Startups, goofups and more

The year 2015 stood out for a mixed bag of fortunes gained and opportunities missed for startups in India. For someone like me who closely follows the startup scene both in India and Silicon Valley, it was like taking a roller-coaster ride of exhilaration this moment and trepidation the next.

A few highlights were that the term “unicorn club” to define billion-dollar startups entered the popular lexicon, the Indian market recorded over $8 billion of venture capital funding, the boom in e-commerce brought to the market many new ventures with bold and exciting ideas, and, unfortunately, there were many shocking announcements of early ventures either closing down or gasping for air.

Venture capital funding in India last year was expected to have been 50 per cent higher than in 2014. But ironically, the startup market in India was in the news as much for ventures closing down for lack of funds as it was for big-ticket funding and acquisitions. Many of these failed ventures were offering technology-enabled services in e-commerce such as food delivery, grocery delivery and retail. Is there cause for concern? Are we not startup ready? My answer to both questions is: No.

Why startups fail The failure rate of startups has always been high. Eight or nine out of 10 startups fail. Hence, to create the next Flipkart or Snapdeal, entrepreneurs and venture capitalists will have to go through the rigours — there are no shortcuts to success; stop dreaming of early IPO exits.

Studies worldwide have shown that the number one reason for the failure of startups is the lack of a market need for their products. It means the product someone built did not fulfil any need of the intended customer. Many entrepreneurs will dismiss this and remind you of what the founder of Apple, Steve Jobs, and the founder of Ford Motor, Henry Ford, said. Steve Jobs said, “A lot of times, people don’t know what they want until you show it to them.” In the early 1900s, while building an automobile for the average American, Ford said, “If I had asked people what they wanted, they would have said faster horses.”

However, just as not every rousing speech can spark a revolution, not many ideas or products can create a market by themselves. Entrepreneurs sometimes carry on doggedly with a novel idea that they love, hoping they will convince customers of its need along the way. Unfortunately, the math doesn’t work out and they end up with empty coffers.

Another common reason for failure is lack of sufficient funds. This may not be a reason by itself but it points to some underlying issues. It could mean a lack of response from the market, or leadership issues within the team that caused investors to withdraw or made it difficult to raise new funds. It was reported that in 2015, of the 388 enterprise tech startups founded in India, 21 got funding; of the 435 retail startups, 15 got funding; and of the 192 fintech ventures, eight got funded.

Too much funding is also sometimes cause for concern. We have seen in India how the availability of easy capital led to the launch of ventures that were simply imitations of what already existed or were poorly executed. Often these ventures would get their first round of funding but once they reached the product development or marketing stage, the fissures would show up.

In the case of technology startups, a common reason for failure is releasing a product without thorough testing. We also hear how the team was not the right fit, the promoters did not agree on critical issues, or the competition was way ahead in terms of product offering or market presence.

There is one more reason that doesn’t get sufficient notice: expectation management. Often, founders and investors have unrealistic expectations, early exit of 5 to 8 years being one of them. Investors in India must realise that the conditions here are very different from the West. Realistically speaking, it takes 8 to10 years for a company to achieve scale, and 10 to 15 years to reach the IPO stage.

Condemn or celebrate failure? In the Indian context, where failure is looked down upon by society, it’s not easy to accept a failed venture as “the stepping stone for future success”. The psychological damage of failure can be far-reaching. However, the trends are encouraging; there have been instances of founders coming out in the open to acknowledge their mistakes and take responsibility for them.

The Silicon Valley culture of celebrating failure and conducting failure post-mortems is seeping into our society. This trend is largely because of executives returning from the US to either work or start ventures here. They bring with them the American mantra of “fail fast, fail often”, which some would dismiss as gimmicky.

What Indian entrepreneurs need is not a celebration of failure but a dispassionate analysis of failure. Celebrating failure can sometimes be confused with condoning irresponsible behaviour and rash decision-making; it should instead be taken as a licence to admit to making mistakes without worrying about biases and stigmas.

For every entrepreneur who has spoken openly about the mistakes that he or she has made, there will be many others who will recognise trouble spots early on rather than shunning them, and thus saving their business.

Getting it right The startup atmosphere is warming up in India; it is the right time to test out ideas, look for funding, and launch a product. But there are no shortcuts to success: it takes rigorous planning, a good team with a balance of technical expertise and market knowledge, a product that truly promises a differentiator, and the right partners.

A factor that many ignore is the role of a mentor. We all know the role that Steve Jobs played in Mark Zuckerberg’s early days with Facebook. Microsoft founder Bill Gates has often spoken about investor Warren Buffet as his mentor. A mentor helps an entrepreneur look at things objectively, away from the pressures of everyday business.

A safer route to entrepreneurship is intrapreneurship by which the company in which an individual works, supports an innovative idea and funds the entrepreneur’s journey till the end product stage.

According to a report by Nasscom-Zinnov, by 2020, India will be home to 11,500 technology startups. Today, there are over 4,200 tech startups. The future looks bright for the Indian startup sector. Failures are critical milestones in the startup journey of a country; the more we publicly discuss failure and show the ability to get up and start all over again, the higher are our chances of moving up as the startup destination of the world.

The writer is the CEO of the WNS group and chairman of Nasscom’s business process management council

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