7 Reasons Why Indian Startups Fail

The popularity of startups in India has exploded and for the right reasons. A startup is rarely just built using funds. It requires a lot of passion, perseverance, and patience. Yet, despite having

Why Startups Fail in India

The popularity of startups in India has exploded and for the right reasons. A startup is rarely just built using funds. It requires a lot of passion, perseverance, and patience. Yet, despite having the three most important ingredients in the mix, we see that many startups in India fail. So what exactly is the reason behind the demise of a startup that has all the qualities to be the next big thing?

In this article, we’ll dissect the reasons that are paramount behind the failure of a startup so that things become more clear and simple. It is important to understand the core issue and the root problem so that they can be avoided during the early stages of building a startup. A well-planned approach to setting up a startup in India ensures that it does not stop at the very start. 

1. Incorrect Product Market fit

The most common reason why startups in India perish is because they do not have the right product in the right market in the first place. Contrary to what many people assume, finding the right market is just as important as making the product. And while it might seem like a simple task, market research takes a lot of effort, money, and time. If not done right, the product poorly fits in the market or does not fit at all. 

The result of this misfit product? Startups keep pouring in money in marketing and product development without getting any results. The customer acquisition cost keeps getting up while the sales stagnate. Even though the product gets some traction, making it profitable is almost impossible. 

So here’s something budding startups can do before releasing their product or service. Do the necessary market research before setting up a budget for marketing. Explore the different ways the product can be introduced to the market, find out if the market size is big enough to be profitable, and most importantly, analyze trends to get an idea of things to do and what to avoid. 

It is better to take your time and prepare before just jumping into the market to be the first movers only to become the first quitter in the segment. 

2. Doing too much at once

One of the biggest reasons why Indian startups are doing fairly well suddenly go haywire, bleeding money and getting their sales flatlined is diversifying too early. When a product gets successful and starts bringing in the money, founders or investors jump the gun and introduce multiple different products all at once. 

Diversification is good, but when it’s done too soon it can lead to a company’s unforeseen demise. Trying to scale too early, hiring too many people, and rolling out new variants of the star product can sometimes be a mistake that is difficult to remedy. 

It is important to understand that a startup has limited resources; limited money, limited human resources, and just like every other company, limited time. Having multiple products too early means that the hero product gets less of the resources, while the new products need more and more resources to get established. This is a recipe for disaster and must be avoided at all cost, or else the cost to bear would take away all.

3. Lack of Funds

Let’s point out the obvious; a lack of funds is the reason why almost every startup fails. While it is not the only reason why things go south, it is certainly the most impactful reason. 

Starting a business needs substantial funds. Even if entrepreneurs somehow manage to collect this initial capital, its sustainability is not promised. Being short-sighted or over-optimistic about finances is a big reason why startups fail to continue. 

New entrepreneurs can get some financial relief from government schemes. Since the government has proposed over 100 specialized schemes for different types of startups, it can be difficult to search for the government funding option that is relevant to your business. With the YNOS Government Funding Product, you can easily refine your search based on industries they support, eligible startups, investment patterns, and past investment rounds. Moreover, you can get a detailed account of the founders they support, the startups they have invested in, and the scheme background.

It is important to understand that a lack of funds is actually the symptom of an underlying condition, just like fever is a symptom of some underlying disease. Losing money is usually catalyzed by improper financing, poor market research, faulty marketing, and other reasons mentioned in this article. It is rare for a startup to not have any money despite doing everything else correctly. 

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4. Inability to Adapt

Take a look at the history books of the company and you will realize how the giants have fallen just because they refused to bend. Kodak used to be the biggest camera and filmmaker in the world, Nokia was the leader of mobile phones, and Blackberry was untouchable in the premium, business-centric mobile phones department. Today, all of these companies have become obscure, barely coming close to the top five companies in their field. 

The common reason behind their failure? Their inability to adapt. Sometimes, the changes in the market and consumer behavior can go against the vision of the startup or the founders. But it is important to realize that the market forces dictate business and not the other way around. So the ability to adapt to changes should be ingrained in every startup owner’s mentality.  

What worked yesterday may not necessarily work tomorrow, necessitating constant innovation and adaptation. Be like the flow of the water and not the brittleness of the glass. 

5. Employees and Remuneration

India has a big supply of skilled employable youth but skills cost money. If entrepreneurs try to cut costs by hiring unskilled employees or don’t pay their employees enough, chances are that the resulting quality of work will not be sustainable.

A startup is not just about finances, numbers, and profits. While these are important aspects, they can only be achieved if the people working at the startup are hard-working, talented, and passionate. Giving your employees the right incentive to push ahead and do their best is important to ensure that your startup grows and survives the test of time. 

6. Competitive Industries

Needless to say, the challenges faced by early-stage startups are endless. India is home to over 208,000 startups and every year this number rises and falls. An important reason why this happens is that most business industries are already overcrowded. 

Adding to the complexity are the local unorganized businesses that thrive alongside their more structured counterparts. These grassroots enterprises, deeply ingrained in the fabric of Indian communities, command a significant market share through their personalised services and established networks.

Take, for instance, the technology industry, where countless startups vie for attention and investment. From software development to e-commerce platforms, the competition is intense, with established players and emerging startups jostling for market dominance. This saturation extends beyond technology to sectors like food and beverage, healthcare, and education, among others.

Suggested Reads- Guide to Tax Benefits for Startups in India

7. Passion over Expertise

Passion is important for an entrepreneur to make sure that the startup survives. But sometimes, passion can mix with ego, resulting in a dangerous concoction of overconfidence. Many startups have perished because the startup's founders were bull-headed about doing things they were not good at. 

It is important to realise that passion does not mean expertise. Passion gives the person the perseverance to become good at something. But if you want your startup to survive, it is better to hire people who are better than you in different tasks. Remember that making a startup successful is a team sport, and a single player is never going to be as strong as a well-coordinated and talented team. 

Final Words

Establishing a startup is a difficult task. It requires a ton of effort, a lot of sacrifices, and countless hours of relentless work to ensure that everything is on the right path. But all of the hard work is fueled by the passion of the entrepreneurs. So why fizzle out after doing so much? Why not go the extra mile and ensure that not only is your startup established properly, but also that it continues to grow bigger and better?

So keep all the points in mind and ensure that your startup is checking all these points. Startups are delicate, especially during the early stages. To ensure that your startup evolves into a successful company, it's essential to proactively address any potential factors that could negatively impact its growth and development.