India boasts the world's third largest startup ecosystem, home to numerous innovative concepts, revolutionary business methods, and unicorn enterprises. But did you know that in the first five years after their founding, 80–90% of Indian startups fail? This is true even though a number of these businesses had innovative concepts, some were getting significant funding and were hailed as high-potential businesses, and some had the support of influential corporate figures, but they all failed and had to close.

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Why do startups fail in India?

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#1 Insufficient originality and creativity:

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• Many people, including VCs, angel investors, successful entrepreneurs, and top investors, believe that this is one of the main causes of the high percentage of startup failure in the nation. This fact is further supported by the number of patents that startups possess or have applied for, which is [Not clear]. From 2015 to 2018, just 7% of all patents submitted by Indian corporations were owned by startups.
• Lack of a novel and innovative good, service, or solution that might survive the fierce market competition.operated in markets where imitation goods appeared fairly immediately.

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#2 Premature expansion/ scaling up:

• Premature scaling up/ expansion is a silent killer for many startups. This is because several of the failed startups considered the short-term spikes in key metrics including profitability as a sign that they were ready for expansion even though they were not performing as efficiently in reality (as suggested by their business models). As a result, they made the mistake of scaling up/ expanding their operations and burning a lot of their revenues and investments in hiring and marketing. Their underlying inefficiencies were typically invisible until they were on the brink of failure and shutdown.

#3 Lack of market understanding:

• For startups to thrive and flourish, they must have a clear understanding of the market they operate in and problems and opportunity gaps that exist in that market. For instance, streaming platforms providing local content in India thrive today owing to the availability of low-priced mobile data and increasing smartphone user base among the masses. If such platforms were launched 10 years ago, they might have simply shut shop. This means a deep understanding of market conditions and timing are crucial for success.
• The other related factor is that startups are unwilling to pivot at the right time because they are in love with their products and solutions rather than being customer-centric and market-oriented.

#4 Lack of funding and/or follow-on funding:

• Several startups were forced to shut shop owing to their inability to raise sufficient investments or follow-on funding. This has been the case especially with startups in industries such as logistics and supply chain, social impact, clean energy, etc. where the industry itself is poorly funded or investors focus narrowly on certain sub-segments of the industry owing to their lack of awareness of several high-potential grassroots innovations in other areas. Poor funding was also the reason for shutting down of startups in heavily funded spaces such as e-commerce, fintech, foodtech, consumer services, etc. because some players and models received heavy funding while several others did not.

Critical lessons to learn from failed Indian startups

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Failure, we believe, is a part of success. Learning from our own mistakes as well as mistakes made by others is crucial to ensure success.

• Innovation is key to the success and sustenance of Indian startups. Startups need to leverage tech talent, positive government initiatives and the growing pool of ecosystem enablers and mentors to innovate and solve for India and make India a leader rather than a follower.
• Business and revenue models make or break startups and they need to focus as much on these as their ideas and their products.

• Copying solutions and models from successful startups/ businesses abroad will eventually lead to startup failure, if they are not customized to the Indian market and business context.

• A product/ solution should never be launched without adequate, sound and objective market research. Overestimation of market needs and/or underestimation of competitors will only prove detrimental to the startup.
• Startups must be willing to pivot at the right time so as to evolve and sustain themselves in the dynamic business and market environment.
• The founding team must understand their strengths and weaknesses faster and accordingly, onboard experts (including legal consultants) and mentors to ensure they are not wasting precious resources and time.

In conclusion, the primary reasons for the failure of Indian startups include poor market research, inadequate funding, flawed business models, and regulatory obstacles. Many startups also face challenges in scaling and managing operations efficiently. To improve their chances of success, entrepreneurs need to prioritize detailed planning, strong business models, and adaptive strategies. By addressing these common issues, Indian startups can significantly enhance their potential for long-term sustainability and growth.

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