Home / News / India /  Layoff wave: Startups failing in India? How entrepreneurs can evade the collapse

India has around 75,000 startups and 7.46 lakh jobs have been created by the Indian startup ecosystem so far, Union Minister Piyush Goyal had recently said this. "These numbers tell the power of a vision. A vision to see innovation & enterprise drive growth," Goyal had tweeted.

While the data imply a rosy picture, ground realities seem to be different. Indian startups are taking a hit. There are many reasons that lead start-ups to fail. The question is why are startups failing in India and how entrepreneurs can avoid it?

Sahil Arya, Co- Founder and Director at Fat Tiger says startups primarily fail because of the mistakes of the founder(s). Many times it is the sole criterion for the stumbling of a good business idea. “In fact more than the inherent attractiveness of a business idea, I will always bet on the capable founder(s). Hardworking founder(s) with grit and conviction and strong industry acumen can make an idea flourish. Even if the idea is not so great, a capable founder will put in the right amount of effort and dovetail the business towards success. He/she can create the right team and place and work in symmetry and synchronization to realize overall business growth. In addition, I also believe the right place and the right timing are equally important in enabling your start-up to grow in the right direction," he said

Delphin Varghese, Co-Founder & Chief Business Officer, Adcounty India says that recent studies indicate a 90% failure rate among the majority of startups. This can primarily be attributed to the inability to accurately gauge the market and lack of preparedness to deal with fluctuating market conditions, viz., the Covid-19 pandemic. 

Adding to this, the incapacity to draft a profitable growth model where the cost of acquiring a customer is less than their lifetime value leads to business failure. Also, insufficient cash flows due to investors backing out or inadequate product pricing often shut down startups. Finally, flawed marketing, shoddy hiring practices and poor management skills contribute to startups toppling.

Avoiding these necessitates careful planning and thorough market research to ensure that your product/service is something people need and will pay for. “An effective sales and marketing strategy is imperative for having a capital-efficient business. Dealing with dwindling cash reserves requires measures to ensure a smooth cash flow until a repeatable and scalable sales motion has been established. Raising funding, cutting costs, and tapping into personal funds in specific scenarios may help businesses stay afloat until the venture becomes profitable. Lastly, entrepreneurs must understand how hiring the right talent, and elaborate marketing strategies augment business growth," Delphin Varghese said.

Startups must carefully scrutinize their financial health for a sustainable future.

Raghunandan Saraf, Founder and CEO, Saraf furniture said there are many reasons that lead start-ups to fail such as poor market demand and lack of needed skill sets. Nevertheless, one thing that is generally overlooked is poor cash flow management. Many times, it has been observed that start-up owners are techies and innovators at heart. They spend a lot of time on the product but their financial acumen is limited. This can result in cash flow problems such as poor margins, lack of unit economics, higher cost of operations, cash burn, etc. This is not a very healthy sign in the longer run, as it will weigh on the overall business performance.

Ridhima Kansal, Director, Rosemoore says lack of prior market research, inability to execute, use of inappropriate marketing channels, and hiring an inefficient team are some of the factors that can make a start-up fail.

She added that there is no golden rule to avoid failures. However, one can take a few concrete and prudent steps such as building the right team, doing extensive research before launching the product and working collectively toward faster execution. Likewise, one should always have a contingency plan in place in case uncertainty hits the market.

Rimjhim Hada, founder of Aachho thinks one of the biggest reasons for so many startups failing and consequently laying off employees is that they overestimated growth and with high investment pumping their businesses, they went on a hiring spree.

In the Economic Survey 2021-22 released in January 2022, India was named the third-largest startup ecosystem in the world, after the US and China.

Sangeeta Ojha
A business media enthusiast. Writes on personal finance, banking and real estate.
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