Today, India boasts of more than 19,000 startups. The majority are in the technology space, led by consumer Internet and financial services startups.
Most pundits discuss the positive side of the Indian startup scenario. They talk about how government reforms are helping startups grow, and the sheer number spread across the country.
But the fact that only eight of India’s 19,000+ startups are part of the Unicorn club (valued at over $1 Bn) should raise some eyebrows.
I know valuation is not the best metric to measure the effectiveness of a startup. But Infosys co-founder Kris Gopalakrishnan stated that around 70 percent Indian startups will fail should ring some alarm bells. This is an indicator of how many startups fail to achieve the goal they had set out with.
Why does a country filled with intelligent youngsters have such a large startup failure rate?
Many challenges plague the startup space, in India and abroad. The most crucial ones either make or break a venture, not just in its early days but also when it stabilizes. They are:
A business model is an essential factor in the growth and sustenance of a startup. If the business is a ship, the model is its compass. The lack of a robust model paralyses a startup right from the outset.
A business model encompasses much more than just a document. It details the target market, their pain points, how your (the startup’s) offerings serve as a solution, marketing and partnering strategies, and more.
Unfortunately, ninety percent of startups don’t have a model. They try competing with established businesses on price. This is not sustainable. Chief Executive of Future Group, Kishore Biyani, said that ninety percent of the startups he comes across have no meaning. Startups must compete on value and reaching out to niche markets, instead of releasing me-too products at cheaper costs.
A founder is not a musician in an orchestra. They are the maestro, who conducts the orchestra. Founders must work on doing what they are best at, instead of doing everything. That is how a company can not just survive, but grow. The importance of a model in defining this roles to begin with, is paramount.
Another crucial differentiating factor for any startup is its people. Unfortunately, it is also one of the most overlooked factors. High quality, passionate people are the lifeblood for any organisation.
A startup shouldn’t try competing on salaries, perks and stock options. Because those offers can be countered by competitors.
Instead of searching for rockstars or, on the other end of the scale, cheap labor, they must hire people who are good at their work, have an appetite for risk, and are fine with being remunerated less than their peers in other companies.
Replace monetary benefits with meaningful work, and talented people will gladly work with you to make your vision a reality. The significance of a business model in achieving this aim is evident.
Don’t hire people just because you want to ramp up. Look for talented people who know what they are doing, and can think on their feet. For instance, Basecamp founder Jason Fried pays potential hires $1500 to address a challenge Basecamp faces. This lets the firm gauge the emotional intelligence and skill of the candidate, before deciding whether they want her/him onboard.
Hire good people, give them autonomy and stay lean. This will positively impact the next essential factor.
Cash-flow is king. Startups should be watchful of how every penny is spent, even when they are making money.
Most startup founders claim that they cannot market their offerings if they are not flush with funds. That is not true. If a startup can address a pain point and develop an effective strategy to reach its target market (read business model), it can generate better results even by spending a quarter of its competitor’s budget,
A startup must understand the cost involved with every aspect of its business. The potential return on investment for every rupee spent should be gauged.
When my partner and I started Effex, we spent money on similar diaries and pens. We bought professional Powerpoint templates. And then we hit a brick wall. We wondered how we would use these similar looking diaries, pens, and Powerpoint templates. You see, we didn’t invest in the audience we would reach out to, something we should have invested in first.
It’s not how much money a startup has, but how it invests the money, that matters. So manage your money wisely to ensure that your business doesn’t go bust within a few months or a year.
Running a startup is one of the most gratifying feelings. Not because of the accolades or spotlight, but because it gives you freedom to pursue what you want. Founders shouldn’t work as employees in their startups, nor should they handicap its functioning in their absence. Instead, they should pay attention to the three crucial factors mentioned above to turn it into a self-driven car, while they focus on improving its efficiency and output.
[The author of this post is Hardik Harsora, co- founder of Effex Business Solutions.]