Strategy to prevent failure of start ups

India only trails the US and China in terms of the total number of unicorns, and over $131 Billion has been invested in Indian startups over the past eight years till June 2022.

Even though startups in China and the US have raised considerably more funding since 2014, the growth rate for Indian startup funding at 49% and the rapidly rising internet penetration makes India a fertile market for new startups. Similarly, India is producing unicorn startups faster than China and is all set to overtake its Asian neighbour in the next few years

?There were also quite a few unique startups in India that made their presence felt. For example,?

• AI powered medical technology for early detection and diagnosis of drug-resistant TB and Covid-19 RT-qPCR screeningTech intervention to monitor a consumer’s cash flow through SMS or mail and provide loans without too much documentation
• ?A one-stop blockchain interface for celebs to engage with their followers
• Zero-emission ride-hailing service and platform

Currently, industry sectors such as artificial intelligence, e-commerce and healthcare technology (AI), educational technology (EdTech) and financial technology (Fintech) have more number of startups. Each one has unique product or value added service to offer. One gets mesmerized with the idea creation process of the promoters. Yet 90% die in the first five years. A few of the startups with size, industry and immediate cause of failure are listed. The causes are many but a good strategy may ensure that the failure is avoided.

Few top failed start ups in India

The Top Reasons Startups Fail

So why do startups fail?

Strategies to avoid these failures is mentioned immediately in that point. One needs to remember that the strategy is to be initiated from start of the company and not applied as balm when the issue explodes.

1. Lack of Need in the Indian Market (non respect of Market)

A whopping 42% of startups fail due to introducing a product that the market is not enthusiastic about. They are not solving a market problem. This reason is easier said than understood as many startups are pioneers in fulfilling a need that the market has yet to feel. History of innovation teaches us that its is not response to overwhelming need that products and services are born but slightly ahead of it. Travelers’ cheques is one such example. History has many tales up to the Second World War on dacoits of gold in transit. Earlier, travelers were waylaid and robbed on the road. Travelers’ cheques were not invented at that time as the infrastructure of Banking was not in place. The first travelers’ cheques as we know them were issued by the London Credit Exchange Company in 1772. They were valid in ninety European cities. In 1872, Thomas Cook conducted the first round-the-world tour, and realized that people found it difficult to adapt to the change of currencies. Later changes merely adapted the instrument security and features in anticipatory change. Even Coca Cola was available in shops to be dispensed from Fountain like draft beer of today. Someone though of bottling it and that changed the whole marketing gambit and of course volume.

• ?Strategy to avoid misunderstanding of market:

Do not hurry to launch:

There are advantages of being first in the market. But that is easily overcome by a later entrant with better features in service or product. Indus Bank was the first of the new generation Private sector Bank. Later entrants came in with better options of service and risk permitting them to be stronger.?

• Design product 3 generations from first one:

Launch of an innovative product on which a start up is based has an initial novelty market. To sustain it, needs features of a product than makes next entrants delay their entry due to the hard work needed. A clear example in India would be REVA the battery powered car. Range of the charge of battery and battery replacement period were the issues along with the shape of the car. Enthusiasts ignored the aesthetics of the car for the source of power. Then came Tesla which had managed to address all the negative points. The same market would not hesitate to turn to the product with better features

• Test market

There is no justification for the start ups not to follow the assured path of product launch. A proper test marketing is not an expense but an investment in assurance. In a bid to keep secrecy test marketing is avoided.

If the above two points are taken care, even if product features are leaked a gossip, the competition will be far off in launching anything similar to your product. Lack of test marketing on the other hand brings the risk. Consumer products especially are vulnerable to market perceptions. I is true that Indians like spice in food, tea and even cold drink. Based on this premise perhaps few spice infused drinks were invented. Add the reality that colas are preferred flavor, a famous thirst quencher brand called Bislery?offered the market a spice laced cola, there was novelty purchase but later wore off. Surprisingly another product which branded itself on the known digestive spice it contained, lived on. A test market of the failed drink could have guided the product for a longer life. This author has no privy to the test marketing of this product but only of its visibility in the market.

• Patent it and register brand

The above mentioned fears of competition stealing your product design and features should be legally captured by applying for patent. Brand too should be registered as it helps continuity as well as a useful asset for sale of business. It is not scoped of this article to discuss types of patents but just to remember that you need all protection you can get. Therefore do not just handover the job to any person but also stay on top of it in detail.

2. Lack of Money

A survey concluded 29% of start-ups cited lack of cash as the reason for their failure. Most of the startups are by people with ideas and not money. Getting investors is a critical step. Investors are not with money to burn but ensure every bit gives them a return. In fact pitching to investors by unicorns is a bitter medicine as investors ask a lot of questions which you need to answer with back up of statistics or other product history or market survey by third party. They quiz you on risk and your plans of mitigation. If you are able to answer their questions they might consider investing in your project. Crowd funding is not legal in India so you need to pitch to investors and finance sector. They will trust you if you have put your money in your idea. If you put in just 1% of your funds, why would someone else risk their 99%??Promoters should either be finance wizards themselves or hire one. When can the initial investors exit and at what profits should be answered before the project is airborne. Many of the startups are not able to first estimate correctly the funds needed, the lead time before the revenue streams open to inflow and the areas of investment. The investors are astute to find your area of weakness and back away.???

• Strategy to avoid lack of funding

1. If you do not have knowing finance, get one on your team or hire one. It will be money invested. This person will help you estimate the total fund requirement and later stages of exit of the investor.
2. Be pessimistic on time taken for the funds to flow into the company for recycling of funds as working capital.

• If production is from a distant land then issue of transit disruption by weather and war should be padded into the lead time of delivery.
• Marketing via website has the lowest lead time but the market is limited compared to big box stores (Malls and specialty stores) who have to be extended credit. This is a major contributor to delay cash inflows.
• ?Seeking investors who may be linked upstream or downstream to your product or service is a good ploy as it will permit them to take risk without investing whole lot more funds than a unicorn does. But a note of caution here is that in case the potential investor finds your project interesting enough for themselves, you have disclosed all nitty gritty for them to just extrapolate and build on that. Getting a future takeover company is investor is beneficial for both at the initial stage. The takeover of unicorns in India category wise were Category wise were e-commerce roll up saw the largest number of acquisitions in 2021 with 46 deals followed by edtech in which 33 startups got acquired by the larger groups. The deals in edtech also include upGrad, Teachmint and Vedantu which acquired 4 startups, 3 startups and 2 startups, respectively.

3. Incapability of the Team

A great team is critical for the success of the start-up. 23% of startups fail due to the lack of a common vision among the team members. Ideally, you need a diverse team that includes people with wide skill sets. You often hear 3 engineers or 4 professors as a team starting a unicorn. This is great but if the teams has skill of support of Strategy, Finance and Marketing it will go a long way as the promoters are not to be paid on day

The technical promoters need to appreciate that supportive department play a major role in success of the enterprise in the long run.

Getting them initially on the team either as promoters or as consultants or employees is matter of importance. There is never an insurance to prevent failure but the above pointers should save some start up which will improve all our lives.