Globally, 8 out of 10 start ups fail within 18 months
There are three new Startups every second
Only 37% of information companies are still operating after four years.
Conversely, real estate, finance, and insurance are the most likely to remain in business, with 58% still running after four year.
In 2015, Start up created 80,000 jobs in India.
Some examples of failed ventures
It was a used car marketplace company that raised $7 Million in funding.
Founded by 3 IITians the Company shut down after merely 2 years of operations.
Despite offering the best service to its customers the problem Zoomo ran into was haggling over price.
In a culture where consumers often put a premium on discount instead of quality, the model followed by Zoomo was never likely to succeed (at least not in the short run).
Peppertap, LocalBanya & GrocShop
Peppertap, the Gurgaon-based startup had raised over US$50 million, including a US$36 million from Snapdeal in September 2015. And yet, less than a year later, it shut down.
LocalBanya, which raised US$5 million, also failed.
GrocShop, founded by IIT Bombay alumni and selected by Google for mentoring also had shut down.
The Grocery delivery startups have been ‘buying’ customers, who pay no convenience fees to get the groceries delivered to their doorsteps. Also, when a discount is offered to acquire more customers, it’s the local retailers who grab the cheap groceries from these apps, thus defeating the intention to acquire more customers.
Hyper local Grocery market holds meagre margins and economies of scale can be achieved only with a large consumer base which none have achieved in the Industry as yet.
Chief Reason of failures
Lack of Consumer behavior understanding:
Consumer behavior patterns in India are different from that of the US. Blindly following US models is unlikely to work.
No Market Research/Testing:
Most start-ups seems to rely on a trial and error strategy. No effort is made to understand the market dynamics
Mounting losses and Unsustainable ventures:
Diversifying into too many businesses without optimization in core business results in accumulation of huge debt.
REASONS FOR SUCH BLUNDERS
Avoiding Content Marketing
A startup founder who is basically technically averse, doesn’t have a natural liking towards content marketing and hence tends to overlook the entire range of benefits the channel contains. However, this is the basic mistake one needs to avoid making, in order to see the everlasting success of the business startup.
A founder, needs content to narrate the story of his startup and the same story should soak into the essence of the potential customer, driving them to not only select his own product over others, but establish a long standing bond with the brand.
Lastly, it isn’t enough to only come up with enticing and thought-provoking stories around your brand. You also need to market the same effectively, ensuring that your target audience is compelled to read, view or listen to it.
‘Unsustainable Business Model’
The idea could never have worked in the first place no matter how much capital, raw material or skills have put in it.
A model consisting of a negative cost to revenue equation will always incur losses no matter what the funding is and hence, an entrepreneur who is also a rational human being would have to shut it down in order to limit the losses.
Lack of realistic thinking by the entrepreneurs lead them to such a crisis and this is simply because they make mistakes in addressing the depth of problem space, forgetting the space between an ideal and a real solution.
‘Poor unit economics’
The Indian market scenario is where the customer retention by any particular brand is very low due to the dispensable nature of products and services such as consumables, services, etc.
The Indian market is full of substitute goods which can be used in place of each other and hence, a slightest of variation in the quality or price or any other determining factor of demand leads to a change in demand for the product or service.
The competition the various startups face from the local stores who have a much better understanding of the business, their customers and the relationship with them in accordance with their own delivery brings out questions about the origin of the startup in order to solve a problem that doesn’t probably require any solving.
“Grofers” incurs high inventory cost along with high transportation costs as they rely on picking up goods from the retail stores (inventory cost is incurred) and then transport the item to the customer’s location (retail transportation cost is incurred) in addition to the discounts and returns, the effective margin narrows down to a very small value and in most cases negative thus turning out to be a major reason for the failure of the startups.
‘Lack of a long term approach’
Poor Unit Economics are usually supplemented by an idea. The group of entrepreneurs are in a hurry to win over each other in the present time without planning anything solid for their future which leads to a decline in the growth of the startup.
This is clear when the startups have their focus on increasing their customers, while ignoring the business viability for a long time whereas they fail to understand that a long term approach would allow them to set a timetable and certain steps in order to achieve the goals.
This can only be neutralized by having proper mentorship and guidance for laying out the steps to success.
Improper guidance and mentorship
Improper guidance and Mentorship is the case with most of the founders in India.
They usually ignore the venture capitalists’ mentorship in the pursuit of “self proclaimed success” and eventually end up being confused with lots of questions in mind and no one to answer them.
A proper mentor shall hold a mirror to the business, ask the entrepreneur tough questions, push the bar higher in accordance with sharing all his experience and expertise and motivate the entrepreneur in order to bring about some positives in the startup.
It is well known that a good team can do wonders with an ordinary idea whereas ego clashes or differences within a team can even force a shut down to an exceptional idea.
Trust within the team members and complete dedication towards the work help in achieving greater heights for the startup whereas problems within the team can wreak havoc.
Even though the founder’s individual characteristics are important but what is more important is his/her person’s ability to bring a bigger and more experienced team with him/her.
Thus, a sole founder for a startup is not a right choice and building up of an effective team should be of prime concern where each team member proves to be an asset and helps the startup grow.
How to avoid such disasters?
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About the author
Ashutosh is the founder and Managing Director of Mangal Analytics & Research Consulting Pvt Ltd (MARC).
(MARC), provides management consulting and business advisory services.
MARC was selected as one of the Top 25 MOST PROMISING FINANCIAL CONSUTANTS 2017 by Consultants Review magazine.
MARC is a multi-locational firm, with presence in Mumbai Pune, Goa. Our clients range from start-ups to established business houses to reputed companies.
Prior to incorporating MARC, Ashutosh worked in the financial advisory division of PricewaterhouseCoopers (Mumbai). In his three and half year stint at PwC, Ashutosh worked with several private equities and companies across sectors.
His key skills include due diligence and financial analysis. Ashutosh is a Chartered Accountant and holds a certificate in business finance.
Ashutosh is also a member of CII, Goa and Goa Chamber of Commerce and Industry.
Visit our website http://www.masgoa.com