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Indian Startups: Challenges and Opportunities

Indian Startups: Challenges and Opportunities

Startups are essentially of two kinds. One that starts something ground up, something that no one has thought about and is often ground breaking. This type of startup is difficult to create but once created often sees unprecedented growth. The second kind of startups that we see around us are primarily the ones that do not want to reinvent the wheel. They are akin to adding old sauce in a new dish to create something new and innovative.

Whatever may be the kind of startup, Indian startups face its own set of challenges and some stellar opportunities. The challenges can be classified as:

Culture – Entrepreneurship and startups are only a recent phenomenon in the country. It is only in the last decade and half that people in the country have moved from being job seekers to job creators.
Doing a startup is tough and every country sees more failures than success. More often than not an entrepreneur needs to be prepared to face failures and unprecedented hardship. However, culturally we are not groomed to fail and failure is frowned upon. Entrpreneurship thrives on celebrations and a society that fails to appreciate business failures stifles innovation and creativity even before it can start.

A startup failing has to be OK as failures often teach an entrepreneur, what to do and what not to do. No formal mechanism to mentor startups – Doing a startup is perilous and often a lonely journey. You may have co-founders, but you may not necessarily possess the business acumen to succeed. Having a brilliant idea is different from making that idea a business success. For a startup, it is very important to have mentors who have been through a similar process of starting or have business experience. A great mentor is often what separates success from failure by providing valuable inputs. However, there is no formal mechanism to mentor startups in the country. Every mentoring that happens is on an ad-hoc basis. A startup that has raised finds can count the investors for some form of mentoring, but honest, unbiased, good business mentors are far and few in between. For startups finding a good mentor is often an uphill task.

Government role – Government is the single largest enabler for the entrepreneurial ecosystem. Governments role in ease of doing business and helping companies start is vital to ensuring success. The latest World Bank Ease of Doing Business (out of 189 economies) ranks India at an abysmal 142 where starting a business rank for the country is even lower at 158. It is uncannily difficult to start a business in India and myriad laws and regulations means it takes about 30 days to comply compared to just 9 days in OECD countries. The government’s role has so far been limited to giving out grants and loans, but without an effective, enabling environment, implementation is far off the target. In this regard it will be interesting to see the contours of the recently announced Startup Fund in this year’s budget. For startups to thrive and succeed, the government has a lot to do and understand the importance of entrepreneurship in economic development.

Hiring challenges – The economy has been in a flux and along with the world economy the heady days of high growth are long gone. In an uncertain economy where one is not sure about demand, for a startup, it is particularly difficult to make correct estimates on the number of employees needed. This, however, is the minor problem where the biggest issue is about finding skilled manpower. India’s skilling need is so huge that National Skill Development Corporation (NSDC) has been mandated to skill 150 million
Indians by 2022. For a startup, it is particularly difficult to attract and hire talent and skilled workers. A startup often cannot match the salaries drawn at larger companies nor is a job at a startup seen as a steady one. This means startups face severe hiring challenges and at times have to settle for the next best option.
Funding challenges – Capital and access to capital has been a perennial problem for startups. While, of late angel investors, venture capital and private equity have bought succor to some extent, a large number of startups still grapple to raise funds from institutional setup. Funding challenge is not merely limited to seed rounds, but also for vital Series A and B rounds. For a startup looking to scale, it is still very hard to raise rounds to scale as the number of investors that write larger cheques in India are very
limited in number.

Go global – While India is a big market, to be truly successful, a venture has to look at the world as its playground. Every market and every country are different and while a startup may have local knowledge, it may not know the intricacies involved in operating in another country. To scale a the venture beyond India a startup needs help and that is limited in India. For example, in a country like Israel, because its local market is so small, entrepreneurs have to look beyond (the US mostly) and hence there is an entire ecosystem build around helping these startups go global. Until such a support system is created in India, scaling outside India would remain a difficult proposition.

The opportunities

Demographic dividend – According to the latest UN report India with 356 million 10-24 year-olds have the largest concentration of youth population despite having a smaller population than China. This augurs well for the country as right education and healthcare can see the economy soar. Youth is the driving force behind innovation, creation, and the future leaders of a country. Youth also drives demand and consumption pattern in a country. For startups youth make up the workforce that it so desperately
needs and going forward youth can be a huge talent base for startups.

Best suited to address emerging countries’ challenges – India has a unique set of problems that need innovations to originate out of the country. Problems around its health, education, infrastructure, sanitation are unique to the country and solutions from western world cannot solve it. Each problem provides a unique opportunity for startups to solve some pressing issue and at the same time create a business around it. What helps is that most problems around emerging economies are similar in nature and solutions applicable here can also work in many countries in Africa and elsewhere. This enables Indian startups to acquire an even bigger scale and at the same time make a meaningful impact around the world.

Large population – For startups in the country, it is not essential to go overseas. India, with over a billion people, present a very large home market for any goods or services. A rising disposable income and growing aspirations of a mushrooming middle class have meant there is a large appetite for brands. The large population has also led to a consumer expenditure growth, which has in turn has propped up supply and production. Startups that look to service and cater to the large population in solving a pain
point or providing a utility in one of the world’s most important consumer markets, stand to do well.

High Mobile penetration – According to latest Trai figures India's tele-density reached 76.55 percent with a subscriber base of 95.76 crore. Significantly wireless subscriber base touched 95.76 crore, just shy of 100 crore mark. High mobile penetration in urban and rural India has reshaped the economy of the country and how goods and services are offered. It has lead to greater efficiencies and increased productivity. It has meant businesses profit through faster decision making, better logistics and even something like access to bank accounts. Higher mobile penetration has also led to increased financial inclusion and flow of credit to the unbanked. Growth in mobile penetration is transforming the way businesses and consumers communicate and work. With data enabled mobile phones, the very nature of startups and businesses have changed. For example, startups that develop mobile apps now have an ever increasing market to cater to.

India is at crossroads where it now has to cater to the aspirations of a billion people. Existing frameworks can prove to be inadequate and there is a great need to leverage a billion minds and become a global power. Startups and entrepreneurship is the best way forward in becoming a knowledge super power.