By Namita Shibad
Hindustan Times, New Delhi
WWR Article Summary (tl;dr) Several leading entrepreneurs in India share their opinions on why some startups make it and others fail.
Hindustan Times, New Delhi
Anant Sardeshmukh, director general, MCCIA
“I feel that the most common reason startups fail is that the idea that an entrepreneur perceives as good is not necessarily good in the marketplace.
It may not be commercially viable. Then there are the teething problems which are very, very hard to survive. One needs to have nerves of steel to do that.
Financial reasons also play a very important part in any business and not getting timely supply of funds can make a startup go bust.
But I see that most startups are in the field of IT. And I see that there is so much competition in this field.
Take e-commerce for example. There are so many people offering this service, but not all of them are successful.
There are so many factors there that will shape the future of such startups. Can they deliver wherever the customer is, do they have an exchange policy, do they refund?
Just providing a platform is not good enough. IT sector is a red ocean. To top that the users are very savvy and expect a new company to offer more than what already exists.
Whereas manufacturing is a different cup of tea. Compared to an IT company, a startup in manufacturing takes a bigger risk as the capital investment in land, machinery, technology is very high.
Then he has to ensure that his excellent design gets transferred into a superior product. The gestation period from raw material to product to market and back to raw material, is very long compared to IT. So a startup in manufacturing needs to have waiting capability.
With the IT sector I have noticed that there is a very high obsolence rate as technology keeps changing. That also becomes one of the reasons why such startups fail.”
Arun Vartak, business nentor, deAsra Foundation
” In deAsra’s experience of working with over 1,000+ entrepreneurs, we find that inadequate planning and incorrect execution are the most common reasons why startups fail. Additionally the following factors can also lead to startup failure.
The first being funding; mismanagement of existing funds generally leads to shortage of funds when actually required. Not keeping a book of your funds eventually contributes to the mismanagement of the funds.
Managing the liquidity of the cash flow is equally important in such cases.
For example, inadequate knowledge of market costs for manufacturing a product coupled with the lack of expense tracking, led a team of entrepreneurs to be hood-winked by vendors and have a tonne of costs, but no profits.
The lack of expense tracking made it difficult to identify where the earnings were going and why they were facing losses. Eventually a good book-keeping system helped us identify their problem areas and help them rectify their business problems.
The market is the second factor. Inadequate market leads to dependency on one or two customers which then affects the business in a short period of time. Being aware of the current trends in the market is also important so that an entrepreneur can forecast the success of their business.
Finally, an entrepreneur’s skill is a big factor contributing to success. The entrepreneur must have the right knowledge and experience about the field he is about to work in. Inadequate information may not help him grow and incorrect knowledge on the other hand would simply make the situation even worse.
Ajay Aggarwal, mentor and entrepreneur
One of the key reasons many startups lose steam is that the founder is not able to build a long-term vision of his/her own business idea or the problem they are set to solve.
This can be both in terms of technology evolution as well as change in behaviour of consumer on the use or expectation from the technology. Such guys start very well and soon find themselves outdated and then find it difficult to catch up.
On similar lines there have been cases wherein some of the ideas were much before its time and found themselves in a difficult position to push the market towards future. These guys couldn’t sustain themselves for tech and money till the right time for the idea to be successful.
Another case, very common, is that these startups are created by hard-core tech teams and they have no clue of the market, consumer and business at all.
As soon as they hit the market they find themselves in a completely strange and unknown territory.
On the other hand some of them are so stiff in their approach that they refuse to learn from their experience and burnout after some time, blaming the market.
Another classic case is that many startups fail since it was started by a single founder and s/he is unable to cope with multi-tasking to run the business. Most of them refuse to accept the need of having a complementary partner whereas many of them recognize this and identify a compatible co-founder at a later stage to support the business.
The latest trend is that most startups have a great idea but they are only focused on funding to start with and not the business or their customers.
On the other hand many of them start by replicating some of the success stories with a little twist and this doesn’t work with the investors.
These guys start approaching the investors much early and waste lot of their energy in just doing that and not building the initial blocks of their business.
Many of these guys don’t even have the money to support the basic concept of the idea and start with an assumption that they will find an investor in early stage itself.
My view is that investor space is too aggressive these days trying to sell their investments and this is what is creating wrong notions in the mind of these young entrepreneurs.
Suddenly too many forums and platforms have emerged in the startup space creating an impression that it’s not too difficult to get funding and support for any startup. Those who are truly passionate about their idea and have clear focus on their customer base normally sail through these possible blocks and see the success.
Kiran Deshpande, president TiE Pune
There are quite a few reasons why startups fail but most common are that there is not enough funding, their ideas are not polished or there is no market for their product.
Or the market is too crowded with similar offerings. Like this company that wanted to supply tiffins to schools and colleges.
Their reasoning was that Pune has a huge student population that comes in from other cities and they would need to eat healthy, nutritious food that they would supply.
But what they didn’t see was that there are already so many people doing that. What would make your offering unique?
Sometimes technology plays a role in the bust. There was a time when satellite phones were introduced. But the,n the GSM technology came and busted the sat-phone business. Technology can give you an opportunity or make your business fail.
What I see is that maybe one in 200 or even 300 companies come up with a really disruptive idea that will change the business. Take for example Elon Musk. He has launched the electric car. If the market accepts it then what will the petrol pumps do, what will companies that supply engines, spare parts to petrol driven cars do? They will have to re-invent themselves to be relevant. Or there will be other companies that will have to be created to supply to electric cars.
Most often people do not see things through. They do not get their strategy right. They have to get their go-to-market strategy right. I’ve seen startups come up with a product or service and think they will figure out things like how and why people will buy their product. This can be dangerous for any business.
Ravi Nigam, MD TastyBite and angel investor
I always think of Warren Buffet’s memorable quote when I think of start ups. He says that when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
What I see is that many entrepreneurs do not do an industry structure analysis, they just jump in headlong simply because there are others doing so. This is a mistake.
Or they get into business to relieve a pain area for the customer. But in doing so, they do not quantify the opportunity.
But I believe it is not always in resolving pain areas that give rise to opportunities. Sometimes you can create that opportunity and create a need.
Take the Facebook example. Before FB, no one really needed to express themselves or keep in touch. But the company visualised how people would behave if they could express themselves and a massive market was developed. It is not always about filling a need gap. I always say that that the point is not in the gap in the market, but is there a market in that gap.
The other problem I notice is that youngsters lack the skills necessary to build an organisation. They may have a great product, but then a scientist too can build a great product in his lab. But can he market it, raise capital, hire people, etc.
An entrepreneur needs to have much more than a good product. If I had a choice between a brilliant idea and an average entrepreneur or an average idea and a brilliant entrepreneur, I would choose the average idea because it is his entrepreneurial ability that will take the business forward.
Funding is a very important aspect of entrepreneurship and fortunately the Indian investor environment has become very friendly. I’ve noticed that large PEs or VCs don’t look at small startups. Or if they do they simply farm out their money without making an informed analysis.
It is important that startups check if such companies are adding value, or simply dumping money for growth. Success will happen only if an entrepreneur gets direction and is disciplined.
