What Future Holds For Startups From Hinterland

It is estimated that nearly a fifth of Indian startups are today in tier II and tier III towns

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Delhi, Bengaluru, Mumbai, Chennai and Hyderabad are considered hubs of entrepreneurship in India. However, since the last few years, startups are moving beyond bigger cities. Places such as Jaipur are today an important part of India's startup ecosystem with the presence of businesses such as CarDekho, MagicPin and CredR.

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Another notable startup worth mentioning here is Findability Sciences, a deep-tech artificial intelligence startup backed by Softbank. The startup is located out of Boston, US and Aurangabad, Maharashtra. We have seen many more such startups from Bharat including Patna-based online marketplace for farmers, DeHaat, Thiruvanthapuram-based cleantech startup Genrobotic Innovations' Bandicoot coming up from hinterlands and proving business viability. It is estimated that nearly a fifth of Indian startups is today in tier II and tier III towns.

Solving Real Problems And Other Reasons

Besides Internet connectivity, multiple factors are leading to this boom. "The key reasons for the small-town startup boom are talent, costs, market access and ambitious, driven founders," said Jaspreet Bindra, a digital transformation expert and a startup advisor with The Outstanding Speakers' Bureau.

"Places like Aurangabad or Udupi, for example, have some very good engineering colleges to source talent. The costs to set up talent, real estate and services are lower than Bangalore or NCR or Mumbai. Many of them are set up to address tier II and tier III markets, and so are in the middle of their market," he added.

Many startups also want to stay at the grassroots level to understand the problem before offering services or products. Additionally, since these founders are familiar with the place, it becomes easy for them to set up an office and get going. For some others, it is also the ability to run a global business sitting at the comforts of their native place. For instance, founder Samar Singla's mobility startup Jugnoo offers taxi dispatch software for cab and auto drivers in smaller cities in India and countries including Singapore, the Middle East and Europe, all from Chandigarh.

Many of these places are also witnessing rapid urbanization. Three small cities in India including Malappuram, Kozhikode and Kollam secured a place in the 2020 Economist Intelligence Unit (EIU) survey of the top 10 world's fastest-growing cities.

Advantages And Disadvantages

Today, most consumer activities in the digital space are driven by tier II and tier III markets. Startups based out of urban areas are also trying to capture this market by offering assistance in vernacular languages. Even within e-commerce, social commerce that targets these consumers is picking up pace. In this backdrop, startups or startup founders who start from small towns have a competitive edge over others. These startups understand the ground reality well and they have first-hand knowledge of issues in these towns.

Bindra also added that usually, people from there are much more loyal, so the attrition is lower. "Anecdotally, small-town founders are much more driven, ambitious and focused," he said.

However, even today there are some challenges in starting out from smaller places including lack of skilled labor, a hi-tech environment and the hustle-bustle of cities' startup ecosystems. For some entrepreneurs, this also means traveling often to cities to have meetings with investors, government agencies and other stakeholders. With the pandemic, many of these meetings have now moved online, but it is to be seen how things shape up once normalcy is restored.

Will We See Further Boom?

Some believe that headquarters will still be in larger cities, though their relevance and scale may reduce. "The future will see more flexible and remote working options being offered to employees by employers. Talent will also consider these options as important factors while choosing employers. I feel startups will continue to be based at locations where talent pool and resources relevant to corporate functions are accessible and serviceability to various stakeholders is better," said Deepak Bhatt, VP- Finance, Ankur Capital.

Summing up, many more small towns will see a startup boom sooner or later. As Bindra said, "The cities, besides Jaipur, Aurangabad and Udupi, which I believe will be startup magnates are Goa, Guwahati, Coimbatore, Indore, Kochi, Mysore, and Lucknow."