Why Do Majority of Startups in India Die During Initial Years?

Updated on: 17 Jan 2024 // 4 min read // #mmm news
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Undoubtedly, India is among the fastest growing startup economies in the world! According to a 2015 report by NASSCOM and Zinnov Consulting, India had the third highest number of startups (4,200-4,400 approx.) followed by US and UK. The number is expected to reach 10,500 by 2020.

The main reason behind this growth is that the majority of the population is young in India. About 40% people are under the age of 35 years and almost every 3 out of 4 startup founders are under 35.

However, cropping up of so many startups doesn’t mean every business becomes successful on its own. As per a recent study by the IBM Institute for Business Value and Oxford Economics named “Entrepreneurial India”, 90% of startups in India fail within the initial 5 years including some well-funded ones.

What is the reason for such a drastic fall? As an entrepreneur how can you make sure it doesn’t happen to your business?

Here’s the answer!

Top 5 Potential Reasons Why Most Startups Fail within Such a Short Span

1. Dispute or Disagreement Between Partners

If your business has other co-founders too, disputes and disagreement can be a common sight. It is not necessary that all business partners are on the same page and agree on everything. Everybody may have different ideas and opinion, in that case, disagreement is natural. However, if such disagreements turn into irresolvable disputes, the growth of business may take a downfall. If the founders keep on having differing views in regards to the business, investors may not be interested in investing in their startup. In case any of the co-founders decides to exit, you may feel disoriented and finding another capable partner may become difficult. It is important to have a clear vision regarding the growth of your startup and roles of co-founders in the business. Dividing their responsibilities will speed up the work and also reduce the clash of views.

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2. Not Hiring the Right Team Members

Even if you have a unique idea, clear vision, perfect product/ service and required funding, your business will go nowhere if you don’t have the right set of team members who can help you achieve your business goals. Finding and hiring new talent is the most crucial yet challenging task for any startup. Most often, new entrepreneurs take on multiple responsibilities on their own shoulders to save hiring cost which hampers their productivity. It is important to hire a talented team (even if it’s a small one) to get the work going.

3. Not Finding a Market-Fit Product

Most often people set up a startup that provides a solution to a certain problem. However, at times, the market is not ready for it or the entrepreneurs fail to understand to which industry they should market their product/ service. People must know the benefits your product/ service offers and why should they associate with you only among so many choices. If people are convinced about your products/ services, they won’t hesitate to pay even a slightly higher cost. Product-market misfit is one of the main reasons for startup’s failure. It is important to understand the market dynamics to zero down on a specific and niche target audience.

4. Lack of Funds

One of the most common mistakes that a majority of entrepreneurs commit is bootstrapping their startups with their personal savings or with the money provided by their family members or close friends as a loan. Getting investors for your business may sound a good idea initially; however, you may have to share the margin of your profit with those investors later on. Getting business funding is tough for startups and rejection from lenders may shatter your dream of setting up a business. Lack of enough money is the most common reasons why startups shut down within the initial five years. Availing a Business Loan or Loan Against Property (if you have collateral) can be useful in such scenario.

5. Not Being Able Innovate or Monetize the Idea

Several startups start with a unique idea but still unable to monetize their concept and reach a profit mode. Many startups find it difficult to reach break-even point even after five years of establishment. Even if they are capable of monetizing initially, they may lack innovation at a later stage, leading their customers into losing interest in their products/services.

Read Also: Your Checklist for Business Loan Documents

It is crucial to understand your target audience and keep innovating so that your audience doesn’t lose track and is connected to you. Don’t stop after achieving a certain milestone and keep setting a new goal for your business.

We hope knowing the reasons for failure will help you in avoiding the mistakes mentioned above and help your business flourish.

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