How a Different Viewpoint Can Ensure Better Success Ratios
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There are over 30,000 startups in India, with 5,000 new startups coming up each year. Startups hire over 400,000 people and create 95 billion dollars in value. However, a joint study by the IBM Institute of Business value and Oxford Economics found that 90per cent of Indian Startups fail in the 1st 5 years. Their study was extensive. It covered 1,300 executives of which 600 were startup entrepreneurs, 100 Venture Capitalists, 100 Government Leaders, 500 leaders of established companies and 22 well-known institutions. What is interesting of the statistic of a 90per cent failure rate is that this means the remaining 10per cent are the ones creating 95 billion in value. Extrapolating from here, if we reduce the failure rate by half, we can create an extra 1/2 trillion dollars in value which is a win-win situation for all. And, startups are the future. By 2025, there could be as many as 100,000 startups and India could be a 10 trillion dollar economy, the 3rd largest in the World.
To give credit where it is due, there are tremendous efforts underway to nurture and help startups from NASSCOM, IMAI, and ISPRT. Investment stakeholders from Angel associations to Venture Capitalists have also pitched in big time, with India receiving 22 billion in investments in the last year (4). The Government has also weighed in with initiatives like Startupindia and favourable laws.
However, our Achilles heel is that the tone of the startup industry narrative is too optimistic. Initially, this was fine as it was the driver that caught the imagination of the country. In the last decade, Flipkart, Ola, Paytm, Big Basket and others have energised the entire startup system despite uncertainties on exit strategies. A few years ago, an iconic VC fund founder telling me that a major dampener was the poor number of exits for the startups in India. That has changed dramatically in the last 4 years. The ensuing exits and valuations have been fast and furious, and have not only caught the imagination of the Indian public but managed to ensure that the Government, Associations and angel investors who used to just dabble in startup investments have genuinely embraced startups and starting prioritising them in their investment plans.
How Can We Align our Startup Successes?
Unfortunately, the problem is the narrative. It is stuck in la-la land. The narrative has not changed in the last decade. It was great to hear about successes in the initial years. The stories were powerful, inspiring, and compelling. However, the problem is that in the last 2-3 years this information has become the main game, and that is the problem. Saying that there are articles and efforts to mentor and reduce mistakes. But the startup failure rate has not improved. In fact, funding has become more selective and large companies have garnered most of the funding with the pool shrinking for startups. This is why we have to change our narrative.
The root of the problem is that getting information on startup failures is a herculean task. While this is understandable, after all, who wants to talk about failures, it is vital that this attitude changes. Famous Philosopher Santayana’s quote on “those who cannot remember the past are condemned to repeat it” is happening day after day in our startup industry. We don’t even know what our history of failures are, because no one is reporting on it. I know for a fact that Big Basket had a tremendous number of clones in its initial years. A large number of them failed. The same with e-commerce. A huge number of startups failed. But the information on the why and the how of their journey and failure is as sparse as the Sahara desert.
Thus the question arises: How do we correct this information deficit in the startup sector? It has to be a concerted effort, which is totally absent at present. If we want to take our startups to the next level, understanding failure is the key. The press is loathed to report on this, the government more so they want to pose a rosy picture, and the Associations have an underlying fear of being blamed for not doing enough. It is a vicious circle with no-one willing to take the first step. Thomas Edison invented the light bulb after over 1,000 of his experiments failed. He himself admits that learnings he got from those failures were tremendous. We are not getting any information from our failed startups because we have made it unfashionable to fail. We are allowing a treasure trove of information to disappear by being swept under the carpet. Present initiatives have still not improved the 90per cent failure rate of startups. We have to correct this information deficit as understanding failure could be the difference for success. It worked for Thomas Edison!