Why do Indian start-ups fail?
Indian start-up eco-system does not recognize the word scaling up which is the major cause of their failure.BY Guest author | Apr 06, 2017 | comments ( 0 ) |
India from a western perception has been a land of diversity and large population. You often hear that India needs to be treated more like Europe than a single country.
I often see startups setting up shop based on a business idea involving technology and then shutting it down. Most had this ambition of building a product that scaled, and cut costs. When they don’t get enough takers, it confuses them, because they have tried to implement an idea of “scaling up”, which is alien to the east.
There is a reason why Industrialization, the father of our modern technology, the way we know it, was born in the west. When industrial age set in (1700’s), British were controlling more than 24% of the world, using a population of 8.2 Million. When American settlers were fighting the British oppression, they were about 2.5 million. The French, Germans, Portuguese and Spanish were not far behind.
Compare that with India with population of 127 Million covering some 7% of world area at the peak of Mughal Empire. You can see that 8.2 million or 2.5 million cannot control such a vast geographical span and grow economically, without moving faster, communicating better, and producing more.
This gave rise to our present technologies which are prosthetic in nature. Every single function that has been developed since the industrial age is an extension of ourselves. We started off by building extensions to our arms and legs, and ended up by building a brain. The need to scale things up is an inseparable need of a capitalistic framework. I am not saying its good or bad, but it’s a fact. I am not going to preach Marx here butsimple economics.
You see, in India or China, we had no use of the philosophy of scaling up. If you go back all the way to the agrarian society, most of the tools and animals were complimentary. They were there to do things which we simply cannot do. We had horses, which could make us run faster but not at the expense of someone else’s job. What could be done by people, was done by people.
We never needed to scale things up. It’s simply not in our DNA. The last time we faced this concept, Gandhi simply asked people to boycott things made in the mills, and make your own clothes to wear.
Most of the technologies were forced on us, and we had to learn things to be in vogue with the times, but it was more of a survivalist instinct. We don’t move for anything less. Culturally, Science for us is a vocation, a hobby. Our threshold for action is really high. Some would also call it a culture of tolerance, to accept things as they are, until it can’t be tolerated anymore.
If you are a poor country trying to allocate precious resource, doing things that ensures survival, becomes a good way to reduce the expense list. We have done it on a national and a household level. Again and again and again.
We became good at atomic energy, because we saw china do it. China did it because it saw japan suffer from it and therefore it had to have the tech. We never bothered to build Airplanes and missiles and submarines actively. They could only hurt a part of us. We are resilient. We saw what happened in Bengal Famines in 1940’s and became really good in Agriculture.
We were denied Computers essential to Nuclear Program, so we became good in it. These investments bore fruit, when all of a sudden Indian Gold reserves dwindled and again our survival was in jeopardy in early 1990’s. We opened up the economy and therefore Infosys and TCS became the heroes bagging all sorts of Y2K and software contracts.
Now we have reached an inflexion point, where there is enough infrastructure, Foreign Investment and disposable income to require consumption for things to move. Of course there can always be infinitely more of these in a capitalistic economy, but for now, they are good to start. FDI didn’t come to India for free. If someone invests, indubitably it comes with the promise that more money can be made.
One point of note. When I say consumption, I mean buying things which can only sell if marketed, and marketed consistently. So I am talking of things, when they don’t have inherent value to a consumer, except a need to belong created by media and marketing. Such products either try to inflate the value being provided by using “branding” or by charging a premium on quality, all of it with marketing costs borne by customers. No one starts eating more bread when consumption increases. At most, they start eating more expensive ones, which take almost the same to make.
So this is the scenario in India. We have all this money pouring in, trying to grow the standard of living hoping we would consume more and change our way of thinking. We have a government, which is hoping the westward looking junta gorges on the opportunity, so that it can tax it to heaven and bring up the poor with inclusive schemes.
Now that we are in the present, we see a startup work on a business model, hoping to get funding based on things that have been funded by ventures abroad. The template has become a simple one, which includes finding ways to scale and reduce costs. Scale means reaching more people. Reducing costs has become eliminating businesses along the supply chain.
This is what every single tech B2C startup in India is on day 0
Day 0 - “Let me find out a way to scale things by building a website and an app, while reducing cost by incrementally removing middlemen” I will be able to reach more people, without much cost.
Day 1 –Startup- “Hmm, looks like I can’t move as fast because of these infrastructure problem. Let me create a logistics service.” I will also be able to cut out the logistics company, brokers etc.
Day 2 – Logistics Company – “Hmm, this startup guy learned everything from my lifetime of experience and has now hired two of my senior people thinking it can cut me out. Let me hit back,The war is on. Starts selling inflight Inter-city air cargo at a markup. Still makes the same money.
Day 3 – Startupgain –“ Hmm..using this distributor for sourcing and burning money on Digital Marketing, I have convinced people to buy from me at artificially lowered price. Now I also know what sells and where to buy it. Let me cut the distributor out, and make more money”
Day 4–Distributor – “ Hmm..the startup has approached all my suppliers and hired two of my best people, and now undercutting me. Let me join together with “vyaparisangh” and put pressure on manufacturer. Also let me complain to economic offences wing and MRTP. That should keep them busy for some time.
Day 5 – Startup Gain– “This manufacturer is too slow and gives too much reasoning for everything. Let me directly order from China and save additional 5%.”
Day 6 – Manufacturer – “ These guys are now sourcing from my factories in china. Let me join together with distributor, and the logistics guy and create some competition for him. That should keep them busy. Also let me find wannabe competitors and sell them the same services. At this much speed, there is bound to be a dozen closets filled with skeletons. Lol..wish they knew that the Law doesn’t believe in fail fast and fail often.
Day7 – Startup Competitor sets up Logistics business.
Day 8 – Startup competitor sets up direct sourcing from China.
Day 9 – Startup Gain Zero. Startup Burn 3X revenue. Friends – No One.
I bring up this illustration, because this is what everyone thinks business is. Cut out the middlemen and add that margin to your own, and done. I don’t know what these guys hope. That the entire supply chain will just keel over and die?
If there is one truth to doing business in India, which is in our DNA is that businesses only grow when they are inclusive and they collaborate.
I am talking of inclusivity where if you have formed a partnership, you are tied to the partner’s success. These relationships will help you succeed. If you think of business relationships as alliances, where as soon as you start coming out on top, you move out, you won’t last long.
Look at every single Indian company which is driving growth and is profitable. You will find that the company has been successful because it connected people, provided them with jobs and grew the entire economy. You might argue that at a lower level the jobs simply shifted hands, but its not true.
India is a country where 94% of the people work in unorganized sector. If your strategy involves fighting this 94% and making them organized, I hope you see the challenge.
On the other hand, a business that promotes other smaller business is collaborative and works much better in the societal fabric.
Your business derives power from the legal framework, which is as good as its enforced. Enforcing laws takes political will. Politics favors larger number of people. The equation is simple.
So when you get down to the drawing board, and use the sword of technology to cut out unwanted parts, make sure that you are enabling people.
This requires true innovation. Everything else is fluff.
So either create a blue ocean, a category of products or service which doesn’t exist, or fills the gap created by ever expanding population and disconnected society, or create a product that improves efficiency for players.
But at no point should you forget that a business can only be profitable and successful if it operates under the unwritten social contract. That is inclusive growth.
The article has been pen down by Satyarth Priyedarshi, AVP, eCommerce, Reliance Jio. In past, Satyarth had leadership positions in companies like Google, Flipkart, Infibeam among others. He has deep experience e-commerce, m-commerce and retail from Indian and International markets from east Asia to the Middle East. (Over 14 countries & Markets)
(Disclaimer: The views expressed in the article are author's own and not reflect the views of any of employers, present or past.)
24 Nov 2015, Hotel Pullman, Aerocity, New Delhi.
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