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Why Most Indian Startups Fail?

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From the listing of Infosys on BSE and NSE in the nineties to the revolution of the startup initiative after the dotcom era of 2007, the Indian startup ecosystem has witnessed numerous ups and downs. The country has labored relentlessly for more than two decades and as a result it has emerge as the world’s third-largest start-up hub, just behind the US and the UK.

However, as the ecosystem has grown at a rapid pace, so have the challenges. 2018 has been a year of groundbreaking headlines from the start-up industry with homegrown e-commerce platforms like Zomato, Swiggy, PayTm, and Byju gaining the much-coveted unicorn status.

“Learn from the mistakes of others. You can’t live long enough to make them all yourself” – Eleanor Roosevelt

This, however, is a glimpse of a few successful entrepreneurial stories. Unfortunately, the print media and the journalists fail to highlight the darker and significant reality behind the startup wave that has swept the entire nation and especially the young graduates with little or no experience in the field of entrepreneurship.

On the basis of reports and insights established by leading startup mentors, incubators, industry thought leaders, and academicians, this particular feature of TechGraph shall focus on reasons ranging from market complications to running out of cash, which eventually results in the failure of a majority of the startups in India.

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Lack of Innovation

As per the 2016 Nasscom report, Innovation continues to remain the biggest missing piece in the Indian startup puzzle. Even in the recently evolving AI technology, Indian entrepreneurs are not pioneers, because what you see in the US today will start appearing here tomorrow. Plagiarized ideas fail to hit off and tank as fast as they promised to shoot up, because of customer fluctuations between innovations and trusted brand names.

No Market Need

Every startup is driven by the needs of the market i.e the market has an unsolved problem or an opportunity gap which your idea can bridge and allow you to make decent money in the process. However, entrepreneurs attempting to tackle problems that are interesting to solve rather than the ones that serve a market need has been cited as one of the top reasons for the failure of emerging startups.

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Despite great technology, sufficient consumer data, and necessary expertise, the business plan fails because there isn’t a market problem large enough that the founders can work on with the help of a universal and scalable solution.

Cash Crunch

Cash flow is what keeps the business running. No matter how great your idea is, you still need to pay dues to the employees and marketing organizations to clear your bills. The question of how the founders must spend their money has been a frequent conundrum and another leading reason for failure cited by startups. Failing to achieve KPIs and incurring tactless expenses with low ROI can result in severe losses for the company.

Business Model failure

A Business model is nothing but the exoskeleton of business and lays down the commercial and economic viability of your startup to make money and value for itself. Some companies tend to over-indulge in coming up with a solution that they tend to overlook the efficiency of the business model. An incompetent business model can be identified by high cost for customer acquisition, low retention rate, and having no scalable ways to tap unutilized markets.

Lack of proper marketing

Identifying your target audience and knowing how to get their attention in order to convert them into customers, is what marketing is all about. Even the best product can fail to perform if it is not backed by adequate marketing efforts. But an inability to reach out in the right way and at the right time was a common failure, especially among founders who specialized in coding or building product without giving due consideration to the idea of promoting the product as well.

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Disharmony among team members

Discord with the co-founders has been a fatal issue for failing startups. This acrimony is not limited to the founding team but can extend to investors as well, which is the last thing a business wants to see.

Legal Challenges

Sometimes a startup that had started off as a simple idea may evolve into a never-ending process of legal formalities that can also become the core cause of shutting down. Example: A couple of music-based startups were caught in a never-ending cycle of high costs of dealing with record labels and legal headaches as a prominent reason for their startup failure.


Starting up is tough and it has been observed that even the most passionate people tend to burn out in the gestation process. Some ideas could take as much as 2 years to find a proper fit in the market, while your financial situation and the awful work-life balance seriously takes a toll on your vision.


The Indian startups were wound up at a crossroad, much recently in 2017. However, between 2014-2016, startups were being pampered with a truckload of funds and escalated valuations. Eventually, the jarring reality of slow-moving capital and price volatility started to sink in by the end of their period of exuberance.

As a result, the Indian market in 2017 saw a major course-correction which resulted in many firms cutting down their costs to maintain steady valuations and keeping the company afloat, while others crumble to dust.

Fluctuations are quite normal in a nascent start-up environment as that of India, because we are still developing an ecosystem that’s sustainable enough to balance out this growth spurt of emerging companies and technological advancements. In fact, this is one of the major reasons why aspiring entrepreneurs are always advised to have more industry experience before starting up because the Indian business landscape has shown recently that it’s not so agreeable to the novice and rookies trying to be the next “Mark Zuckerberg.”

The growth story of a successful startup is not as sublime as it seems to be. Starting up could be difficult, and the fact that 90% of them tend to fail within the initial three years makes it look even more dreadful to go through the gestation period before your firm finally starts churning out profits. However, an intelligent entrepreneur always learns from others mistakes and tries to avoid them in his own venture.

Despite the challenges surrounding the journey of startups, there are three crucial advantages that will always be a growth-driver for companies starting off in India: a massive domestic market, cheap cost of doing business and proximity to customers.

With so many exciting new trends that have swept a wave of entrepreneurial dynamism across corporate India, this is not the time to lose hope or question your dreams. Convert your shortcomings into your empowerment, so you can be the visionary you are meant to be.

”Learn from the mistakes of others. You can’t live long enough to make them all yourself.”

Eleanor Roosevelt


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Vanshika Singh
Vanshika Singh
A CA as well as an MBA aspirant. With a knack for writing and a demonstrated interest in the Indian startup ecosystem, currently exploring different niches of commerce, marketing, and Entrepreneurship, to have a better understanding of the corporate world.

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