Starting a venture, may be easy, but scaling it up, is the most difficult part.
Statistically an overwhelming majority of startups in India shut shops because they fail to scale up. And the reasons could be varied.
A survey was conducted by a reputed statistical data company to find out the reasons behind a huge number of Startups In India Fail in a few months of launch.
The primary 5 reasons that surfaced are listed here:
1. Lack of Adequate Capital
We all know that “Cash is King”, and every business runs on cash.
Most business owners in India, who happen to be young enthusiasts, start a business not pre-planning the funding requirements necessary to:
- Obtain Key Infrastructure Such As: Manpower And Equipment By Inception;
- Have Sufficient Cash Flow To Fund The Day-To-Day Operations.
The lack of foresight to see and obtain the capital requirements of the business, goes hand in hand with the fact that the most unsuccessful business owners simply have no business plan at all, which becomes one of the key reasons for startup failure.
Having only 95% of the necessary capital to start your business is not enough. You need 100%. At least for first 6 months, or till the expected revenue cycle starts to roll.
Small home-based businesses obviously need less capital than a restaurant or air freight transport company.
2. Expansion Plans Too Soon
It is very easy for a business owner to think that because of a few “early day successes” that they have nailed their product mix sufficient to expand to a new office, factory, warehouse, geographical location, or some other superfluous area. And that becomes the biggest factor that throws them flat on their face. In a country like India, beliefs, needs and thought processes of the consumers change almost every day, and also at a distance of few kilometers.
Expansion needs to be thought through, fully costed and properly funded.
Expansion also requires infrastructure, not only from a plant and equipment perspective, but also from a manpower perspective too.
Do you have the right team to manage the expansion? Is your team trained to handle the rapid growth as you achieve scale?
Some of the most tragic and failed startup expansions are where a business that has yet to get their business model right in the location they originally founded, all of a sudden expands their business into another geographic location that stretches logistic capabilities and dramatically increases overhead expenditure.
3. Debt Funding Being the Key Support
“A man in debt is so far a slave”. – said Ralph Waldo Emerson
As soon as a loan is drawn down to start a business, a loan which is most likely secured against the family home or other collaterals, you are on the ‘debt clock‘. Debt payments are now cemented in time and you need your business to get to the Break-Even Point (BEP) as fast as possible. Not achieving your BEP or, not achieving your ‘critical mass’ (some people prefer to use the term ‘scale’) in time, may mean further borrowings to keep your startup afloat. And that is the gruesome mistake startup owners make. In India, banks and local money landers capitalise on such business ideas and startup aspirants.
And then the second obvious place to obtain further funding in India, especially for young brigade, are from personal credit cards. Then there are the family members, your best friend in the whole world (at least when they are getting their money back), and so on and so forth, until you have no further capacity to borrow and interest repayments kill your precious cash-flow.
Too many times, a failed startup is a result of unpaid debts!
4. Inappropriate or Poor Strategic Management of The Business
“Hope is not a strategy”. – said Rudy Giuliani
A person who is great at their trade craft (say, writers, artists, builders, accountants, chefs, etc.) aspires to have a business in the same line, hoping that they will excel in that too. “Arey mujhe mera kaam aata hai, main business bhi handle kar loonga!” That of course is a typical Indian mentality to a great extent. The case mostly is, that they are great (if not fantastic) at their particular trade, but, they are not groomed nor educated for business. Business is its own wild animal. One wrong move and it can eat you alive.
In India, the government today, or the education ministry, still do not instil a “business owner test” to those wishing to start their own business. There has to be some aptitude testing for people who are willing to open startups on their own.
People becoming entrepreneurs are not necessarily equipped with all the strategic planning and core competency to handle a business. Only enthusiasm and knowledge of the craft doesn’t really help.
Knowing how to operate as a worker within a business is not equal to knowing how to run that business! And that has to be understood well.
5. Absence Of A Foolproof Business Plan
“If you fail to plan, you plan to fail”. – said Benjamin Franklin
Most failed business owners showcase a common reason that they stopped planning at the Concept Stage, and relied on the day to day goals.
When we plan a holiday, we plan it so meticulously. Each day, each moment is planned to the T, until the return date. Why not use the same mantra for your business?
Asking some imperative questions while planning is very important.
- Why are you in business?
- What needs are you satisfying?
- Why has it not been done before?
- Why can you deliver a better result than your competition?
- How will you obtain your ‘first mover advantage’?
- What is your goal in the business?
- What will keep fueling it with new ideas and funds for next 10 years.
Planning your business forces you to seriously think about all areas of your business and not just the fluffy parts of your business like “sales” or “ profit“.
Meticulous details like: operations, employee ramp-up, funding, financial forecasting and logistics are the must areas that need to be considered.
All said and done, you should be reading this article only if you want to give yourself a fighting chance.
Or else, you can leave your business concept on the napkin you used at the local bar or become a part of the Indian startup list that have bitten dust after a few months of launch!