What are the causes of failure of Indian startups?

India is one of the fastest-growing startup ecosystems in the world, with more than 50,000 startups registered as of 2020. However, not all of them succeed in the long run. According to a 2019 report, only 10% of the startups survive beyond five years. What are the causes of failure of Indian startups? This article will explore some of the common reasons and provide some suggestions for overcoming them.

One of the main reasons why Indian startups fail is lack of funds. Many startups struggle to raise enough capital to sustain their operations, scale up their business, and compete with their rivals. Some of the factors that affect funding are:

• Poor market research and validation: Startups need to have a clear understanding of their target customers, their needs, preferences, and willingness to pay. They also need to validate their product-market fit and demonstrate traction and growth potential.
• Weak business model and value proposition: Startups need to have a viable and scalable business model that can generate revenue and profits. They also need to have a unique value proposition that differentiates them from their competitors and creates value for their customers.
• Lack of investor network and pitch skills: Startups need to have access to a network of potential investors who are interested in their domain and stage. They also need to have effective pitch skills that can communicate their vision, mission, problem, solution, market opportunity, traction, team, and financial projections.

Some examples of Indian startups that failed due to lack of funds are:

• Yumist: A food delivery startup that served home-cooked meals in the daily-meals segment. It raised nearly $3 million in funding but failed to achieve growth and profitability due to a high burn rate and low margins. It shut down in 2017 .
• Dial-A-Celeb: An app-based platform that allowed users to video chat with celebrities and get autographed items. It raised an undisclosed amount of funding but faced intense competition from celebrities’ own apps. It shut down in 2017 .

Some suggestions for Indian startups to overcome the funding challenge are:

• Conduct thorough market research and validation before launching the product or service. Use surveys, interviews, focus groups, or beta testing to gather feedback from potential customers.
• Develop a strong business model and value proposition that can showcase how the product or service solves a real problem, creates value for customers, and generates revenue and profits.
• Build a network of investors who are aligned with the startup’s vision, mission, and goals. Use online platforms, events, or referrals to connect with them. Prepare a compelling pitch deck that can highlight the startup’s strengths, achievements, and future plans.

Another reason why Indian startups fail is inadequate sales and marketing strategy. Many startups fail to acquire and retain customers, build brand awareness, and increase market share. Some of the factors that affect sales and marketing are:

• Poor customer service and product quality: Startups need to provide excellent customer service and product quality that can satisfy their customers and earn their loyalty. They also need to collect feedback and incorporate it into their product development and improvement.
• Ineffective pricing and distribution: Startups need to set optimal prices for their products or services that can cover their costs, generate profits, and match their customers’ willingness to pay. They also need to choose appropriate distribution channels that can reach their target segments and optimize their logistics costs.
• Lack of innovation and differentiation: Startups need to constantly innovate and differentiate themselves from their competitors by offering new features, benefits, or solutions that can create value for their customers. They also need to adapt to changing customer needs, preferences, and expectations.

Some examples of Indian startups that failed due to inadequate sales and marketing strategy are:

• Stayzilla: A hotel booking platform that offered homestays across India. It raised over $33 million in funding but failed to acquire enough customers due to poor service quality, high cancellation rates, and low repeat bookings. It shut down in 2017 .
• Taskbob: A home services platform that offered various services such as cleaning, plumbing, carpentry, etc. It raised over $5 million in funding but failed to retain enough customers due to high operational costs, low margins, and poor service quality. It shut down in 2017 .

Some suggestions for Indian startups to overcome the sales and marketing challenge are:

• Provide excellent customer service and product quality that can exceed customer expectations and build trust and loyalty. Use online reviews, ratings, testimonials, or referrals to showcase customer satisfaction.
• Set optimal prices for products or services that can reflect the value they provide and attract customers. Use discounts, coupons, or bundles to incentivize purchases or referrals. Choose distribution channels that can reach the target segments efficiently and effectively. Use online platforms, offline stores, or partnerships to expand the reach and visibility.
• Innovate and differentiate products or services by adding new features, benefits, or solutions that can solve customer problems or needs better than competitors. Use feedback, research, or experiments to identify customer pain points and preferences. Adapt to changing customer trends and expectations by updating products or services accordingly.

A third reason why Indian startups fail is legal disputes. Many startups face legal challenges that can hamper their growth, reputation, and survival. Some of the factors that cause legal disputes are:

• Intellectual property rights infringement: Startups need to protect their intellectual property rights such as patents, trademarks, copyrights, or trade secrets from being copied or misused by others. They also need to respect the intellectual property rights of others and avoid any infringement or violation.
• Regulatory compliance issues: Startups need to comply with various laws and regulations that govern their industry, sector, or domain. They also need to obtain necessary licenses, permits, or approvals from relevant authorities or agencies.
• Contract breaches or disputes: Startups need to abide by the terms and conditions of the contracts or agreements they sign with their partners, suppliers, customers, or investors. They also need to resolve any conflicts or disputes amicably or through arbitration or mediation.

Some examples of Indian startups that failed due to legal disputes are:

• Stayzilla: The same hotel booking platform that failed due to inadequate sales and marketing strategy also faced a legal dispute with one of its vendors over unpaid dues. The vendor filed a criminal complaint against the founder and co-founder of Stayzilla, who were arrested and jailed for a few days in 2017 .
• OYO Rooms: The leading hotel chain in India also faced several legal disputes with its hotel partners over issues such as non-payment of dues, breach of contract, unfair business practices, etc. Some of the hotel partners filed cases against OYO Rooms in various courts across India .

Some suggestions for Indian startups to overcome the legal challenge are:

• Protect intellectual property rights by registering them with the appropriate authorities and agencies. Use legal notices, cease and desist letters, or lawsuits to prevent or stop any infringement or violation by others. Respect the intellectual property rights of others and avoid any copying or misuse of their work.
• Comply with laws and regulations that apply to the industry, sector, or domain of the startup. Obtain necessary licenses, permits, or approvals from relevant authorities or agencies before launching or operating the product or service. Stay updated with any changes or amendments in the laws and regulations and adjust accordingly.
• Abide by the terms and conditions of the contracts or agreements signed with partners, suppliers, customers, or investors. Use clear and concise language that can avoid any ambiguity or misunderstanding. Resolve any conflicts or disputes amicably or through arbitration or mediation before resorting to litigation.

These are some of the common causes of failure of Indian startups. However, failure is not the end but a learning opportunity for entrepreneurs. By analyzing the reasons for failure, startups can learn from their mistakes, improve their performance, and bounce back stronger.