Indian startups emulate successful global ideas. That’s killing 90% of them: IBM study

Photo credit: John O’Nolan.

Over 90 percent of Indian startups fail within the first five years. No surprise there as that is the global average as well. The surprise lies in the most common reason for failure of startups in India: lack of innovation, according to an IBM (NYSE: IBM) study.

“Many Indian startups lack pioneering innovation based on new technologies or unique business models. Indian startups are prone to emulate already successful global ideas,” global ideas,” say 77 percent of venture capitalists surveyed under the study.

IBM’s Institute for Business Value (IBV) recently collaborated with Oxford Economics to understand India’s startup ecosystem. They interviewed 600 startup entrepreneurs, 100 venture capitalists, 100 government leaders, 500 leaders of established companies, and 22 educational institution leaders to understand the impact of startups on the economic growth of the country.

Here are its key findings:

• Over 90 percent of Indian startups fail within the first five years.
• Topmost reason why startups fail in India is because of lack of innovation.
• The top business advantages enjoyed by Indian startups are the country’s economic openness, skilled workforce, and its large domestic market.
• Around 35 percent of startups are being set up in tier two and tier three cities of India.
• A proposed reduction in corporate tax from 30 percent to 25 percent is likely to boost startup activity.

See: 25 failed startups in India and what you can learn from them

“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. These require investments in deep technology and products which are built to scale globally,” Nipun Mehrotra, chief digital officer, IBM India/South Asia said in a statement today.

Top roadblocks for Indian startups

The IBM study found several roadblocks hampering the growth of Indian startups and eventually killing around 90 percent of them. The top ones are:

• Lack of innovation
• Talent acquisition: 70 percent of the venture capitalists interviewed for the study cited limited availability of skilled workforce as one of the biggest challenges impeding the growth of Indian startups, and. An earlier study found 80 percent of engineering graduates in India unemployable. 48 percent of employers in India find it tough to hire the right talent, the study found.
• Funding crunch: “Indian startups face funding roadblocks both at entry and exit stages while successful global startup ecosystems are well supported by active investor communities,” say 65 percent of venture capitalists surveyed under the IBM study.

“Inadequate formal mentoring, poor business ethics, and lack of experienced leadership are other roadblocks before Indian startups, the study found.