The IBM Institute for Business Value and Oxford Economics conducted a study called ‘Entrepreneurial India’ which found out that 90% of Indian startups will fail in the first five years of their establishment.
The study included interviews of 600 startup entrepreneurs of which 300 were Indian; 100 government leaders along with 100 venture capitalists, 1500 leaders of established companies, and 22 educational institutions.
The Major Factors Hindering Growth
According to these experts who were surveyed extensively, the following factors turned out to be the reason for the failure of Indian startups—lack of innovation, lack of skilled people, and ultimately the lack of funding.
This IBM study was conducted in 2017. Lack of innovation and technology was a much greater issue than today, yet we aren’t doing much better either. Later we will note how much improvement India has shown in terms of backing startups.
Lack of innovation
77% of the respondents felt that lack of innovation was one of the biggest reasons why Indian startups would fail. But according to 73% if better accelerators are provided then these startups can improve by a huge margin.
India, instead of coming up with their own meta startups like Google, Facebook, Instagram, drew on these western apps and create a desi version for them.
“Since 2015, as many as 1,503 startups have closed down in India. And the major reason is due to the replication of Western business models, and not lack of subsequent funding from the investors,” said Rishabh Lawania, founder of Xeler8, a market intelligence platform recently acquired by a Chinese venture capital firm. The highest number of failures were in logistics, e-commerce, and food technology.
Indian startups like ChaiPoint, Ola, Saathi, and Swiggy, according to a list of 50 most innovative companies in the world, but even their concept is nothing new.
New technologies in India can be determined from the number of patents applied in relation to other countries. India filed 1,423 international patents in 2015-16, while Japan filed 44,235, China 29,846, and South Korea 14,626, according to the World Intellectual Property Organization.
Lack of skilled people
70% of the business experts and leaders feel that there is a lack of a skilled labor force. This is mainly because of the limiting education system. Our education system is not well equipped to hone practical skills and knowledge.
Lack of funding
65% of the respondents felt that lack of funding caused new Indian businesses to fail.
The studies found out that due to India’s lack of innovation and technology and simple imitation of western creations led to a lack of funding from venture capitalists.
Funding is a major issue, even those who sometimes do have innovative ideas fail to get funding.
Other important issues to note were inadequate formal mentoring, and poor business ethics.
Nipun Mehrotra, Chief Digital Officer, IBM India/South Asia said, “We believe that startups need to focus on societal problems like healthcare, sanitation, education, transportation, alternate energy management, and others, which would help deal with the issues that India and the world face.”
The report doesn’t just focus on the failure but also elaborates on the factors that experts believed put India at an advantage.
76% felt that India’s economic openness was a great factor, whereas 57% said that India’s large domestic market provides significant advantages.
The study remarked that these factors can prove to become a real driving force for the success of Indian startups.
The study also probed how new startup ideas are helping the economic growth of India, and creating more employment all around.
It was found that 35% of new startups are formed in Tier2/3 cities, and this means that the phenomenon is not limited only to urban places.
Have We Improved?
From 2017 to 2020, India jumped almost 20 spots above on the Global Innovation Index.
Currently, India ranks 48th on the Global Innovation Index (GII) list, which is still many places behind Switzerland, Sweden, U.S., U.K., and Netherlands.
The GII report had also mentioned India’s potential to become a ‘global driver of innovation’, including market potential and the knowledge and talent we have, but “relative weaknesses exist in the indicators for the business environment, education expenditures, new business creations and the creative goods and services production.”
The basic problems of start-up failures indicate the major economic mistakes we are making and the flaws in our social systems.
Everybody is aware of India’s potential but we still lack in converting that to economic profits.
Due to the pandemic and the political relations, a lot has changed in India in terms of economic policies. The boycotting of foreign products especially China and Prime Minister Modi’s mission for Atmanirbhar Bharat has brought Indian minds out of a stump and forced us to work on new ideas and greater technologies.
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