9 fundamental reasons why most digital startups don’t succeed in India

It’s 2016, and India’s startup scene is abuzz with excitement amidst a fair amount of gloom. Every day new startups are springing up, but so are many dying a slow and silent death. They say out of every 10 startups, 1 survives; for India, that number may well be one in a thousand. Our problem is simple. Most of our startups are digital.

Digital is the new, digital is the buzzword, digital is what is taking all over the world. Then how can being a digital startup be a challenge? It can be, especially if you are based in India.

Here are 9 fundamental, yet often overlooked reasons behind the failure of many digital startups in India.

1. Most startups don’t think lean

I don’t think enough is said about this topic. What generally starts with an individual or a two-member team fast grows into a 100+ mob ready to take on the world. Few months or an year or two into operations, companies find out that they can’t really sustain the workforce, forget the part of earning profits, leading to a desperate downsizing or a rapid shutdown in many cases.

Never forget that WhatsApp was built by just a little over 50 engineers. (Or that Yahoo has so many employees.)

2. We want to hire the costliest, not necessarily the best

This is a classic. Even though many entrepreneurs may come from ‘average’ educational backgrounds, they all want to hire from the IITs and IIMs. Now I have nothing against these premium institutions, but everything comes at a price tag. If you smartly search for ‘talent’ out there, it could well be available for cheaper.

But we still love paying for the degree, not the pedigree.

3. We build in Bangalore, for people in Bangalore

For many, their entire business model could be based in a single city, but for most digital companies, they are eventually trying to build scalable businesses that spread far and wide. Yes, there are pilots, but more often than not the vision is simply lacking. In most such cases, revenue from a city are never enough to run operations for a large scale digital company. Case in Point – Local Banya.

4. Indians don’t like paying

Sorry but that’s the truth. We are Indians. We like saving money wherever we can. Ironically, that is what has fuelled the ecommerce revolution. We don’t necessarily pay for convenience, we primarily pay for affordability.

There is BookMyShow with its convenience charges, Uber with surge pricing, Amazon with same day delivery, but above and beyond some examples, an Indian will do his/her best to get out of a case where they have to pay for premium. This hurts all business who hope to build Freemium models, or expect their audience to pay upfront for digital services. (You might have already heard about people using Quikr to get their furniture transported by becoming the seller as well as the buyer, just to save on packing and moving charges.)

5. The cost per click of an Indian user is always low

If your revenue model revolves around number of clicks and number of impressions, then you are in a negative category business already. Even Facebook, Twitter and LinkedIn fail to make enough money off ads in India. Homegrown companies like Zomato, publishing houses or any other model that relies heavily on advertising also suffers for the same reason. For an in-depth analysis, do read this article on Truth about Online Advertising in India by Alok Rodinhood Kejriwal.

6. In digital, it’s not India vs India; its India vs the world

In all fairness and honesty, I realised this when I was reading this piece on The Fault in our Startups by Haresh Chawla. When we create a Flipkart, we don’t just fight against Snapdeal, but the war is against Alibaba and Amazon as well. When we try to create a social network (like ibibo once did), we go head on against Facebook and Twitter. Our competition in various categories is with giants who are far more experienced and ahead of us in the game. That doesn’t mean we can’t win, but more often than not, we are taking on the Goliaths of the world.

7. Indian consumers are not brand loyalists, we are discount loyalists

I am always reminded of Ansal Plaza when it comes to this. This mall in Delhi set the trend for the mall culture in the city, lost all its customers as the years went by (btw it is planning a revival soon). This holds true for many categories online as well. The first mover’s advantage is fast lost to the one who is offering the most discount.

8. Digital habits are changing, but it will be a while till we get there

9. Too many startups are solving the same problem