Startup ecosystem in India is a dichotomy in itself. A classic day sees a new startup taking birth but the harsh reality is that one startup dies each day too. In this article, Aditya Shrivastava, Content Marketing Manager at iPleaders analyzes the 2017 startup failures and lessons learnt from them.
The day before yesterday I got a message late in the night, “Hi! I am an aspiring entrepreneur and I saw a post of yours on YourStory. Could you please connect me to some of the entrepreneurs whose startups have failed?” The message (at 03:00 am in the morning) left me baffled. I am a content writer. How could I possibly connect him to people I didn’t know myself?
I politely answered, “Hey, I am sorry, I don’t know any such failed entrepreneurs. Why do you ask?” “I want to learn what not to do when I start my own startup,” he answered.
I have seen people learning from success stories. No one ever looks at the failures. No one tries to understand what might have gone wrong and what shouldn’t be repeated. Everyone just looks at what made it to the headlines and what can one do to achieve it. We all look at success rates, we study the market to succeed. In fact our plans are made to succeed. However, do we look at the failures and see what could go wrong? Not to be pessimistic but to assess whether we have a contingency plan or not?
The Indian startup ecosystem is a masterpiece of dichotomy. While you see stats every day of how a new startup just bloomed, a startup failing everyday is an equal and harsh reality. As per this article, “The FDI norms are clear as dishwater, and the tax regime is still a puzzle to many. In such a scenario, a regular day sees the launch of 2-3 new startups and the winding up of at least one startup.”
A report by CB Insights cites that 42% of the startups that begin enthusiastically thinking they will change the world are actually not needed at all. Thus, they result in shutdowns.
While in the beginning of 2017, the market saw some names such as Eatonomist, Taskbob, FabFurnish and few others with great expectations, given the startups were heavily funded by the investors, even a million dollar funding couldn’t be their saving grace. Not only these giants, but also small and steady startups like Cardback and Prophesee couldn’t maintain a sustainable setup for themselves in spite of receiving consumer interest and reasonable funding.
Every startup story, big or small, is a lesson by itself. You need to observe and learn. If you can’t, then you need to take online courses which can give you insights to ensure that your startup is full proof. It’s not just about what to do and what not to do, it is also about how not to do it. Lessons can be learnt from anywhere. Here is a list of 3 startups that saw an early death and what can we learn from them:
Launched in 2005 by Yogendra Vasupal, Rupal Yogendra and Sachit Singhi in Bengaluru, Stayzilla was initially launched as an online travel agency for booking hotels under the name Insara. However, in 2010 the platform pivoted to become Stayzilla, a hotel aggregator.
In a glorious span of 3 funding rounds, Stayzilla managed to raise $33.5 million. The first round got them $500,000 in 2012, $20 Mn in 2015 and $13 Mn in 2016. It had big names like Matrix Partners and Nexus Ventures working behind it.
What went wrong?
In a blogpost “Stayzilla will reboot its operations,” Yogi announced a sad shut down of the company. The post seemed extremely emotional and stated how due to the inability of a quick expansion, effect of local area network and high costs resulting in low revenues, Stayzilla had to be shut down. On the other hand, in June 2017, he was arrested on the charges of fraud of about Rs. 1.72 Crores by JigSaw advertising. The complaint had arisen as allegedly Stayzilla failed to clear off its dues. Although the Supreme Court had passed an interim order of maintaining the status quo, still much air needs to be cleared between the parties.
A company with a massive brand name, a sustainable growth model and moderately responsive customers. Tolexo had everything that one could ask for. However, this B2B wing of IndiaMART InterMESH Ltd. suddenly shut down leaving 300 employees jobless.
Backed by industry giants like Intel Capital and Bennett, Coleman and Company, Tolexo was the proud face of the online retail marketplace for IndiaMArt. It was running on both B2B retail and B2B wholesale models simultaneously.
Sadly, the saga lasted only till the FDI policy issued by Department of Industrial Policy and Promotion (DIPP) imposed a ceiling of 51 percent FDI in multi-brand retailing. This was subject to government approval and observing relatively complex conditions. The policy gave rise to the ambiguity in the definition of “online marketplace” and also gave a 100% FDI permission in the wholesale market, giving little or no scope for the retail industry.
Demonetization was another fatal blow which ultimately led to the failure and shutdown of this ‘high on cash-on-delivery’ model as it could not survive further.
In 2012, Nidhi Gurnani and Nikhil Wason, raised $170,000 in a funding round led by prominent angel investors Rajan Anandan, Sunil Kalra and Alok Mittal in June 2014. With an idea that was ahead of its time, Cardback was a payment recommendation app carefully designed to help various card holders save money every time they made a payment.
A brilliant idea, isn’t it?
What went wrong?
After the first round, the startup failed to raise more funds. Another blow was the fact that there was a lack of demand for the product. In a report by MoneyControl, the founders were of the opinion that Indian market is not mature enough to be able to appreciate the product that Cardback had to offer.
In a country full of millennials where the government is trying to make the economy cashless, it is pretty difficult to digest that a thoughtful startup like Cardback could not gain success.
What can be learnt from these examples?
Stayzilla is a classic example of why things need to be in black and white. Every transaction needs to be on paper so that random claims that come at a later point of time can be avoided. It would have been a comparatively easy dispute to resolve. However, lack of enough paperwork acted like a silent killer.
Tolexo tells us how irregularity in regulations or the dynamic nature of the government control and policies can absolutely give a fatal blow to your startup. First, the FDI circular and then demonetization. Until you are prepared well in advance, there can be no saving grace for your startup.
What can we learn from Cardback? It does not matter if your product is amazing, if you are not able to reach out to the right audience it might fail. Cardback was a wonderful idea. However, in a country where people are still stuck on money orders, doubting the credibility of ATM cards and skeptical of getting loans, an application to guide them to become finance-technology savvy might not be the smartest thing to do.
Ask your lawyer, consult your CA, analyze the market. Just don’t stop there. If you meet and ask successful veterans of the business world, they will tell you that the success of any startup lies in practical knowledge. Limitations due to the legal compliances, laws and the target market. You need to ensure that you educate yourself, and apply the education accordingly. Anyone without the other is incomplete and is capable of leaving you in the middle of nowhere.