoring programs. India is a country with immense potential and as citizens we are responsible in harnessing this potential in developing the economy.

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