Yes, the buzzword in today’s economy is ‘start-ups’. But, why is it that the survey of Indian executives by the IBM Institute for Business Values and Oxford Economics reveals that over 90% of start-ups fail within the first five years of their business? Well, because business planning for start-ups often involves these 4 risks which have been overlooked!
You have been reading about them in the pink papers, in the news channels, from your friends and relatives and maybe you are owning or are working for a start-up! Government of India’s #startupindia website reveals that India is home to the third-largest start-up ecosystem in the world and 2-3 tech start-ups are born every day here!
That’s astounding, isn’t it?
Now, how do you define a start-up?
Any company, founded by one or more entrepreneurs in its initial stage of the operation is a start-up. So, the basic idea is that the founders come to realise a missing gap in the market. They find out an unmet demand opportunity that they can tap into.
The concept for such a product or the service is then developed, the target audience is found and appropriate marketing channels are explored. Most of the start-ups are funded by the founders themselves or via investments by venture capitalists, institutional loans and business school incubators.
But, why is it that a large number whimper out?
Business planning for start-ups requires a different outlook. They typically face challenges like high costs, limited revenue sources and a weak fund-raising strategy for taking their operations to the next level. Besides these common ones, here are 4 key problems that startups have to wade.
- Mere imitation of an existing start-up idea
While it might be tempting for a start-up to merely imitate a business model existing in other parts of the world and make it rich here in India – that may not be a great idea at all!
Says Young Upstarts, an online business resource for start-up entrepreneurs, “The best start-ups tend to be those who lead, rather than those who follow, and having a fresh solution to existing problems can help your brand be a leader.”
In a Forbes article by Suparna Dutta D’Cunha, Rishabh Lawania – founder of Xeler8 says, “Since 2015, as many as 1,503 startups have closed down in India. And the major reason is due to the replication of Western business models, and not lack of subsequent funding from the investors.”
When startups do not uniquely address the Indian context and the various factors that drive demand in a particular geography, they fail to carve that niche in the hearts and minds of their customers.
- Wait, the market isn’t ready
Did you know that Vijay Mallya opened a pizza chain in his early entrepreneurial days before Pizza Hut and Domino’s opened in India? Well, it failed because the Indian consumers weren’t ready for it and as Vir Sanghvi said in the interview with Mallya “because the pizzas themselves were disgusting”!
Indeed, innovation is one of the strongest pillar businesses rest on. But what happens when the market is not ready for it?
So, along with a great idea, one needs ‘great timing’!
Pascal- Emmanuel Gobry wrote an article in Business Insider in 2011 entitled ‘10 Brilliant Startups That Failed Because They Were Ahead Of Their Time’. So, we had Sixdegrees.com before Facebook and Instagram, Ask Jeeves before Google, Webvan before FreshDirect to just name a few startups that failed because of a set of enabling conditions that went amiss!
- Poor financial modelling
Let’s get the figures right! The importance of efficient financial modelling for startups by experts cannot be underestimated.
Startup financial modelling rests on strategically planning operations towards the desired goal, accounting for different types of costs, growth, forecasting for expansion and estimating the requisite fundraising for expansion.
There are umpteen cases all over the net on how poor financial modelling can cause a death-knell for startups. Take, for instance, Taskbob – a Mumbai based startup dealing in hyperlocal services shut shop in 2017 within two years of its launch. What was the reason? Says Inc42’s, “Inability to scale itself and achieve profitability, due to the low margins in the business and the tough external market”. Phew! Need we mention how intrinsic business planning is to startups, anymore?
- Do you have an open mind?
Being open to criticism, failure, setbacks is a part of any business and startups aren’t immune to them either. However, as a society, Indians typically scorn having to fail. Maybe, that’s what we need to learn – to accept failure, not as ‘the end-all of everything’ but lessons in ‘learning by doing’.
What would have happened if Mr Narayan Murthy stalled all his entrepreneurial spirits after the failure of Softronics? India would never have Infosys! And then there are tonnes of such incidents in all possible fields right from science, innovation to business, where leaders were born due to the lessons learnt from failures.
Just to conclude
An anonymous writer writes these lines in a poem called ‘Don’t Quit’
“When things go wrong, as they sometimes will,
When the road you’re treading seems all uphill,
When the funds are low and the debts are high,
And you want to smile but you have to sigh,
When care is pressing you down a bit,
Rest if you must, but don’t you quit.”
Yes, the road to success for any startup is never straight. But, when experts guide you, you do have a ray of hope. Mantraa’s top-of-the-line industry expertise for, risk advisory services, fundraising strategies have been benefiting a huge array of companies including startups. Your startup deserves one of India’s best financial advisors! Contact us now!