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Startup Failure: #5 Reasons Why Indian Startups are Shutting Shop

Startup Failure: #5 Reasons Why Indian Startups are Shutting Shop
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The Indian startup ecosystem is witnessing a series of layoff and shutdowns, owing to an aftermath of a slowdown in funding in 2016. Some have graciously bowed out of the race like online-hotel aggregator StayZilla, Dazo and more.  According to a report by Tracxn, more than 200 startups have shut shop in2016.

Startups like CraftsVilla, Softbank-backed Snapdeal, have slashed a massive number of jobs at their firms.

There are several internal issues that could eventually lead to the closure of ambitious business models, however industry experts and entrepreneurs have jotted these to be the main reasons for exiting the market.

1.Not having the first mover advantage

When Zomato and Swiggy’s saw good business traction, several others followed suit and launched identical business models. This didn’t go down well with consumers, who preferred to stick by the first movers of this industry, which lead to several shutdowns in the food-tech startup business.

Many a times, having the first mover advantage and getting the first set of customers early in the business can leave very little chance for other players to enter the market.

2.Excessive splurge of money

Several startups, especially in the e-commerce and food-tech space, saw a splurge of funds from investors based on the one or two success stories in that particular sector. A successful Flipkart, lead to several copy-cat models getting funded.

The deluge of funds prompted entrepreneurs to heavily spend on marketing strategies and discounts, which lead to empty pockets when the industry was hit by a dry spell of funding.  Unable to pay basic salaries and carry out operations, lead to these companies being shut eventually.

In some cases, it is better to ensure whatever money is left is used prudently for orderly shutdown. Employees are given full notice, severance pay disbursed as per agreement. All vendors are paid. All statutory dues are cleared. Basically work backwards to ensure enough money is left for all such needs and don’t spend the last rupee to leave the employees, vendors stranded, K Ganesh, Serial Entrepreneur, Partner - GrowthStory.in and Chairman, Portea Medical, told Entrepreneur in an email.

3. Unable to compete with market leader

While it’s nice to get inspired from success stories, Indian entrepreneurs are often carried away with success stories, so much so that they end up aping existing models. Companies like Uber, Ola, Flipkart, Oyo Rooms aced in the race of market share, leaving no room left for industry peers to battle it out.

4. Disruptive technology

The market scenario has changed due to disruptive technology or solutions becoming available at much lower prices. Entrepreneurs have to be fast to adapt emerging technologies in the field of Internet of Things, Augmented Reality and adopt the latest CRM-related tools and product design technologies in order to stay ahead in the race.

5. Initial assumptions gone wrong

Every startup is based on an assumed business model that's supposed to work. While building any business model some assumptions are made in terms of cost of sales, servicing, building product, tackling competition and how customers will react to the product or service etc. Some of these assumptions are fundamental to the business model. It is then initially tested on a few customers to see if it works. If it does, investment is then poured in to scale it up - basically take it from an early stage adopters business to a main stream business, Anil Chhikara, Principal at Jaarvis Accelerator said.

Having said that Anil also noted that what worked in a small sample size where there is negligible cost of sales, marketing or even customer acceptance may not work economically on a larger scale. “Entrepreneurs should keep benchmarking the current business status with the initial assumptions. The first sign that the fundamental assumptions are not proving out - even after tweaking the business model or pivoting it, is the time they should start looking at option of shutting it down,” he said.

Going by these views, it wouldn’t come as a surprise to many if 2017 sees more number of these shutdowns coming.  Some companies have settled for a deal or a merger to combine market share,  while the others are re-working their strategy to get back their mojo.

 

 

 
Edition: April 2017

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