India is popularly known for its good market space and customer buying behaviour. But, why do startups fail in India? Any startup without a good foundation and idea will fail not just in India, but in any country. With the advent of websites and social media, everyone wants to do a startup business. But, it is not as easy as it sounds. India has the third-largest startup ecosystem in the world.
Are you wondering then, why startups fail in India? We have listed some of the major reasons for the failure of startups. Just go through it and be aware of the reasons if you have any ideas about starting a startup business in India.
Here are the reasons why startups fail.
- Lack of Innovation and new ideas:
For any startup to flourish, it is the idea that matters. Today, millennials are attracted to starting a startup business but, is it that easy? No. The core value of a startup is innovation and new ideas. A lack of this core value will bring down any business. Many startups are based on already implemented ideas that became successful. Will these startups sustain in the long run? No. Any startup that is established with original sustainable ideas, consistent innovation, modern business techniques, and incorporation of new concepts will thrive in the market.
- Funds, funds, and funds!
Funds play a major role in any business. Be it small or large, funding is to be given pivotal importance. Predominant startups fail due to a lack of funds and investments. Most startups experience shut down because of insufficient or no funding. You may have extraordinary ideas, flowing creativity, fruitful innovation, and whatever, at last, money is ultimate. You need finance to convert your ideas into a real business. Though you have funding and finance, scalable and profitable models are required to develop and sustain your startup.
- Lack of market-fit products:
Some products fail as the customers have no need for the product. Startups fail for this simplest reason – the product is in no sync with the nature or lifestyle of the Indian customer. Often, startups develop advanced products that have no demand in the market and try to expand the market for the product. This is the mistake that startups make without doing a thorough market study. Either startups should wait for the demand to arise for the product or educate and make consumers aware of their product’s use or their technology’s future purpose.
- Poor customer service:
In many startups, due to the lack of manpower, the founder has to manage all the work such as funding, recruitment, and management of the company. Hence, the customer part is usually left out untouched. Customers know what they want and what they don’t want, hence when a startup is customer-oriented, the decision-making becomes easy and popularity increases through their customers. Therefore, what we tell you is – Treat your customers well and the customers will treat you better.
- Lack of focus and talent:
When asked Bill Gates and Warren Buffet to give one factor for their success, but answered with one word and the word is FOCUS. While laying a foundation stone for a startup, the chief ingredient should be the focus. The company should primarily focus on building a strong base for it and then move on to developing the company. Again one of the challenging factors is the lack of talent and skills. As most startups spend more time hiring the right candidate with the talent and relevant skills, recruitment becomes a crucial part to avoid bad hiring choices. Since startups lack funding, they cannot afford to hire experienced, and talented candidates who come at a high price.
Data on failed startups in India:
The key characteristics of a startup are – growth and innovation. A scalable startup has the potential to grow rampantly rather linearly. At the same time, startup means innovation that is testing new ideas, products, services, or technologies. A lack of these characteristics will lead to the failure of a startup.
According to an IBM Institute report, as of 2020, over 27,000 startups have been registered and almost 90% of the startups fail within the first five years of their inception. Hence, the success rate of startups in India stands at 10%.
Nearly 80% of the venture capitalists are of the opinion that Indian startups lack unique and original business models as most of the startups simply copy successful models. Failory report says that 9 out of 10 startups in India fail.
Data on common reasons for startup failures in India:
Startups in India fail due to various reasons and according to the Failory report, major contributors to startup failure in India are – 34% of startups fail due to lack of Product-market fit, 22% of startups fail because of marketing problems, 18% of startup failure is due to team problems, and financial problems contribute to 16% startup failures. Some of the minor reasons for the startup failure are – legal problems, operations problems, and technology problems.
List of failed startups in India:
- Hike Messenger
- Pepper Tap
- Loan Meet
- Tiny Owl
- Card Back
- Bite Club
Top 5 Failed Startups in India:
- Hike Messenger:
Hike was founded by Kavin Bharti Mittal in 2012. It is a social networking-based company that had 70 million users by 2015. Hike primarily focused on messaging and file sharing and the company had become a unicorn within 4 years of its inception. But unfortunately, Hike was shut down in January 2021 and shifted its focus to two social products – Rush and Vibe. Hike failed in recent years as it could not compete with its rival, especially Whatsapp.
Stayzilla was founded in 2005 by Yogendra Vasupal and Sachit Singhi and was one of the first and largest homestay networks in India. The company provided people across the country to rent their spaces for travelers. The company has raised funds of $34 million and has a network of 11,000 cities in India. But the main drawback was that it was way ahead of its times since people were not used to or ready for such advanced technologies, so the company halted its operation. Further, many new competitors arrived in the market who gave discounts and offer deals and Stayzilla faced legal disputes as well which made the company shut down.
Yumist was a venture that served home-cooked food which is now a popular trend in the startup market. The company raised funding of nearly $3 million but eventually, the company fell apart due to funding and financial problems. Yumist was founded by Alok Jain and Abhimanyu Maheshwari in 2014. The startup was unable to run as the funds were unavailable. Yumist was one of the famous case studies when one talks about failed startups in India.
Mr.Needs was a Delhi-based startup that delivered groceries and daily essentials on a subscription basis (monthly, weekly, or per on-demand). The company was founded by Hitashi Garg, Yogesh Garg, Ravi Wadhwa, and Ravi Verma in 2016. Mr.Needs completed 10,000 deliveries in Noida alone. However, the startup succumbed due to heavy competition from BigBasket and Grofers.
Dial-a-celeb was founded by Gaurav Chopra and Ranjan Agarwal in 2018 to help people to connect and talk with their favorite celebrities. The startup offered features like video chats with celebrities, video wishes, and autographs of celebrities. Despite being an attractive and creative platform, Dial-a-celeb failed as celebrities used different apps to interact with their fans. Many social media platforms were created to easily interact with celebrities hence the startup did not sustain itself in the face of its rival.
Conclusion – how to avoid startup failure?
With a large market and fast-moving business environment, startups in India can blossom by avoiding certain known and expected-to-be-made errors. In India, Tier – II, and Tier – III cities like Pune, Ahmedabad, and Kochi are seeing establishments of startups. Hence, it is becoming easy to launch a startup but a tiring task to attain success and sustain itself in the market.
Some of the key things to avoid startup failures are that startups should avoid copying global business ideas in India as the Indian marketplace is not the same as the global market. Focusing on long-term sustenance rather than being attracted to trending ideas would be a benefit. Business and revenue models are the most important features of a startup and most of all, the startup should focus on revenue and profit as well as products and services.
Startups shut down due to a lack of funds mostly. Hence, the funds should be spent judiciously and with utmost care. Another important aspect to look upon is customers, a startup should understand their target customer and attract new customers initially via word of mouth before carrying out extensive marketing plans and campaigns. Customer relationship plays a pivotal role in the startup business and therefore addressing customer queries, feedback, and concern are foremost.
How many startups fail in India?
Over 5 million startups are founded every year in India as per a 2019 report but only 10% of them sustain while 90% of the startups fail.
Why do 90% of startups fail in India?
Key reasons for the startup failure are:
- Lack of Innovation and new ideas
- Insufficient or no funds, capital investments, and finance
- Lack of market fit products – products in no sync with the nature or lifestyle of customers
- Poor customer service
- Lack of talent, skills, and leadership
Which startup is best in India?
There are many best startups in India, some of them are:
What is a unicorn in startups?
It is a term used to describe a startup that has a value of over USD one billion. The term was coined in 2013 by a venture capitalist called Aileen Lee.
What is the safest business to start?
Startups that need low capital investments and funding are the safest. Startups like logo designing, digital marketing, website designing, virtual assistant, and many more can be done in the comfort of your home at the same time these startups are safest.