Challenges faced by Startups in India
Challenges faced by Startups in India
Despite the influx of venture capital funds into the startup ecosystem, many companies struggle to survive the competition and may eventually be forced to shut down operations. Hence, it is important to understand the factors that are preventing the growth and sustainability of startups in the country. According to mentors and founders of various startups, below are the 7 key factors influencing the failure or success rate of startups in India.
An important element of any startup is a team of dedicated people who aim to excel at their work and are sincere enough to follow up without any reminders. Scouting for a good team is the first major challenge of any startup especially at the nascent stage, wherein a team can make or break the enterprise. According to a survey, team failure was attributed to the shutdown of 23 per cent of failed startups. A top reason for failed startups is the absence of co-founders. A team of dedicated individual with complementary skill sets are required. A team with a perfect balance of skills but different ways of communicating can also cause problems early on.
Nearly 242 million dollars of venture capital funding has gone into a total of 64 startups in India according to research firm Venture Intelligence. However, industry experts claim that this number is negligible and there is a strong cause to increase it substantially more to sustain early-stage risk capital. Due to the processes involved and the high-interest rates, debt as a source of funding is also not a viable option. Personal funding becomes an issue as financial stability calls for immediate sources of revenue which may not be possible in the initial stages of starting a company.
The next most important challenge for a startup is the location from which it is being launched and gauging the market need for the product. Innovation is the key here, in the sense that the startup would need to tweak products existing in the market to suit the demands of the clientele.
Revenue and Capital Burn
As there is immense competition, startups need to scale up fast and this is where external funding comes in. Investments and startups go hand in hand. When fundraising comes to a halt, trouble brews. Several startups are forced to focus more on raising investment rather than generating revenue. Right management of burn rate is a big concern. Often, as soon as a startup gets funded, it loses track of the burn rate and its own depleting revenue thus eventually going bankrupt. Hence, a conscious approach to revenue generation is required.
One of the major challenges is the influence of external organisations which try to control, manage, take advantage of their events, numbers or brands in the name of mentoring. Most innovative, fast-growing companies which started making profits early on have been self-dependent and have never been incubated or mentored. The initial growth might have been slower, however, it offers more in terms of stability and profits in the longer term. Influence of external organisations/ entities must curtail in order for the startup to accelerate.
The need to constantly reinvent and come up with a service to be able to match customer expectations are one of the biggest challenges. Due to the advent of technology and competition, the challenge to provide over and above an earlier innovation is immense.
Although things are improving on the regulations front, it is still challenging to register your company, which takes anywhere between a month to 6 months. Regulations pertaining to labour laws, intellectual property rights, information technology, contracts, dispute resolution etc. are stringent in the country which might make it difficult for the startup initially.