Why incorporation of Indian Start-ups was down by 29% YoY in 2017 and how to avoid this in 2018?

It is evident that India has experienced a boom in industry of start-ups from last half decade. More and more young entrepreneurs came up with a brilliant and rare idea to solve social problems. India is second in world to deliver Unicorn start-ups.

However year 2017 saw some major changes in numbers published by Nasscom. As per Nasscom Start-up Report 2017, Indian start-up industry saw a downfall of 29% YoY in 2017. This dent is majorly due to shift of focus to quality.

If we want to drill down the cause for this downfall in numbers of start-ups, we must first identify the challenges faced by start-ups currently working in India. 

According to mentors, venture capitalists and founders of various start-ups below are the 6 key factors influencing the failure or success rate of start-ups in India.

1. Imperative Team:

‘Your biggest challenge will be building a great team’ – John Doerr.

Every start-up need an efficient, hardworking and creative team to reach the milestones it desires. According to various investors, one of the most crucial elements for any start-up is to have a sound team. As business models are mostly fragile and only a pillar which could save a business from crashing is its team. According to a survey, team failure was attributed to the shutdown of 23 percent of failed startups. 

2. Availability and Utilisation of Funds:

‘If you have an urge to build something that could change the world, don’t focus on the money, but the legacy you’ll leave behind.’ – Alexander Tamas

To grow in this competitive world, every founder must manage funds infused in company with due diligence. According to Nasscom, $6.2 Mn was the average funding per funded start-up in 2017. Indian start-ups have a potential to scale this up with a greater margin. However, most of the start-ups fails to analyse the requirements and utilisation of the funds received from the investors. Ignorance in this area leads to drainage of funds and disinterest of investors to participate in future rounds. Thus, every penny introduced in company must provide value to investors.

3. Market and Geography:

“You’re either ‘Making’ a market or ‘Disrupting’ a market. ‘Entering’ a market is usually the wrong way to go.”- Brian Halligan    

The major challenge faced by any start-up is to identify the appropriate market which can accept product hand in hand. It is evident that if any start-up decodes this challenge, it is able to disrupt the market. Most of the start-ups ignore the customer availability in certain geographical area and launch the product out of convenience. This sort of step leads to losing early bird advantage for the product and may lead to kill of the model.

4. Decelerators:

“Be a student, not a follower. Take interest in what someone says, then debate it, ponder it and consider it from all angles”- Jim Rohn

It is observed that most of the disruption is done in the early growth stage of start-up. Most innovative, fast growing companies which started making profits early were sailing independently without any mentoring or incubation. Initial growth for such organisations may be slower; however such entities succeed to achieve long term goals. Thus mentoring must be curtailed by start-ups to extent possible.

5. Dynamic Environment:

“We need to be dynamic in accepting change and implementing change.”- Peter Amsterdam

In this constantly revolving universe, everything tends to change after a period of time. Likewise customer’s expectations, market compositions and competition constantly affect existence of start-up. Every team must be ready to accept all changes and keep their model updated on regular basis.

6. Compliance and Monitoring:

“If you think compliance is expensive, try non-compliance.”- Paul McNulty

Most of start-ups are led by people from tech backgrounds which leaves them non-compliant to major laws applicable for any company in India such as Companies Act 2013, Labour Law, Intellectual property Rights, The Indian Contract Act 1872, etc. Founders must pay attention to avoid any non compliance which may attract heavy penalty and in worst case scenario result in discontinuation of business.

Success will be just a word and profits just numbers for any start-up which is able to manage these factors.