The emergence of the startup ecosystem has been seeing two sides of the world — one of success, and another of failures all over the world, including in India.
Tonnes have been written and discussed on various mistakes that lead to startup failures, including a bad idea, going alone, no or improper planning, lack of focus, mediocre leadership, spending money recklessly, launching at the wrong time, etc.
However, the scope of this discussion touches upon certain mistakes that are not discussed or written about as they deserve related to the Indian startup ecosystem.
The advent of technology and initiatives like ‘Make in India’ has led to the sharp rise of Indian startups. In fact, this has been strengthened by continuous support from the government and improvement in the Ease of Doing Business Index.
Moreover, Startup India has established an ecosystem to encourage entrepreneurship and job creation for the country.
However, despite all these factors, it is estimated that 90 percent of Indian startups fail within five years of their inception as per a report by IBM Institute for Business Value and Oxford Economics.
The reasons for their failure can be one or a combination of reasons such as the type of industry or business, the region or the market target for business, the skills, attributes, and track record of founders, among others.
These mistakes are least discussed, but not of least importance. These are some of the areas where the least discussed startup mistakes happen.
The originality of ideas
An idea makes or breaks the startup. Bad ideas are quickly vetted and easily avoided by intelligent founders and brilliant investors. A good idea before its time can be a deadly trap sucking resource of pioneers and wasting time fertilising the ground for settlers to come in later to flourish.
While enough has been discussed about the above element, what is being pointed out here is a different reason related to the idea. We have come across several startup enthusiasts who don’t want to put in efforts but copy or clone other successful business ideas or business models.
Such startups have all the inherent ingredients to fail miserably unless it has some USP or differentiator, which provides an extra value that other players in a similar business don’t possess.
For an idea to succeed, it must be original, authentic, and credible. Only then, the founders who conceived it will be able to smell, breathe, and sleep the passion for the idea.
Before one starts working on the business plan, the idea has to be thought of, deliberated, and researched well, considering the feasibility of success with more focus on the pros in detail specific to the business plan instead of assuming it would be the same as the original.
A founder’s passion
It is well discussed that the founders who have in-depth knowledge of the business, its underlying technologies, passion for success, and an overall understanding of various pillars of business fare well in their business and attract investors.
However, this is about their attitude. Many founders think that dropouts make it big in business because people like Bill Gates and Steve Jobs did it.
These dreamers contribute more to the failure rate. For them, a startup is an excuse not to complete their formal academic studies and instead venture into something with a patched-up business idea, hoping that after few months, investors will queue up to fund their business and can strike gold easily.
Needless to say that such founders lack skills, leadership qualities, domain knowledge or experience, and these reasons are enough for a guaranteed failure.
This is not to sound pessimistic, but to alert those who have dreams to become an entrepreneur about the pitfalls lying ahead in accomplishing their dream.
The importance of support functions
The idea is the hero, but the founders assuming once they have finalised a solid viable idea, they can do everything under the sun by themselves are committing a costly mistake of misjudgement. Thus, a good idea can fail too if it is not implemented thoughtfully.
Often, early-stage startup founders neglect functions like finance, accounting, HR, IT, etc., either by trying to do all these functions themselves or outsource them to mediocre service providers. These back-office or support functions are normally looked down upon as non-value adding or unproductive function.
These days, alternative options are available for part-time or freelance services of any function during the initial stages. However, there is a tendency from startups to avoid availing of good services for functions like finance and HR as long as possible, assuming it would save money in the early stages.
The startup funding will not help unless money is managed diligently and judicially, which calls for sufficient skills and experience to manage cash flow and investment. Add to it the need for legal, statutory, and tax requirements, which if not complied in time, can land the startups in an unenviable situation, resulting in losing governmental benefits and incentives.
Most of the times, founders get their business plan and valuation done by consultants, who provide unrealistic excel sheet plans. Most of the times, these plans are theoretical workings and projections based on unrealistic assumptions extrapolated using templates and copying the plans of other startups.
It is a prerequisite that people with business and finance acumen must work closely with the founders to understand the pulse of the idea and work on putting up a realistic plan.
Those days are gone when you could mesmerise investors with glossy looking business plans without substance and proper research. At the end of the day, a business plan must be achievable and intelligent to investors.
In fact, the internal IT function is very crucial in setting up internal technology needs, tools, and systems to facilitate a smooth working environment. This has gained more importance during the COVID-19 pandemic, where facilitating robust work from home environment is very crucial.
Needless to reiterate the importance of sourcing and onboarding resources who are skilled and motivated, and more importantly, are a cultural fit for the startup.
Neglect them at your peril
Even if the founders have decided to onboard resources or outsource the functions, the founder must have a fundamental understanding of these functions, or if there are multiple founders or co-founders, they should assume leadership responsibilities of the function they are comfortable with.
They should know the basics of taxation and other compliances, finance tools like cash flow management, valuation to the minimum, resource planning, onboarding processes, and technology tools if they want to steer their business to success.
There are two main reasons for sidetracking these functions — one, the founders’ overconfidence in taking care of all these functions by themselves, and another, the urge to save money or reduce cost, which is good unless the result is more costly than what is saved.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YS.)