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The reasons why almost 90 per cent startups fail in India
Startups in India are becoming the new trend. They are becoming the new dream, the new IITs, IIMs & IAS. They are getting extremely competitive, innovative, are highly funded and are yet miserably failing, and the rate of failure being more than 90 per cent. But why?

What started as looking for solutions to problems that people are facing has turned into a new industry. Every other person working in a corporate or studying in a college has started believing that he has a revolutionary idea. A never tested-on paper-dreamt about-idea that he believes is going to be 'the next big thing'.

Indian e-commerce markets have become the fastest growing e-commerce market in Asia-Pacific and 4th fastest in the world. Funds were flowing in multi-million dollars. Founders became rich, investors even richer and employees started looking at jobs from a different perspective. While working for a startup, salary is much higher than a regular corporate, work culture is super-friendly, perks are amazing and more than anything, working with a startup became the new 'cool' thing. So what is wrong?

The CEO of a company in Gurgaon (who does not wish to be named) that helps startups get investor funding makes the things a little more clear. "In India we blindly follow things. It is not that we cannot see, we see what we want to see and ignore what we don't want to. When I was in school, a 'Mehta ji ka beta' was an example. Mehta ji's son gets brilliant marks, gets into IIT, then IIM and has a job with a dream salary. Now to become like Mehta ji's son was easy. Study smarter, work harder and you have a good chance of achieving what he has achieved. But now, things have changed, Mehta ji's son scores good, plays a guitar, goes to IIT, drops out, starts a startup, gets a million-dollar funding, has a cool office, a car, and his Facebook profile mentions his designation as the CEO of a company. Becoming this isn't easy. And yet, people are blindly trying to reach there."

It is so good to be ambitious, but what makes the ambitions fail is the fact that they are misguided. Young people, fed up with their daily routine jobs are seeing this as an opportunity to shift the gears of their life and quickly jump from a middle-class to a high-class life. It is more about starting a startup, about making money, rather than about solving real-life problems.

An investor who has already invested in four firms, out of which one has reached break-even, one is close to break-even and two have failed, has a different take on this. On conditions of anonymity he told the merinews correspondent, "The first major problem is that news about successful startups spreads like wildfire. Nobody bothers to cross check. I won't take names but there are some major players in the e-commerce market, who have been there for years and are yet to make a single rupee in profit. The second problem is that a startup is considered successful once it receives funding. Funding is just the first step. It does not mean your idea is going to work; it only means somebody believes in your idea, has faith in you and has trusted you with his money. But the startup founders have started taking this as a benchmark for success. It is not. And the third major problem is you, the media. You people talk about funded startups as if every other startup is flooded with millions, and that too in dollars. Nobody talks about rupees any more, everything is calculated in dollars. You don't report the extremely high percentage of failures, the so many startups that failed even after funding, the tens of big huge names who are not making a single penny in profit."

Aditi Garg is in the team of financial advisors to an angel investor. Talking to her about the reality of the startup world, she said, "The investments are drying up, investors have tightened their belts, they no more believe in financial projections, they want to see the profits in their bank accounts, not on presentation slides,"

"The problem is these young people have ideas, brilliant ideas, in fact some of the business plans that come to us are revolutionary. They work so hard on preparing the business plans. All the time is spent in making projections & presentations; they hardly have a feasible working plan. The path from Excel sheets to bank balance is tough and that is where most of them fail. Most of the startups fail not because of lack of funds, or competition but due to mismanagement."

Ms Garg remembers two young boys that came to meet her. She said, "They came up with an idea that was really good but we thought the amount they are seeking was astronomical for such an idea. When we looked at expenses, most of the money went in salaries & office expenses."

Ms Garg told them, "We will fund you but we need to know your sense of business. I want you to bring this amount need to extreme minimum. We know how much will be enough for your idea. We want to see, how much you can bring it down. And if you meet what we have set in mind, we will double the amount and sign the deal."

Ms Garg says that the boys came three days later with their team and they had slashed the amount by 70 per cent.

"Now what they had thought is that even if they ask for 30 per cent, since they had been promised double the amount, they will get 60 per cent. And it was all on Excel sheets, so well detailed. We rejected the idea" she added.

She ends the discussion by quoting Ronald Coase: "If you torture the data long enough, it will confess to anything you want."

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
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