How to Save Your Startup From Failure
90 out of 100 start-ups fail - one of the start-up gospels that denizen of the start-up ecosystem incessantly preach. The problem? Despite being true, at least in India, it supports the failure narrative. But there is a bigger problem - the failure rate continues to be high even after around a decade of ecosystem evolution and maturing that may or may not be enough.
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27,259 start-ups venture-funded between 1990 and 2010 (providing 1X return or less to its investors) in the US reported failure rate below 60 per cent since 2001 as tracked by US-based investment consulting firm Cambridge Associates.
In India, as per last year's study by IBM - Entrepreneurial India, 90 per cent of start-ups fail within the first five years of existence. The high rate of failure has remained constant ever since the Indian start-up ecosystem came into existence. This is despite the steps taken to improve support structures such as funding, mentoring, talent, technology, regulatory requirements etc., over the years.
Predominantly, along with the mortality rate of Indian start-ups versus the US, the reasons too are vastly different. "Unlike India, in the US academia, entrepreneurs, and government actively connect with each other. Universities promote entrepreneurship and also serve as early adopters and customers for start-ups. In India, however even after 10 years, we still lack in the overall fundamentals because of such reasons," says Suresh Jayaraju, Senior Director and Head 10000 Startups, Nasscom.
While Indian entrepreneurs are good at a few things such as resilience, hard work, finding .right solutions but they are not well balanced. "Reasons right from the creation of a roadmap to having the right team and figuring out product problem, are partly due to lack of ecosystem maturity. Then, there are issues including talent and lack of collaboration between start-ups, corporate and investors, which don't exist in the US," he adds. This implies that India is still a resource-constrained society.
The reasons for the static failure rate over the years has remained the same, which includes Indian entrepreneurs' skills, their ability to scale, business models, mindsets etc. More than that entrepreneurs' ability to innovate has always been questionable. In fact, 77 percent of 1,300 respondents including start-ups, investors, government executives, professionals and academic leaders also agree to this fact in the IBM study.
"While the challenge of lack of market is sorted but whether the innovation suits a particular market or is it just an extension of a similar idea existing somewhere else is one of the bigger reasons why Indian start-ups are unsuccessful," says Dr Vishal Talwar, Dean – School of Management, BML Munjal University. A former assistant dean at S.P. Jain School of Global Management, Talwar has mentored start-ups like coworking space Innov8 and UK-based Constant Commerce etc.
Going back to Jayaraju's idea of the lack of ecosystem maturity, it does take time for a heterogeneous ecosystem like that of India to grow from the ground up. More so, it is not an ecosystem, which gets driven by the government like in China. "The Chinese government has a well-concentrated approach. They have a clear idea that they want to start, create products, build partnerships, and exit. They don't want to build Facebook or Google. Overall, it is still very difficult to create and run a start-up in India, if one looks from infrastructure and policy perspective. While the government is doing a lot but Indian start-up ecosystem compared with other ecosystems, even in Eastern Europe, is still not there," he explains.
Often most start-ups struggle to find the right product-market fit early on. Consequently, they have to tweak their business models multiple times or make iterations to products to satisfy their target market. This becomes risky when the product is already out in the market and being tested.
"Most start-ups continue to fail even today for one single reason – lack of product-market fit. Even if you set the entire ecosystem right, someone else's product will fit better with the market than your product. Social networking site Orkut despite being backed by Google failed while Facebook without Google's backing succeeded. It doesn't mean that Google didn't have good mentors for Orkut, instead, it means that Facebook had better product-market fit," says Kunal Upadhyay, Co-founder, Centre for Innovation Incubation and Entrepreneurship (CIIE), IIM Ahmedabad.
Apart from the conventional challenge of availability of capital, "wise' capital, "patient' capital or the lack of investible start-ups is debatable but mentorship in India has largely remained voluntary and informal. There are, in fact, a few ways to look at mentorship, first is leadership mentorship where corporate leaders mentor start-ups. Second is deep technology mentoring where mentoring on specific technology is required such as artificial intelligence, blockchain etc. Third is sector specific mentoring in a particular area. Apart from the first, the other two types of mentoring are lacking in India.
"We have to be structured when it comes to technologyspecific mentoring, which comes from mentors' experience in the past with the respective technology. For sector-specific mentoring, there is a gap between what mentors say and how the advice is executed. It is more theoretical," explains Jayaraju.
"There have to be working level managers like engineering managers or marketing managers to help practically solve the problem. This way mentoring will be far more impactful," he adds. Mentors on their part often forget that entrepreneurs don't report to them. They don't have to decide on behalf of entrepreneurs. "60-70 percent of the mentors don't understand this. Entrepreneurs have to make decisions based on the guidance offered by mentors instead of implementing their decision. Otherwise, it is an employer-employee relationship where you have to abide by your employer requirements," says Raman Roy, Chairman and Managing Director, Quatrro Global Services. Roy is among the top start-up mentors and one of the leading angel investors, having backed around 60 start-ups.
So far Indian start-up ecosystem has remained a siloed one as opposed to the other ecosystems. The diversity in other ecosystems comes from the pool of talent from various countries, which works together and co-exists. This leads to higher level of competency, collaboration, and global outlook etc. Among the key measures that should be enhanced to create a global start-up ecosystem is to pave the way for international start-ups to launch in India as well. This will not only help improve the quality of domestic start-ups but also acquaint them with what's happening globally