9 Fundamental Reasons why most Digital Startups don’t Succeed in India

fundamental reasons for digital startup failure in India

It’s 2016, and India’s startup scene is abuzz with excitement amidst a fair amount of gloom. Every day new startups are springing up, but so are many dying a slow and silent death. They say out of every 10 startups, 1 survives; for India, that number may well be one in a thousand. Our problem is simple. Most of our startups are digital.

Digital is the new, digital is the buzzword, digital is what is taking all over the world. Then how can being a digital startup be a challenge? It can be, especially if you are based in India.

Here are 9 fundamental, yet often overlooked reasons behind the failure of many digital startups in India.

1. Most startups don’t think lean

I don’t think enough is said about this topic. What generally starts with a 1 individual or a 2 member team fast grows into a 100+ mob ready to take on the world. Few months or an year or two into operations, companies find out that they can’t really sustain the workforce, forget the part of earning profits, leading to a desperate downsizing or a rapid shutdown in many cases. Never forget that Whatsapp was built by just a little over 50 engineers. (Or that Yahoo has so many employees)


2. We want to hire the costliest, not necessarily the best

This is a classic. Even though many entrepreneurs may come from ‘average’ educational backgrounds, they want to all hire from the IITs and IIMs. Now I have nothing against these premium institutions, but everything comes at a price tag. If you smartly search for ‘talent’ out there, it could well be available for cheaper. But we still love paying for the degree, not the pedigree.

#DDMustRead – Startup Industry set to witness mass firing, thousands of jobs at stake


3. We build in Bangalore, for people in Bangalore

For many, their entire business model could be based in a single city, but for most digital companies, they are eventually trying to build scalable businesses that spread far and wide. Yes, there are pilots, but more often than not the vision is simply lacking. In most such cases, revenues from a city are never enough to run operations for a large scale digital company. Case in Point – Local Banya.


4. Indians don’t like paying

Sorry but that’s the truth. We are Indians. We like saving money wherever we can. Ironically that is what has fuelled the e-commerce revolution. We don’t necessarily pay for convenience, we primarily pay for affordability. There is BookMyShow with its convenience charges, Uber with surge pricing, Amazon with same day delivery, but above and beyond some examples, an Indian will do his/her best to get out of a case where they have to pay for premium. This hurts all business who hope to build Freemium models, or expect their audience to pay upfront for digital services. (You might have already heard about people using Quikr to get their furniture transported by becoming the seller as well as the buyer, just to save on packing and moving charges)


5. The cost of a click of an Indian user is always low

If your revenue model revolves around number of clicks and number of impressions, then you are in a negative category business already. Even Facebook, Twitter and LinkedIn fail to make enough money off ads in India. Homegrown companies like Zomato, publishing houses or any other model that relies heavily on advertising also suffers for the same reason. For in-depth analysis, do read this article on Truth about Online Advertising in India by Alok Rodinhood Kejriwal.


6. In Digital, it’s not India vs India; its India vs the World

In all fairness and honesty, I realised this when I was reading this piece on The Fault in our Startups by Haresh Chawla. When we create a Flipkart, we don’t just fight against Snapdeal, but the war is against AliBaba and Amazon as well. When we try to create a social network(like ibibo once did), we go head on against Facebook and Twitter. Our competition in various categories is with giants who are far more experienced and ahead of us in the game. That doesn’t mean we can’t win, but more often than not, we are taking on the Goliaths of the world.


7. Indian consumers are not brand loyalists, we are discount loyalists

I am always reminded of Ansal Plaza when it comes to this. This mall in Delhi set the trend for the mall culture in the city, lost all its customers as the years went by(btw it is planning a revival soon). This holds true for many categories in online as well. The first mover’s advantage is fast lost to the one who is offering the most discount. Flipkart isn’t the first e-commerce store. The Indiatimes, Rediff Shopping, Infibeam were around from before. Flipkart did massively well to create a niche for itself, but has it only set the stage for Amazons and Ali Babas to ride the wave? Only time can tell.


8. Digital habits are changing, but it will be a while till we get there

Myntra went app only, and in only a few months reverted to the web version. While we may have many apps on our phones, we may largely use them to just look something up. Zomato becomes my food search engine, BookMyShow an indicator for empty seats for many, while e-commerce becomes a price comparision chart for products. Don’t get me wrong, yes there are people who end up transacting via these apps and mediums, but there is still a huge chunk of population, that might already be ‘using’ these apps, but not effectively using them. We are all changing, but our rate of change doesn’t necessarily match up with the rate at which our digital startups are growing. We still like going to our malls, or going to the nearby Kirana store or just haggle with the sabzi wala.


9. Too many startups are solving the same problem

So recently I went to a Startup Expo, and I was carefully observing the 100+ stalls on display. Believe it or not, I witnessed more than 10 ride/cab sharing apps under one roof. Now I am not judging one app from the other, or saying any of them have any less of a chance of becoming the best app out there, but regardless of how this debate goes, one thing is clear – everybody will not survive at the end. Extend this logic to other categories, and we have the same situation at hand. Instead of solving multiple problems, many companies are trying to solve the same problem, thus creating a new problem in itself. 


While these are very few, there would be many more fundamental reasons too. The harsh reality though is the fact that its tough, painful and difficult to make a digital startup grow in India. Finding funding could be easy, but building a business is not. Times are changing and so are things, but which way will the tide turn is something only time will tell.

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Prateek Shah

Prateek is the founder of Digital Defynd and one of Asia's leading Digital Marketing Trainers. You can know more about him at www.prateekshah.com

Prateek Shah has 11 posts and counting. See all posts by Prateek Shah

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