Lacking efficiency: A stumbling block for every Indian startup

Recently India emerged as a third largest startup ecosystem in the world with over 5500 startups operating. Many of them are even making big headlines like Paytm that sealed a deal with Berkshire Hathaway’s owner Warren Buffet. Significant percentage of Indian startups that are able to successfully raise capital in the grocery tech- 5%, healthcare and consumer healthcare- 10% and smart home and home improvement- 11%. Sectors like E- commerce and Fintech are doing exceptionally well in Indian startup environment.

Yet nine out of ten startups fail. No matter how well funded or established most of them falls apart. Data suggests that some of the biggest startup failures have also been one of the best-funded ones. Since 2015, as many as 1,503 startups have closed down in India. The core reason is they lack efficiency. Some work very efficiently in beginning but becomes less efficient gradually while others are not able to utilise its resources efficiently and all this happens due to multiple reasons. Let’s go through few of them:

1. No Market Need:

Data suggests that 42% of startups fail because they didn’t solve a market need. Most of the startups created a product that didn’t fit in the market. Incomplete or less thorough market research and understanding of customer needs has what led these startups to failure. Also startups these days are replicating products or services, they go after what is hot-selling which restricts innovation and ravages resources. Tony Hsieh, Zappos CEO said- “Don’t play games that you don’t understand, even if you see lots of other people making money from them.”

2. Unsuitable/ Ill-suited/ Wrong Team:

It is evident that 23% of startups fail because they have got wrong teams. Less diverse employees do more harm than good. Another big mistake most of the startups do is having no team and going solo. According to a Research, Solo founders take 3.6x longer to outgrow the startup phase. Choosing an apt team that means right persons for right work should something startups must take care of right from the beginning. Having a peculiar mix of experienced and fresher is what each startup’s ‘Building a team’ strategy should be. A balanced team has 2.9x more user growth than an unbalanced team.

3. Inadequate Capital funding:

29% of startups run out of cash very soon after starting its operations. Early stage startups gets a little or no venture capital funding, all they have is the capital which they initially started with and sooner or later because of inefficient financial planning it runs out. Most of them are founded by young entrepreneurs who do not have a reliable credit history and have minimal contacts to get a great funding. Lack of sustainable business and financial planning have led to doom of many startups even before coming up.

DATA BEATS EMOTIONS

According to an examination of startup businesses in the United States conducted by Statistic Brain, almost all new companies fail: 50 percent after five years and 70 percent after 10 years. Their data found that 46 percent of all companies in the US fail due to “incompetence.” That category includes everything from “emotional pricing” to “no experience in record-keeping” to “non-payment of taxes.” The next 30 percent failed due to “unbalanced experience or lack of managerial experience”, followed by 11 percent failing due to “lack of experiences in line of goods or services.”

Solution:

  • There are no facts inside the building. You need to talk to users as much as you can to move forward, even if that means doing things that don’t scale.
  • No business was built on nice-to-have features. The most important thing is to make your customer more successful by solving their biggest struggles, challenges and frustrations. Something nice-to-have won’t lead to a big business.
  • No plan survives its first contact with the market. So don’t spend months drawing them up. Take 5 minutes to put your ideas on a business model canvas, and go test them.

70% of startups scale up too early

Premature scaling basically means too much, too soon.

You’re not ready to scale when:

  1. You don’t know the lifetime value of your customers (price * repeated purchase) and your cost to acquire that user.
  2. Your business model isn’t repeating, meaning you’re not yet acquiring customers in a similar way.
  3. You’re spending more time working in the business than on the business.  
  • Choose success over failure.
  • Choose customers over products.
  • Choose focus over external validation.
  • Choose a balanced team over going at it alone.
  • Choose predictable growth over “too much, too soon”

 

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