How to deal with the growth challenges of tech start-ups

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Published: February 4, 2019 4:03:39 AM

Indians have been found to be the most willing to quit their jobs and start their own business.

The primary roadblock for inability to grow has been found to be lack of innovation.

India has witnessed the emergence of startup culture over the past few years with tech focussed ventures being the largest. The Indian technology startup domain is placed at the fourth largest position in the world. In 2018, the industry has been estimated at $35 billion. According to Randstadt Monitor Report, 86% of Indian entrepreneurs consider India a good place to start a business of their own, a substantial 30% more than the global average. Indians have been found to be the most willing to quit their jobs and start their own business. The startups in India saw a 108% growth in total funding from $2 billion in 2017 to $4.2 billion in 2018 according to Nasscom. While tech startups have posted an average of 10% annual growth, it has been observed that 90% of startups fail to succeed, according to a report by IBM Institute for Business Value and Oxford Economics. The seed stage funding of Indian startups has declined from USD 191 million in 2017 to $151 million in 2018. The Inc42 DataLabs’ tech startup funding report 2017 states that with lesser startups being able to make it to Series A and many ‘me-too’ startups at the seed stage, the funding disparity will continue.

Let’s take a look at the key reasons for inability of the startups to grow. The primary roadblock for inability to grow has been found to be lack of innovation. Many of the ventures have been clones of western ideas limiting the scope for growth due to the lack of adaptability for the Indian market. A study, titled ‘Entrepreneurial India’, states that while the market evaluation of Indian startups has grown in the past four years, 77% of the venture capitalists believe they don’t have unique business models. Many startups restrict their thinking around becoming aggregators and their business models are centered around emulating the success of Uber in different areas. While Uber has undoubtedly created a massive disruption using the digital advantage, there may be other ways of bringing about disruption which require out-of-the-box thinking.

Since growth is very important for sustaining the venture and specially meeting the expectations of the investors, often startups overspend on their expansion plan without considering the viability of the business model and profitability not in their near term horizon. Acquisition of customers is a significant parameter for growth but that cannot be at the cost of the business model that has an eye on the profitability of the venture. Several startups miss this plot and as a result fold up when the business model fails to take off and the funds dry up.

Taking it slow in the initial phase, recognising that principles of economics apply to startups too and ‘slow and steady wins the race’ approach are often considered as old- fashioned by startups. Again, what is important is to have those employees in the team who value learning and personal growth aligned with the venture success. Hence, it’s not fat paychecks in the shortest possible time but the belief and commitment to the mission of the venture which should be the reason for their association with the venture.

India has the potential to become a key champion of intellectual capital, innovation and growth critical for sustaining startups. Nevertheless, significant care is required in order to build the innovation ecosystem. One good indicator of innovation is the number of international patents a country applies for. In 2015-16, while Japan’s count stood at 44,235, China’s at 29,846 and South Korea’s at 14,626, India applied for only 1,423 patents. The access to the vast talent pool and technical capabilities are great positives which catalyse the startup eco system. However, in order to nurture ongoing innovation culture, it is extremely important to address the quality and format of education as well as the infrastructure and expenditure on education in the country.

-The author is chairperson, Global Talent Track, www.gttconnect.com

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