Start-ups: Vai-thee-fuss?. There must be ease of winding up business, too

The World Bank regularly publishes an ‘ease of doing business’ ranking of countries. In the last published report in 2020, India had significantly improved its ranking to 63 from 142 in 2015. This is an important parameter because it tells the world how friendly we are as a nation to attract international business investments. Entrepreneurs prefer to operate in environments where they have freedom to do business without facing red tape or political interference. 

However, there’s another half of the problem that is very relevant for start-ups. The failure rate of start-ups is quite high and this is unlikely to improve anytime soon. Founders of failed start-ups must be facilitated to shut down the unsuccessful venture without a hitch and move to their next start-up. 

A good business environment must not only enable the setting up and running of a business smoothly but also offer the right support when the business wants to close operations. In other words, there must be ease of not doing business, as well.

When I had to shut down Indiaplaza due to funding troubles, I realised the enormity of the challenge I was facing. As per regulations, the management of the company that wants to down shutters must get ‘no objection’ certificates from several groups including creditors, which is impossible. Further, in India there is no social separation between the founder and a business. Legally, dues are owed by entities; in India, however, creditors start hounding individuals for the dues, leading to severe harassment and abuse.

While we all want to build a start-up ecosystem in India that matches global standards, this is an area where we are way behind. The founder of a failed start-up in the San Francisco Bay Area is headhunted by big brands because of the huge learning the entrepreneur can bring to the table; but in India, a failed founder is treated like a persona non grata and hounded by creditors. This needs to change and the government can play an important role in this by instituting a simple process to shut down a company; and providing a safety net for entrepreneurs to avoid getting entangled in legal wrangles. This would allow entrepreneurs to do what they are good at, namely launch their next start-up.

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It is, of course, possible that such a protection may be gamed by some folks by taking undue advantage of the support, but that’s a small risk in any initiative. 

We cannot have a process that punishes 100 per cent of the participants to catch 5 per cent of the deviants. That’s the thinking we need to truly build a world-class start-up ecosystem.

(The writer is a serial entrepreneur and best-selling author of the book ‘Failing to Succeed’; posts on X @vaitheek)

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