What Sets Apart a Successful Startup from an Unsuccessful One?

Henry Ford, the founder of Ford Motor Company famously once said that “failure is simply the opportunity to begin again, this time more intelligently”. While one may agree with this sentiment, some failures are hard to recover from. To speak about this from a startup viewpoint, it may be especially hard for newly formed enterprises to recover from losses and failures because the founders usually bet everything that they have on their business.

If surveys were to be quoted, a study conducted by the IBM Institute for Business Value (IBV) that was done in collaboration with Oxford Economics by including inputs from 1300 Indian executives, which encompassed views of 600 startup entrepreneurs, 100 venture capitalists, 100 government leaders, 500 leaders of established companies and 22 educational institution leaders found that more than 90% startups in India fail in their first 5 years. In fact, the regularly quoted number is that 9 out of 10 startups fail. Therefore, it would be prudent on the part of aspiring entrepreneurs to study and learn from unsuccessful startups if they hope to become successful.

Why Do Startups Fail?

There are a number of reasons for startups failing to make the mark after displaying initial signs of success. Nonetheless, the following are the top five reasons:

Error in capital management: A large majority of startups fail because they are not able to optimise their costs and manage cash flow. According to a study carried out by Jessie Hagen of US Bank, 82 percent of small businesses fail due to poor management of finances. The same study also says that 79 percent of startups start out with too little money, and 78% lack a well-developed business plan, that includes insufficient research on the business before starting it.

Competition in the market: Unlike the past, there is too much competition in the market, and there are companies that are being born every day that are willing to offer services similar to the ones that already exist but in a better manner. A CB Insights survey reveals that 19 percent of the startups fail as they get outcompeted by other startups.

Lack of innovation: Indian startups, according to an IBM survey, tend to imitate ideas of already successful global startups, which usually does not work out well. The study found that many Indian startups lack pioneering innovation based on new technologies or unique business models.  If Indian startups wish to succeed, they will need to work on more original ideas based on the traits that they are experts at.

Burn-out or lack of passion: Several startups tend to fizzle out as they are unable to keep up the pace with which they began. Startup founders, and their team tend to over-work passionately initially, and are sometimes unable to sustain this momentum. This is one of the main reasons for startups to break down.

Dearth of skilled employees: A product is only as good as its execution, which in-turn boils down to the team. Lack of a skilled team is another important reason for companies failing to make a mark. According to the Global Skills Index 2019 report, there is a great need for reskilling, upskilling and deep-skilling as out of 60 countries – India ranks 50 in business, 44 in technology and 51 in data science skillset, which shows the current skilled workforce in India is falling behind in adeptness.

How to Ensure that a Startup Idea Turns Successful?

While there is no sure shot incantation to success, taking stock of the above-mentioned realities and trudging cautiously while navigating through the uncertain times that the IT industry is going through will help a startup expand its operations. In addition to that, entrepreneurs need to understand that India is a complex market that is extremely dynamic. Building a sustainable and scalable business in the country needs time, guidance from peers and a comprehensive roadmap to succeed.

The article has been written by Vikas Bhonsle, CEO – Crayon Software Experts India