Is this the Decade for Start-Ups? Will they Survive?

The number of Start-Up companies, especially in the Technology Industry is increasing each day. With initiatives like #StartUpIndia and #MakeInIndia, the Indian government is also providing the incentives for entrepreneurs to pursue their Start-Up dreams. Though there are many cases of VC funding drying up and Start-Ups closing, there is a strong reason to believe that the Start-Up culture is here to say and #StartUpIndia will be a success. Listing below the reasons why #StartUpIndia will be a success…

1. "3 Idiots" Generation

The current generation of Engineers in the Technology sector belong to the "3 Idiots" movie generation. What I mean by that is they want to pursue their dreams and they are not ready to wait for 5-10 years to get into Management and influence the company's vision. If they see too many setbacks and they have a great idea, they are not afraid to quit their high paying jobs and start their own company.

2. Venture Capitalists (VC) Funding

One of the key reasons many startups are thriving is because of the amount of funding that is available from the Venture Capitalists (VC). VCs are like Hedge-fund managers. They do not want to bet on standard percentage returns like Mutual-fund managers. They want to invest in high risk, high reward Start-Up Companies. Even if one in ten companies that they have invested becomes successful, they will get more than their expected returns.

3. Volatile Capital Markets

The volatility in the stock market globally is making everyone nervous about where to invest their money. Except for a few Industry leaders, no company is a safe investment destination. One bad Quarter or bad news is enough for big companies to lose significant market value. News about Maggie Noodles, Volkswagen emission problems are examples for that. In short, Brand value is short-lived in this generation and no company can be sure if they will be able to survive for more than a decade.

4. Cost of setting up your Digital Start-Up

The Technology Industry, especially the software industry is a unique industry. You do not need huge investments to start a technology company. All you need might be a laptop and few mobile devices to Design, Build and Develop your idea. If your idea becomes a unique product/service, there are many platforms (App Store, Play Store, Windows Store, etc.,) available now to sell your product/service. You don’t have to convince IBM, GE or other established giants in the industry to market/sell your product. Your Customers are all on the internet and you can reach them easily.

5. Over-supply of Software Engineers

India is home to thousands of Engineering colleges and millions of Software Programmers are graduating each year. There is not going to be enough jobs in the IT Services Industry. When I graduated from college in the year 2000, the first salary I had received from the Software Industry was significantly higher than the entry level salaries in other industries. Today, the entry level pay in the IT Services Industry is not as high as it used to be. The other incentive I had was working in different countries. Today, there is very less onsite opportunity for Software Engineers and it’s only going to reduce further. Lack of onsite opportunity is because of the technological innovations like Skype, Webex and other Video-Conferencing facilities available today and also because of the rising costs in India. The Current generation of Engineering Graduates have paid a lot for their education and the entry level salaries provided may not meet their demands. The over-supply of talented people in the software industry and also their expectations to make money quickly will drive them to join StartUps or to start their own.

6. Employer/Employee Structure versus Investor/Stakeholder Structure

I am not sure if the model I am predicting will be applicable to all Industries. But, at least in the technology sector, there may no longer be Employer/Employee structure. Talented Employees who are contributing to company’s growth will not be happy with just performance bonus. They would expect to have a stake in the company and that is what will drive them to stay in the Company for long. The Employee will also become the Employer/Stakeholder of the Company. The VCs who provided the initial funding might be the only outside Stakeholders of the Company. This VC/Stakeholder structure may not be possible for bigger and established companies. Start-Ups will be able to provide this structure and it will enable them to pull top talent from established companies.

To summarize, maybe after 4-5 years, there will be consolidation in the StartUps and only a few will survive. But, things are looking good right now for Start-Ups in India. Similar to what Google, Microsoft, Amazon, Facebook, LinkedIn are doing today, in a decade from now, some of these Indian Start-Ups will also be defining the Digital Roadmap for the World.    

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