Lack of Innovation, Funding and Unethical business practices are the reasons Why Start-Ups fails, says Vipin Chauhan

In an exclusive interview with The Policy Times, Mr. Vipin Chauhan, Founder Of Sellosphere Pvt Ltd talks about survival, failure and challenges for start-ups in India

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Lack of Innovation, Funding and Unethical business practices are the reasons Why Start-Ups fails, says Vipin Chauhan
Lack of Innovation, Funding and Unethical business practices are the reasons Why Start-Ups fails, says Vipin Chauhan
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About Mr. Vipin Chauhan: Mr.Vipin Chauhan is a Founder of Sellosphere Pvt Ltd for past 3 years, which operates in B2B Space. Sellosphere has created a Niche in providing an Integrated Business Development engine to assist technology start-ups. Worked with 18+ start-ups and technology companies and have helped them to find the ideal customers. He has worked with few of the best IT companies and then start-ups (now valuation of more than $ 500 million). Alumni from Delhi Institute of Technology (1993-1997) and Indian Institute of Foreign Trade (1999-2001).

The Policy Times got in touch with Vipin Chauhan. Here are the excerpts from an interview Vipin Chauhan gave to The Policy Times.

  1. Why the start-ups in India are not able to survive as compared to their western counterparts?

Apart from the fact that market valuation of Indian start-ups has grown considerably over the past half a decade, a recent research undertaken by IBM Institute for Business Value and Oxford Economics found that 90% of Indian start-ups fail within the first five years. 

The most common reasons cited for the failure is lack of innovation, dwindling numbers of skilled workforce and funding, insufficient formal mentoring and unethical business practices. Building products that have no validation with the target base is also another important reason for the failure of start-ups. The entrepreneur should be able to solve a problem with her/his product and not come up with something just because she fancies it. The product or service should be significant and have the potential to make it big.

Some other factors leading to start-ups getting wrapped up are:

  1. Unimplemented government policies.
  2. Obscure or marginal niche.
  3. Poor infrastructure; high costs.
  4. Family pressure for a stable career.
  5. Microsoft, Google, Intel all have their own start-up ventures that invest & share technologies. Corporates in India are not known to steer in this direction.
  6. Slow or lesser funding.
  7. Regulations that are enervating and time taking.
  8. Slow movement with regards to launch.

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Q: We talk about India on the global stage, so then why do Indian start-ups still have to fight hard in order to get investors?

It’s a fairly simple notion – everyone who parts with her/his money wants to bet on a winning horse.

Q: Which investor would like to sink his ship on purpose?

Here are some pointers why Indian start-ups have a hell of a time scouting for investors. You can rest assured for smoother sailing when trying to secure funding if you address these pain points.

  1. The investor feels that proof of the start-ups potential success is missing
  2. The trust factor is sorely lacking – be it in terms of leadership skills, character of the team or judgment of the success of the product/service
  3. The co-founders of the start-up do not work in tandem and are at loggerheads all the time
  4. There’s no proof that the start-up will make too much money ever
  5. Figuring out the value of the start-up can be a challenge
  6. The market is not ready for the revolutionizing product the start-up has come up with

Q: As compared to technology start-ups; why do we come across only a small number of start-ups in the manufacturing sector?

Despite the high spirits of ‘Make in India’, the country’s manufacturing start-up sector is yet to be jump started. Hardware companies make up a paltry percentage of India’s start-up ecosystem, and those that exist are rarely given consideration by venture capital firms eager for scale and returns using software technology.

Some of the reasons that could be behind this dismal scenario could be:

  • Capital investments are huge in manufacturing fields. So investors are known to shy away from putting their monies in this sector.
  • Giving up has become a norm because of the highly intensive studies that are required to make this a success.
  • You will need to get out and get your hands dirty. Working from home can’t be an option. E-commerce start-ups allow you to be lazy.
  • Start-ups are generally surviving as well as thriving on innovation or a change. So overall software or e-commerce industries are more likely to experience changes whereas manufacturing will not.
  • Academia also poses a huge problem though institutes like IIT-Madras and some others are creating a platform for manufacturing companies

Q: How can the start-ups benefit from the government policies?

Start-ups are the ‘in’ thing in India gaining popularity by the moment. The government under the leadership of PM Narendra Modi has started and promoted Start-up India.

To help them grow without hindrances and impediments, numerous benefits are being given to entrepreneurs establishing start-ups.

Simple process: Government of India has launched a mobile app and a website for easy access as well as registration for start-ups.

Easy access to Funds: 10,000 crore rupees fund is set-up by government to provide funds to the start-ups as venture capital.

Reduction in cost: The government also provides lists of facilitators of patents and trademarks. The government will bear all facilitator fees and the start-up will bear only the statutory fees. They will enjoy 80% reduction in cost of filing patents.

R&D facilities: Seven new Research Parks will be set up to provide facilities to start-us in the R&D sector

Tax holiday for 3 Years: Start-ups will be exempted from income tax for 3 years provided they get a certification from Inter-Ministerial Board (IMB).

Tax saving for investors: People investing their capital gains in the venture funds setup by government will get exemption from capital gains. This will help start-ups to attract more investors.

Easy exit: In case of exit – A start up can close its business within 90 days from the date of application of winding up.

Q: Even though the start-ups spend a large chunk of their funds on mentoring and consulting, they still fail. What can be the way forward in this case?

As India moves towards the start-up culture and a growing number of youngsters are turning into start-up entrepreneurs, specialists have advised start-up founders to have mentors to be able to make informed decisions and to succeed. But it’s not really happening that way. Despite consultants and mentors, start-ups in India are dying a premature death.

The mentors need to relook at their strategies and the way they function to help start-ups fare better.

They can make their experience count: A lot of ideas manage to get materialized but go wrong in the execution. And this failure is primarily because of lack of experience. Having the advice of someone who has been there, done that is always useful to a new venture.

Opening up avenues: Mentors are people who have persevered hard to reach their positions and honed their skills over a period and built credible relationships. Having a mentor that helps you get a foot in the door is vital. A good mentor should be able to help entrepreneurs get past that early barrier.

Giving advice that matters: Mentors generally come on board with a vast amount of competence, or wealth of knowledge across various areas such as legal, accounting, marketing, intellectual property, sales etc. their advice in such matters can help entrepreneurs from making mistakes that could be avoided in the first place.

An outside view: A mentor should be capable of asking difficult questions about the business plan, viability of the idea, the revenue model, the go to market strategy etc. which may have been overlooked by the entrepreneur.

Mentors should act as catalysts: The consultants should make it a point to ask difficult questions, help justify thoughts, put procedures in place and pressurize to get paying customers. A mentor will help intensify the speed and accuracy at which one solves entrepreneurial problems. If an entrepreneur can manage to benefit from mentoring, his/her chances of success are likely to be higher than otherwise.

Q: Why are exit strategies of start-ups quite problematic in nature?

Exit strategies related to start-up funding are more often than not misunderstood. The “exit” in exit strategy is for the money, not the start-up founders or small business owners. The company brings in money and the investors get money out. So start-ups looking for Angel investors or venture capital (VC) absolutely need an exit strategy because investors require it. The exit is what gives them a return.

You can imagine how investors feel about exit strategy if you consider what happens to investors who don’t get exits. They don’t have a return. They put money into a company, but they get nothing back.

Having a small share in a healthy, growing company, without any prospect of an exit, is a terrible scenario for investors. So while you can have happy founders, but quite disappointed and dismayed investors if the exit strategy is not spelled right.

There is an inherent need to define what success looks like for you. And if you have investors, they will definitely expect you to be able to clearly spell out your path to an eventual exit, the milestones you need to hit, over what time frame, and your anticipated valuation at the exit. They’ll also expect you to produce data points to back these up.