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Why Start-ups Fail In India

Why Start-ups Fail In India


- Shivam Shekhawat

An Analysis About startup failure in India - 2021

In 2015-16, the number of international patents applied from India was only 1423, whereas China, Japan and South Korea in the same year applied for 29,846, 44,235, and 14,626 international patents, respectively. This gap between the number of patent registration shows a vast difference between the number of innovations, inventions, and original ideas conceived in India and other countries.

Between the years 2016 to 2018, we saw most shutdowns in the start-up sphere in India. These were the start-ups related to consumers services, eCommerce and fintech and were also associated with the sectors that garnered the most investment, acquisitions and ventures.

The Institute for Business Value and Oxford Economics conducted a survey in which they found that 90% of the Indian start-ups fail within the first five years. The lack of original and scalable ideas makes 9 out of 10 start-ups end up as failures despite having the best founders and investors.

Failed Startups in India

Start-up failed over the years – (in order of foundation year)

2004

  • eBay -  eBay was the pioneer of eCommerce in India. eBay made its grand entry in India in 2004. eBay came when there was no other competition in the eCommerce market, and the business model was ahead of its time. However, due to competition from Flipkart and Amazon, eBay had to close down its operation in May 2018. Aside from competition, another reason for shutting down eBay was the lack of reassurance of the quality of products to the customers.
  • OFO- Alibaba owned Chinese bike rental company Ofo started in India in 2004 and offered bicycles on rental in various college and university campuses.  In July 2018, Ofo closed down its business in India due to a lack of market and moved onto more promising Eastern Europe markets.

2010

  • Freecharge – Founded by Sandeep Tandon and Kunal Shah with the backing of investors like Sequoia Capital, ru-Net, Sofina, and Tybourne Capital and Valiant Capital Partners, Freechage was a digital payment platform and a mobile recharge service. In 2015 Freecharge was bought by Snapdeal in the year 2015 due to competition by Paytm.

2012

  • Tapzo - Tapzo was a Bengaluru based start-up and was an "all-in-one" app that consisted of 35 different apps in one app and offered information and service about everything from food, cabs, recharge, news, bill payments etc. Tapzo had a subscriber base of 14000 and had 55 thousand daily transactions and an ARR of 210 crores in bookings. In mid-2018, Tapzo was acquired by Amazon and was merged by Amazon into Amazon Pay.
  • iProf – iProf was an education based start-up and promised to deliver education through videos, digitised notes and practice questions. iProf Shut continued its operations for almost seven years and down its business in January 2017 due to loss of profit caused due to free study material which was available over the internet and due to expanding presence of its primary competitor Byju's.
  • Housing.com – founded by Ravish Naresh, Rahul Yadav, Advitya Sharma, Sanat Ghosh, and Abhishek  Anand Housing.com merged with PropTiger in January 2017

2013

  • Shotang - Shotang conceived in 2013; Shotang was an online marketplace and had a business-to-business model connecting manufacturers, distributors, and retailers. It earned its revenue through commissions paid by respective parties. Unfortunately, the company closed down in 2018 due to fierce competition.

2014

  • Port Desk – Port Desk was launched in 2014, with headquarters in Noida. Port Desk, founded by Pushpit Pallav, provided an e-procurement software solution for logistics management. However, in June 2018, Port Desk shut down its business due to a fund crunch and its failure to raise capital.
  • Zebpay India - Zebpay was launched in India in 2014 and had headquarters in Ahmedabad and Singapore; founded by Saurabh Agarwal, Sandeep Goenka and Mahin Gupta Zebpay; the start-up was into the business of cryptocurrency exchange. Zebpay shut down its business after the Reserve Bank of India issued a circular in April 2018, which restricted banks and regulated payment companies from extending any services to crypto exchanges. This circular had a cascading effect on many Indian Cryptocurrencies exchanges, which later went to the Supreme Court of India. After multiple hearings, the matter was postponed to another hearing in January next year. However, Zebpay in September 2018 closed its operations due to a lack of clear crypto rules and regulations in India.
  • Babyberry- Based in Bangaluru, BabyBerry started business in 2014 and was an Online  Parenting app and intended to provide holistic care for a newborn baby and helped parents thereby. BabyBerry included a digital vaccination chart, provided reminders of vaccination, maintained health records, and provided access to nearest doctors based on geolocation. However, in August 2018, BabyBerry stopped its operations, citing technical reasons.
  • Tazzo - Tazzo was a bike rental service and was launched in 2014 and provided on point-to-point commuting service and charged Rs 5 per kilometer. However, the lack of a profitable business model forced Tazzo to close its operations in September 2018.
  • PepperTap – PapperTap was founded in 2014 by Milind Sharma and Navneet Singh and was an online shopping platform. It shut down its operations a year later following huge losses.

2015

  • Just Buy Live: Just Live By was founded by Bharat Balachandran and Sahil Sani and was launched in 2015 in Mumbai. The start-up was into eCommerce and connected retailers to buy directly from brands and dealt in everything from food to personal care to smartphones and even auto parts but failed and shut down in 2018 due to negative cash flow and an unscalable business model.
  • MrNeeds – In 2015, it Launched its operations in Noida with a funding of $500k and served around 36 thousand orders to a user base of 9 thousand families in Noida with daily groceries. Even though the MrNeeds provided cost-effective plans and delivered groceries at a cost 50% less than the competitors, the start-up had to close down its operation due to competition from big companies like big basket and others.
  • Ezytruk – Launched in 2015 in Bangaluru. Ezytruk was a logistics platform. Ezytruk connected shipping, carrier and manufacturers and offered services such as comparing prices between carriers, tracking goods, warehouse space management, and thus providing systemic transportation of goods. Unfortunately, the start-up failed because it could not scale and grow, and it was unable to raise funds further, so it shut down operations in 2018.
  • Wydr – Wydr was a Gurgaon based start-up launched in 2015 by Devansh Rai G, Hitha Uchil and Varun Guru. Wydr was an into the business of business-to-business wholesale and dealt in a wide range of products like Automotive, Electronics, Fashion and Home. The platform enabled the sellers to customise. Their requirements and negotiate prices. Unfortunately, on November 3 2018, the start-up suspended its operations; the reasons for its suspension are not clear. Still, it could be due to competition from Udaan, which might have triggered the sudden shutdown.
  • Monkeybox – Monkeybox was a Bengaluru based start-up launched in 2015 and provided its schools with RDA approved vegetarian meals for kids. Come 2017, Monkeybox claimed of supplying over 1500 meals per day to more than 80 schools in Bengaluru with a base of 2000 subscribers on their platform. However, Monkeybox shut down in March 2018 due to fierce competition and a lack of required revenue to stay in the market.
  • Holachef – Holachef was established in 2015 in Mumbai by Anil Gelra, Gaurav Srivastava, and Saurabh Saxena. Holachef was based on the concept of cloud kitchen and offered a new menu every day. In addition, the company managed packaging, storage and delivery of food. However, Holachef shut down its operations in May 2018 due to a lack of finances. Holachef was acquired by foodpanda.

2016

  • Dial a Celeb – was a service founded by Gaurav Chopra and Ranjan Agarwal; it enabled customers to interact with celebrities through video calls directly. Unfortunately, due to high costs and immense competition, Dial a Celeb had to shut down its business within one year in 2017.

Famous Failed Startups in India

2020 and the effect of Covid-19

  • Covid-19 not on changed the way we live but also changed the way people do business. From cinema, gaming to cab services, flight services, many big companies had to bear the brunt of Covid-19. The year 2020 bought the whole market to its knees, and so many businesses closed down due to extended lockdown. In 2020 we saw the change in the way we live, study, work and travel due to Covid-19; the year 2020 marked a year of total collapse of many businesses and start-ups due to sudden and strict lockdown measures. We saw companies either changing the way they worked or going for complete closure.
  • Jabong: Glorified as the third most visited eCommerce portal after Myntra and Flipkart in India, Jabong was found in 2012 and was acquired by Flipkart in 2016. In 2020 Flipkart shut down Jabong to focus on Myntra.

2021

  • The year 2021 marked a significant shift when people, business owners, and firms adapted to the changes and excepted the new normal and marched forward to build themselves all over again. 2021 will be marked in history as the year of transition of human life from physical to digital, not only in terms of shopping but also the way we work, communicate and study.

Lesson Learned Startup Failed

Reasons for Start-up Shutdown - Lessons learned

  • Lack of new ideas – Indian start-ups are known for copying ideas of global start-ups. As a result, they lack creativity, original ideas, and innovation, which is the primary reason for their failure. Innovation and originality are the primary criteria for any start-up to succeed. Instead, founders mostly just see what is going around in other countries and try to imitate those start-ups in India, which isn't always a good idea.
  • Lack of knowledge of Law/ Regulations: Many start-ups start in a hurry imitating what is trending around the world without knowing the laws of India. Many cryptocurrency start-ups like Koinex and Zebpay had to shut down only because of this. Know the laws of the land and then do business. Don't expect rules to change for your business.
  • Product-Market Compatibility – Most of the start-ups fail because the consumers don't need them, and thus, there is no demand for the services or the products they are providing. Most of the time, start-ups begin at the wrong time, either too early, like eBay and Cardback, when the market and infrastructure were not available to sustain it or too late when the marketplace is already saturated with the start-up's service or product.
  • Not being customer-centric – Most of the time, the founders of a start-up get so busy managing a start-up that they start ignoring customers and customer demands. Sometimes start-up starts pushing their products and services on the customers instead of getting to know customers' needs, resulting in customer alienation. 
  • Lack of focus – When a start-up tries to provide too many services simultaneously, it most often ends up a failure. Most successful start-ups focus on only providing only one service at a time. Amazon, for example, focused only on selling products online in the beginning; it was only after many years Amazon went into the market of e-wallet and bill payments and recharges.
  • Lack of funds – Start-up needs profitable and scalable business models to get investors and funds initially, and later, they need the same to show profits. So even if a start-up manages to get funds initially, it will not run successfully for long if the business model is not profitable, leading to a lack of funds, closing down 90% of start-ups.
  • Lack of flexibility. Not keeping up with current trends and not being flexible enough to change products or services with changing times often leads to failure. Change is the only constant, and flexibility is a required skill to keep up with the changes. Unfortunately, so many start-ups get stuck in their old ways of doing things that the market goes out of their hands before they even realise, leading to failure.
  • Leadership gaps - While starting a start-up might come as easy, maintaining it in the market and running it on for an extended period is a different game altogether. Making a start-up going on for long and in profit requires leadership skills. Lack of strong leadership and vision to take the start-up forward is often the cause of start-ups fail.
  • Incompetency: Many start-ups fail due to the owners' lack of skill set or the incompetency of the staff working for the start-up. Everybody wants to have a successful cloud kitchen start-up, but if you lack management skills, good chefs, storage, good delivery service, your start-up is not going anywhere. Right meaningful skills on every business level and its management are required for a start-up to succeed.
  • Too Much too soon – Many start-ups during their initiation period have this mindset that if they spend significant capital on marketing on their website and provide free-bees or services/products cheap to the customers, they'll attract customers. While marketing, website and offers are necessary to get customers, doing too much of these things will only deplete the funds fast and result in the start-up shutdown. Prices of products should be justifiable; keeping prices too low would only hurt the business in the long run, maintaining costs for products/services too high should be justifiable. Even if a start-up has a great website or runs a marketing campaign amounting to crores and sells services or products very expensive, it will soon be out of the market if it fails to provide service to the customer.
  • Website and SEO: While a start-up might have funds, it won't reach customers without a good website and an expert in SEO which is what any start-up needs to be successful. While a website makes your business visible to people, SEO makes your business reach the right customers at the right time and vice versa.

Conclusion

While fund, planning and having original ideas are essential for a business to be successful, digital marketing, social media marketing, along with web presence also plays a critical role in the success of any start-up, and this is where companies like ARE InfoTech come handy.

Planning the design of a website and a great logo will be a plus point and help a start-up, but it is perfect SEO and digital marketing which help any business reach its customers. Companies like ARE InfoTech are what we need to manage all of this for us.

In times like 2021, when we are going through lockdowns and the market is unstable new start-ups cannot waste any capital or resources on hiring different people to manage their web presence and SEO, content and graphics. Companies like ARE InfoTech help start-ups by providing everything in one place all at the same time to save time, resources and capital.