top of page
  • Writer's pictureShrinikaa Kumaragiri

Is the startup hub failing?

Updated: Mar 14




Over the last few years, here and there we read, we saw, we heard this word. Yes, it is ‘startup’. School dropouts, IIM graduates, IIT dropouts, and millennials breaking free from corporate shackles, all are pioneering into the startup world. Some aim for stars, and some aim for small businesses, either way, the startup ecosystem in India is flourishing at an incredible pace. India is home to 1,14,961 startups and 111 unicorns with over $1 Billion valuation, thus emerging as the third largest startup ecosystem in the world.


Startup Fever in India

The startup fever intensified in India when the internet gained prominence. During the mid-2000s, there was a transformative shift in Indian telecom services as 3G/4G were available at reduced prices, overcoming the limitations of fixed-line services. With the introduction of Jio by Reliance, India witnessed a sudden shift in mobile data usage. Every Jio user was provided with 4GB of free data per day at 4G speed. And in months, India became the 2nd largest internet user base in the world.


With the penetration of the internet in the Indian startup ecosystem, they embraced this opportunity. All because, the internet is connecting the globe, facilitating progression, hence allowing the startups to revolutionize. Initially centered around the IT and Tech sphere, the inception of various government schemes like the Make in India campaign, Startup India initiative, Startup India Seed Fund Scheme and many others spurred the growth of startups across myriad sectors.


The growth has been seen from copious sectors including FinTech, ecommerce, EdTech, logistics, healthcare, DeepTech etc. The famous Television program, ‘Shark Tank India’ a business reality show, is a pivotal factor that shapes the startup culture. The way entrepreneurship was perceived, taking entrepreneurial activities beyond metropolitan cities, and inspiring a lot of individuals, Shark Tank is a game changer. Despite its minuses, this show emphasizes on few important factors like innovation, experimentation and diversity within startups. So, the Indian startup ecosystem has been expanding, propelled by innovation, technological advancements, robust investments, and various other catalysts.


With the emergence of startups especially in the field of logistics, traditional industries like the textile, automobile, mechanical, construction once regarded as the bastions of employment, have gradually witnessed a shift towards replacement. In the last 5 years, the startups have generated around nine-lakh jobs opportunities in India. As India is the 3rd largest startup ecosystem in the world, it has potential to contribute 4-5% to the GDP of India, says Ishpreet Singh Gandhi, founder of StrideOne, a tech-enabled non-banking financial company.


Problems with the Startup system

Despite the strides made, Indian startups are experiencing some major setbacks. Dips in funding, mass layoffs, operating in the red, and cash burn have collectively contributed to many companies’ struggle for survival. In a study by IBM, it mentions that around 90% of the Indian startups are likely to fall within first five years, only 10% will survive. Here are some reasons why startups are failing in India.

  1. Overindulgent spending- Many firms shifted from the conventional mode of marketing to digital platforms that cost more exorbitant amounts than the usual. This was because of the Customer Acquisition Cost (CAC). It is nothing but the cost incurred by a firm to acquire a single customer. Only when a firm has potential customer base, it can generate revenue. Considering this, the marketing expenditure shot up. EdTech firms in India fell prey to this. One fine example is Byju’s. As per the financial statements realized by the firm, Between Financial Year (‘FY’) 2016 and FY 2022, the firm has generated around $1.6 Billion loss. It had spent about INR 8029 Crore on advertising and other business promotional activities. For a firm that generated a few thousand Crore revenue in an FY, these numbers do not align with its expenditure patterns in any way. Further, new recruits at BharatPe were enthralled with the perks it offered in July 2021. In exchange for joining the company's product and engineering teams, applicants were offered sports cars, superbikes, fancy gadgets, Dubai trips, and early appraisals. Seven months later, it seems as if all this has been for nothing. Several transgressions have been reported, the board and cofounder Ashneer Grover were at odds- leading to the company’s reputation being tarnished.

  2. Absence of unique product factor- The unique product factor that was found in the initial years did not last. Different firms, with same product ideas created more competition in the market. For instance, the first few rides with Ola and Uber were half off, and Zomato and Swiggy provided free deliveries. Customer loyalty may be harder to build when promotions and discounts are constantly changing, as they may switch to whichever company offers the best deal at the time. These discounts, cashbacks, freebies were not hunky-dory for all the firms. Because of the intense competition, the priority shifted to pricing strategies. So, the innovation quotient seems to have vanished.

  3. Miscellaneous problems- Startups face obstacles like over estimation of market size, waning venture capital support, lack of focus and tweaking government policies that can have serious repercussions.


It is sad, frustrating, to see that the companies that we have celebrated, the companies that have been the torch bearers of the Indian startup ecosystem are currently facing severe obstacles and struggles, raising concerns about the industry's long-term viability and resilience. Will the startup goldrush come to an end? This is not just the case with India alone. In the US the investments have dropped by 30%, in Europe 45 startups have lost their unicorn status, even for the first time in Africa, its funding dropped by 43% (Dada, 2023).


Conclusion

‘Success is walking from failure to failure’ said Winston Churchill. As a matter of fact, the more successful a person is, the more failures he has experienced. This is true for startup entrepreneurs. Despite adversity, Indian startups are strong, adaptable, and persistent. Right now, it requires a leap of faith to inch closer to their success.


References

  1. Korreck, Sabrina. "The Indian startup ecosystem: Drivers, challenges and pillars of support." ORF Occasional Paper 210 (2019).

  2. “IBM Study: Innovation Key to Startup Success in India.” IBM News Room India (2017).  

  3. Struebing, Laura. "Customer loyalty: Playing for keeps." Quality Progress 29, no. 2 (1996): 25.

  4. Benjamin Dada. 2023. “State of Startup VC Funding in Africa 2023.” https://Www.Benjamindada.Com/African-Tech-Funding-Report-2023/?Utm_source=techcabal&utm_medium=cta&utm_campaign=bendapr.




About the Author

Shrinikaa, a final-year student in Public Policy, possesses a strong interest in politics, governance, and allied disciplines. Driven by a profound desire to advance societal well-being, she enthusiastically seeks opportunities to actively participate in and contribute to meaningful dialogues and collaborations within the realm of public affairs.


Comments


bottom of page