29 Mar 2017

Most Indian Startups Will Fail

A fascinating article by Haresh Chawla examines everything that's wrong with the Indian startup sector, and why 97% of them will fail:

  • Indians are cost-driven, not convenience-driven. We have all the time in the world to research and find the best price. We spend little and that too carefully. We hate paying for service.
  • Only 10% of Indians can pay the kind of money startups assume, but startups don't take that into account. They don't design a business model that works for the 90%.
  • Startups attract the wrong customers, the 90% chasing discounts and freebies, who leave as soon as the discounts end.
  • Startups transplant business models from the US, and VCs happily fund them, thinking they're less dangerous. Startups should, instead of cloning their role models, understand why they've done what they've done.
  • The unit economics don't work out: each transaction generates a loss to the company.
  • Startups often don't understand their competitors, like the boy in the restaurant. He's probably idle at the time of delivering an order, so it's almost zero cost for him to deliver one, unlike the startup.
  • Startups scale up, requiring more overhead to handle the scale, causing costs to spiral.
  • Sometimes, the management team doesn't even know what their unit economics are.
  • Profitability is far off, like at least 7 years for grocery startups.
  • Indian startups have too many employees. Ola has more people to run its India operations than Uber has to run operations in 50 countries! Many of these employees have high salaries and work in posh offices.
  • India's internet economy will take 7 or so years to reach where China is today.
  • When a startup fails, the entrepreneurs say they learnt a lot, but even that is often untrue. Running a company for years with negative unit economics doesn't count.
  • The winners from this whole game are often Google and Facebook, who make money from the ads the startups run.

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