Why 90% of Start-up fails in India within 5 years

Many enthusiastic people have come up with an idea of becoming entrepreneurs. Over the past few years, the concept of start-ups has emerged massively. One or more entrepreneurs initiate to build a venture, either to develop a product or deliver a service. Therefore, it is essential to have a proper business plan and stability to remain at par with their competitors in the market.

Here we can figure out why the start-ups do not survive in the market for a long period.

Lack Of innovation:

A start-up is testing assumptions that haven’t been tested before – sufficiently new technologies, products & services, or markets. Start-ups need to focus on healthcare, sanitation, education, transportation, alternate energy management and others, which would help deal with the issues that India and the world face. Nearly 80% of venture capitalists feel Indian start-ups lack unique business models, as the majority simply copy successful models from elsewhere without unique local insights.

Tech Problems:

AI and ML technologies have been adopted in retail and banking as well in the US, but India is a follower market. These technologies are yet to be explored and implemented in the franchise market. The biggest mistake is over-investment in expensive technology (developer time) before the marketing assumptions have been validated. Undoubtedly, India’s start-up ecosystem needs top notch technical talent and global business skills.

Copying existing models

India’s start-up ecosystem needs top skilled technical talent and global business skills. India is not investing in R&D through international cooperation between different countries that helps in establishing links between local companies, multinationals and academic institutions. In 2016, a survey conducted by the Information Technology and Innovation Foundation (ITIF), a U.S.-based think tank, ranked India near the bottom of a list of 56 countries on global innovation. The ITIF study revealed that the country’s poor performance in developing human capital is mainly because of its failure in investing on education. (Reference: THE ITIF STUDY)

Legal factors:

Indian government has become stringent, and the process of investment has become very tedious. This has decreased the foreign investors to make investments in Indian start-ups. This makes challenging to find out sound investors, and as a result entrepreneurs risk their properties by giving them as collaterals to investors.

Marketing issues:

Marketing a vital step in the completion of the working strategies for any start-up. Marketing and advertising are one of the toughest jobs to carry out for any company. When a company just starts, there is lot of work from scratch level, and then there is marketing, which itself is one of the challenging aspects. Because the future of any product depends on marketing. Especially for a start-up, the cost of marketing should not be much. Marketing and advertising should always come under a specified budget. And because the digital platform is growing to become the most significant marketing venture, one should leave no opportunities to market the product from all online media.

Lack of proper planning

Many people start businesses with little more than an idea in their head. They pour their savings into an idea making things up along the way and hoping it all works out in the end. Most of the time it doesn’t, because they underestimate expenses and overestimate the revenue. Eventually, they run out of money. People start businesses dreaming of the freedom that comes with being your own boss and setting your own hours. The reality is very different – it’s long hours and low/no pay, with a steep learning curve. That washes out a lot of businesses within the first year or two.

Owner quirks:

You can have a great idea, all the funding, great plan, great location, and somehow the person running the business lacks knowledge, not open to learn, egoistic, and manages to screw it all up. They may get the big things right, but screwing up a hundred little things every week adds up. Micro-managers and perfectionists usually implode. There are always scope for customers to move back. So, from scratch things need to be in shape for the consistent and increasing flow of business. For eg: In a Bakery, if the staff members keep the outlet very tidy but variety cakes are not available customers shows displeasure. Same applies if materials are available but the outset is stinky, and dirty.

Wrong location / market.

Most businesses are still geographically constrained. Even though our business can technically serve clients anywhere, many clients still prefer proximity and want us to be close to them. Picking the wrong location for your product / service can be detrimental to your business. This is why companies like McDonald’s or Starbucks do a lot of research before picking a location or going into a new market. Even then, they don’t always get it right.