What Hinders Success of Indian Startups?

Last updated on: February 3, 2012 at 3:40 am by Desh Kapoor

What Hinders Success of Indian Startups? 2012-02-03T03:40:55-06:00 Desh Kapoor

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A lot is talked about India’s market and the potential for startups. Many have been started and many have succeeded, but numerous – disproportionally large numbers have failed. And failed miserably. So, one is bound to ask the question – why is it tough to start a venture in India?

Market Size Myth: India is 1.2 billion people of which 300-350 million are “middle class” – more than the entire population of US. But does that really comprise the target market? Can the numbers for your consumers be = 300 million, potentially? Companies are learning the hard way – NO!! India’s insurance market is a good example. Many companies came in to the market, but most have failed and / or will fail in the coming days. In a country where insurance worked through personal contact, it was being sold as a product – impersonal product. It didn’t work. Worse, because of the impersonal nature of the agents involved, they would push rank bad products just for profit.

Ask an honest Insurance agent of the private companies – if he has really sold the best product always to the consumer. The syndrome of “attractively” incentivising (for the agent) a bad product (for consumer), the companies have messed up common man’s life earnings. It won’t last for long.

Purchasing Capability Myth The entrepreneurs are stuck with an economy, where they come up against a market which theoretically has the purchasing capability, but it neevr shows up at the showroom door.

Why this Kolaveri di? Despite the “mathematically worked out models, the wealth and the purchasing ability of the market is several times lower than the developed markets. The developed markets have an institutional framework – both social security wise in Europe and Economy wise in US – to support that purchase ability. In US, where the minimum wage is $7.25/hr – which means $1160 a month – McDonalds burger for $1.50 is the “cheap food”! In India, McDonalds is NOT for the lowest income people. The lowest will probably buy a cheap full meal from the road-side.

Lack of rigor of market evaluation The lack of rigor and the “Rose-tinted” view of the Indian market go hand in hand. I have looked at research for demand and supply figures done by various agencies and generally the research is done in a very slopsided way. For example, it is very common for say, a Demand – Supply report on Iron and Steel industry to look at the Demand because of the increasing incomes being extrapolated handsomely. But when it comes to Supply, it is always based on the plants operable today. There is no sense of the number of plants in pipeline and the success/failure rate of those in pipeline to make a dent, depending on their size, on the demand of the market. LIke the Insurance industry, everyone gets on the Demand bus – but when they get to the station, there is no passenger to get on!! Because there are 300 buses – all using the same numbers – for 300 passengers. Before that there was one bus for all of these passengers. We needed more, but not THAT many more!!

Internet Access Myth: Yes, India is the call center and the back-office for the world. But the bandwidth for ordinary people is very sketchy. I have tried it there and except for a few players and services – which aren’t available everywhere – internet access is bad and getting connecting very tough. For companies like MTNL, if rains come, the internet connection vanishes and it can take a month to get it back. That is not necessarily a recipe for a good market for internet products.

With the recent troubles of 2G exercise, it is obvious that increase in speeds of the connections will get slower and slower.

Credit Card Adoption: the last recession and loss of jobs was a great wake up call for most people. Many realized the folly of living outside of their means. So, for many the old world habit of using cash is back. So, credit card adoption has not been as much as people thought it would be.

Plus remember – even today …. actually more so today – the power of black money is more than white money. Black money economy back in the conservative days was equal to the white money market. Now it would be several times the white market.

So, what would rule in such an economy? Yes, CASH! Credit leaves a trail. So, thank you very much – you will get the famous Indian “nod” – which could mean Yes… and No depending on one’s mood.

Even worse, the Government and its agencies like the RBI have made the internet commerce extremely painful. All in the name of security. Just ask an NRI who wants to trade stocks in India. I am not sure about now, because I don’t care anymore after trying so hard.. but the rule was that an NRI sitting in Dubai can trade stocks online. But not one sitting in the US. Why? Some nonsense about the timing difference between the India and source of transaction time. Huh!!?? How do YOU – yes, you the fat, bald, idiotic politician or IAS-turned idiot bureacrat care about my sleep and need to profit?? Why should it matter? But it did.

Just like that there are enough nonsensical and lunatic rules that simply throttle the Indian economy.

Indian Online Companies: I think every Indian media outlet – I mean EVERY – should take a trip to at least Pakistan to learn how to create a website, which is useful and pleasing. For example, Dawn Newspaper Site – is a far better reader experience than the TImes of India website. Actually the TOI site is a shame. There was a time I tried to go into the various services and quickly realized that it is one big behemoth built on numerous platforms and structures.

US based websites have very careful design teams who look at design and usability the same way that Apple looks at its products. For Indian companies, to heck with all that.

Cloning Ability sans Innovation – from Ebay to Naukri.com to now Junglee.com – India is littered with clones. Just create a clone – put enough money and we have a good startup. Some succeed, but many fail. Things are not the same in US and India, so one needs to think differently!

Pedigree driven meritocracy: If you are from IIT or IIMs – or better still an IIT-IIM, you can get away with any nonsense you have created. In India, credentials matter. What you have done doesn’t matter as much. So, startups’ founders are also evaluated with the same benchmark. “Is he an IIT/IIM alumni? – then here comes God himself!”

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