More Than 90% Of Indian Startups Fail in First 5 Years; Lack of Innovation, Skills & Funding Main Reasons[IBM Study]
In 2015, we had studied the cause of failures among startups, and discovered an American study which said that 6 out of 10 startups face defeat in the first 4 years of their existence.
It seems that this statistics is Universal, as Indian startups too face this strange failure situation.
A study by The IBM Institute for Business Value and Oxford Economics have found a similar failure rate of 90% among Indian startups as well. And, it appears that lack of innovation along with the lack of skilled people are the major drivers of startup failures in India.
Besides, lack of funding is, by default, another big reason for failure.
90% of Indian Startups Will Fail in 5 Years
The IBM study called ‘Entrepreneurial India’ took interviews of a wide range of startup experts and players, which includes 600 startup entrepreneurs (300 were Indians); 100 government leaders along with 100 venture capitalists, 1, 500 leaders of established companies and 22 educational institutions.
As per the combined result of the surveys, and their answers, it was found that majority of respondents admitted that only 10% of Indian startups will survive the 1st five years of its existence.
Nipun Mehrotra, Chief Digital Officer, IBM India/South Asia said, “We believe that startups need to focus on societal problems like healthcare, sanitation, education, transportation, alternate energy management and others, which would help deal with the issues that India and the world face,”
Why Will Startups Fail?
Lack of innovation among Indian startups have been described as a major reason for failure by 77% of the respondents.
However, 73% of respondents said that in case there are better accelerators and incubators, then the situation can improve by a big margin.
Lack of skilled workforce is another major issue, which has been attributed as a leading cause of failure by 70% of the business leaders surveyed.
Interestingly, only 65% of the VCs said that lack of funding is a cause of startup failure.
This means that more than the issue of money and funding, it is skilled employees and innovation which is causing such widespread failures.
The report also mentions several interesting factors which are driving real growth among startups.
In the last few months, the way Indian Govt. has altered rules pertaining to startups has been described as a major advantage for Indian startups. 76% of Indian startup players told that India’s ‘economic openness’ is a major factor for them.
57% of the respondents said that India’s domestic market is large enough to fuel growth, whereas 60% admitted that skilled workforce available in India is helping them grow.
The study also analysed how new startups ideas is helping the economic growth of India, and creating more jobs all around. The study found that 35% of new startups are formed in Tier2/3 cities, and this means that the phenomenon is not limited only to urban location.
You can find the complete report here.