Why Few Startups Succeed And Other Fails: The Indian Context

Aadhaar - Management Student – SSCBS at University of Delhi

Kirti Verma - Management Student – SSCBS at University of Delhi
Pankaj KR Yadav - Management Student – SSCBS at University of Delhi
Prachi Verma - Management Student – SSCBS at University of Delhi
Shivam Rajput - Management Student – SSCBS at University of Delhi

Abstract

In this ever-changing and dynamic business world, coming up with a business idea and nurturing
an idea to making it a successful venture, takes much more than what people usually believe about
entrepreneurship. This is evident from the data which shows nearly 9 out of 10 startups fail in
their initial years. Through this paper, we want to specifically find out the reasons why a startup
succeeds and why its peer fails, there is certainly more under the skin which needed to be
highlighted. To carry out our research, we have collected primary data of various startups from
across the industries to better understand the prominent reasons for the success of a startup on the
likes of the management approach, why team composition matters, why funding plays pivotal
roles, and various other factors which can translate into variables that decide the future of any
startup or small business. We have been able to extract the valuable information of limited research
studies present for startups, particularly in the Indian context. After finding a conclusion we have
also recommended various majors to overcome those challenges and having a smooth ride in the
startup journey.

Key Words: Startup, early-stage, succeed, entrepreneurship, technological up-gradation.

1
Introduction
Grant Thornton (2015) defines the startup business as an organization that is an entrepreneurial
venture/a partnership or a temporary business organization that engages in the development,
production, or distribution of new products/services or processes.

Every year around more than 1000 entrepreneurs come up with their innovative ideas with the
motive of converting them into a business opportunity by establishing a startup. Their main motive
behind establishing a startup is to get fame and to generate a good amount of income. The income
they expect is directly related to the amount of risk they had taken. Looking at the statistics of the
success rate of startups in India is very less, according to the report by IBM Institute for Business
Value and Oxford Economics, 90% of Indian startups fail within the 5 years of their inception.
However, making a profit isn’t their main aim, their main aim is only to make their startup work
and stable in this dynamic environment. There are plenty of reasons why startups fail and this is a
never-ending list that goes on. There are many reasons behind the failure and some of them are
bad management, targeting the wrong set of peoples, lack of funds, and many more. Although the
Indian government is continuously supporting, improvement in the “ease of doing business” has
encouraged many entrepreneurs to come up with startups. Also, the advent of initiatives like
“Made in India”, “Skill India”, “Stand-up India”, “Atal Innovation Mission” and “Startup India”
increases the number of startups. These are the reasons which result in the increase in the number
of startups and it makes it very difficult for each startup to remain in the ecosystem because of the
cutthroat competition. For a startup to be successful, it must start with a great idea which later
turns into a great hypothesis. In this paper, we are focusing more on the reasons which make a
startup successful. Every successful startup has its different strategies, opportunities, ideas, and so
on. In this, we try to consolidate the reasons and most common strategies which might be used by
other startups as well. Every entrepreneur wants his/her startup to get success and also wants to
stand out as the one. For a startup to be successful, every entrepreneur needs to know the key
factors which are desirable and lead to success.

A successful startup will easily cover its costs, as they have enough revenue. It doesn't matter
whether these costs are recoverable in the short run or not because no startup can cover costs in
their initial period. It takes a few years for any startup to get stable in the initial years and to

2
maintain returns afterward. It becomes really important for any startup to earn profit or at least
cover costs in the long period. If the startup is unable to recover its costs in a long period then it is
considered a failed startup. The entrepreneurs who failed are high in number and the lessons they
have learned can be used by the potential or budding entrepreneurs to craft the path of their success.
Since our paper brings out the reasons for success so these reasons can be used by other failed
startups to at least increase their sustainability rate in the ecosystem and get benefitted.

There are some factors like capital management, skilled individuals, viable products, better
coordination among the workers, and many more which make a startup successful that will be
further discussed in this paper.

In this paper, we will be covering the literature on the success and failure of startups followed by
the characteristics and the firm-level factors that differentiate a successful startup from a failed
one. We will conduct research and identify research gaps and formulate our research objectives.
This study is confined to various types of startups mostly based in Delhi. We will identify various
reasons and try to identify the difference between success and failure. Further, we will be
highlighting the causes of success, strategies they opt and how different they work.

Literature Review
Prior to the 21st century or early 1990s, the literature and research revolving around startups hadn’t
been done on a large scale or frequent basis but after the onset of this technology-driven century
more and more startups and entrepreneur came forward with massive ideas (Ganesaraman
Kalyanasundaram 2018) that changed the whole course of startup landscape in the world economy
some prominent pioneers are Amazon by Jeff Bezos, Google by Larry Page and Sergey Brin, Uber
by Travish Kalanick and Garrett Camp, Facebook by Mark Zuckerberg (and other 4 founders), etc.
So it gave a kick for researchers to nudge themselves and carry-out researches to get to know about
the startup’s characteristics and other elements.

1. Startup Characteristics
How startups have been defined in literature is something which was evolving from time to time
in the context of how people and entrepreneurs seek what makes a startup a startup. It becomes

3
even more confusing when it comes to different characteristics and elements which give a startup
its identity. As noted by Hisrich et al (2014), the concepts of entrepreneurship - and the
entrepreneur himself - are the subject of studies for a long time. In the table given below researcher
Hisrich et al (2014) illustrates how these concepts have been addressed over time till the study of
the same
author.

Table 1 – Entrepreneurship Theory Development and the term entrepreneur

Source: Hisrich et al (2014)

Middle Ages Participant and person in charge of large-scale production projects.

XVII century Someone who took the risk (of profit or loss) in a government´s fixed
amount contract.
1725 Richard Cantillon - a person who takes risks is different from a person
who provides capital.
1803 Jean Baptiste Say - entrepreneur's profits separated from capital gains.

1876 Francis Walker - distinguished between those who provided funds and
received interest from those who obtain profits with administrative skills.
1934 Joseph Schumpeter - the entrepreneur is an innovator and develops
technology that has not been tested.
1961 David McClelland - the entrepreneur is someone dynamic who runs
moderate risks.
1964 Peter Drucker - the entrepreneur maximizes opportunities.

1975 Albert Shapero - the entrepreneur takes initiative, organize some social
and economic mechanisms, and accepts risks of failure.
1980 Karl Vesper - the entrepreneur is seen differently by economists,
psychologists, businesses and politicians.
1983 Gifford Pinchot - the intra-entrepreneur is an entrepreneur who operates
within an organization already established.
1985 Robert Hisrich - entrepreneurship is the process of creating something

4
 different and with value by devoting the necessary time and effort,
assuming the financial, psychological and social risks and receiving the
resulting rewards of satisfaction and economic and personal independence.

2. Start-Up Lifecycle
While examining the profitability and the probability of success or failure of a startup it becomes
critical to study the different possible situations and periods a startup can go through. Most of the
startups go through various similar phases during their life, these different periods collectively are
known as the Startup lifecycle. Majorly, the lifecycle of successful startups consists of three main
periods (Ganesaraman, Kalyanasundaram, 2018) namely the emergence, survival, and
stability, and success and accelerated growth.

1. Emergence:- This phase mainly focuses on the proof of concept or otherwise known as
POC (Ganesaraman, Kalyanasundaram, 2018). During this period, the funding for the
cost of POC mainly comes from the entrepreneur’s own pocket. After finding the most
balanced combination of the perceived opportunity and the most viable business
concept, the proof of concept is determined and it provides the owner with the most viable
product. Now the firm should increase its efforts in marketing in order to find out their
target consumers/customers. Making the efforts in the right direction will prove to be the
biggest asset for the firm in constructing a brand which would lead to higher chances of
attaining huge revenues in the later stages of the startup lifecycle (Kakati, M, 2003).

2. Survival and Stability:- This is the stage where the product has attained a place in the
market establishing a market fit and here the owner should try to capture various new
segments of the market. This is a phase where the startup, having a small name for itself
can go for sources of external funding and it is important that the right partners are given

5
 prime focus here. This is the stage having very fund requirements and also calls for
maintaining a great amount of focus on executing the operations (Gatewood, 1995).

3. Success and Accelerated Growth:- During this phase it is quite clear that the product has
attained a certain required level of maturity, according to the owners and the investors, and
it is clear that a certain level of revenue stream is also well established. This is the phase
where a major acceleration through expansion could be looked at both at a national and
even an international level (Ganesaraman, Kalyanasundaram, 2018).

Once the owner is aware of all the vital stages that the startup is most probably going to go through
in its lifetime, it becomes very important for the entrepreneur to take all the steps in the right
directions very carefully as even a single mistake to hinder the growth of the entire product line or
the startup as a whole. If all the decisions are taken with extreme care and are thought through then
it becomes very easy for the startup to grow and prosper in the near and further future.

3. Sources of funding
We all are aware of the fact that how much funding is important for any startup or a business,
funds are bloodline and with the onset of the 21st century different modes and sources have
been developed. Organizations consistently look for wellsprings of subsidizing to develop the
business. Subsidizing, additionally called financing, addresses a demonstration of contributing
assets to back a program, project, or need. Different sources have different characteristics, so
for any startup, the entrepreneur should be aware of them in detail in order to have rational
uses (Ganesaraman Kalyanasundaram, 2018).

3.1 Personal investment

When beginning a business, your first financial backer ought to act naturally—either with your
own money or with a guarantee on your resources. This demonstrates to financial backers and
brokers that you have a drawn-out obligation to your undertaking and that you are prepared to
face challenges.

6
3.2 Love money
This is cash credited by a companion, guardians, family, or companions. Financial backers and
investors consider this as "patient capital", which is cash that will be reimbursed later as your
business benefits increment. When acquiring love cash, you ought to know that:
Loved ones infrequently have a lot of capital They might need to have value in your business.

3.3 Bank loan

Bank credits are the most ordinarily utilized wellspring of subsidizing for little and medium-
sized organizations. Consider the way that all banks offer various benefits, regardless of
whether it’s customized administration or tweaked reimbursement. It’s a smart thought to look
around and discover the bank that meets your particular requirements.

3.4 Venture capital

The principal thing to remember is that investment isn’t really for all business people. Directly
from the beginning, you ought to know that financial speculators are searching for innovation-
driven organizations and organizations with high-development potential in areas like data
innovation, correspondences, and biotechnology.
Investors take a value position in the organization to help it complete a promising yet higher
danger project. This includes surrendering some possession or value in your business to an
outside party. Investors additionally anticipate a sound profit from their speculation, frequently
produced when the business begins offering offers to people in general. Make certain to search
for financial backers who carry significant experience and information to your business.

3.5 Startup incubators

Startup hatcheries don't normally need value except if they are likewise giving some sort of
subsidizing to new companies. As a rule, they hatch and develop the new businesses so they
can apply to the gas pedal projects. The term of hatching can fluctuate from a quarter of a year
to a year. Most startup hatcheries give mentorship, office space, and even assistance to new

7
 companies to meet private backers. Yet, there are a few hatcheries that like-new businesses to
receive assets from them as a trade-off for an offer in the startup. Try to check this while
applying there.

3.6 Bootstrapping
This is one alternative that we by and by adoration. Bootstrapping is ideal for any individual
who will begin their own business. Bootstrapping implies beginning your business by your
assets and assets, without depending on an outside reserve. It is an incredible method to keep
total responsibility for startup and become self-subordinate. Be that as it may, bootstrapping
has its cons. You can’t scale business with bootstrapping and if for reasons unknown the
business fails; your well-deserved cash will evaporate also.

4. Factors Responsible For Startup Success

With the onset of the 21st century, the business environment changes drastically due to changes
in the technological environment as well as changes in consumer behavior.
Capital is one of the indispensable factors which can have a significant impact on the outcome
of any startup's success or failure (Shabir Hyder Robert Lussier, 2016). Even with sufficient
funds at the start-up, this does not guarantee cash flow of capital afterward to continue
operations and growth in the business. As found by Tatiana, etal. (2009) in Pakistan, the mode
of financing from formal sources for smaller businesses is limited and these businesses have
more reliance on informal sources. Only a fraction of the startups have access to the formal
source of funds, because of this, they are forced to take loans from informal channels which in
turn have a high-interest rate and no legal supervision, which further reduces the chances of
profit-making and impacts success of the startup.
A high level of leadership skills with a clear understanding of the market, excellent
communication skills, maturity to see things in the right perspective along the ability to take
calculated risks are required on the part of the entrepreneur. Sharifi & Hossain (2015) stated
the various financial challenges faced by startups in India. The important findings of the paper
are a major leap in technology which has led investors to raise the bar along with the difficulties
faced by the startups at the initial stage. Adding to this, S. Varghese Antony & Dr. M. Edwin

8
 Gnanadhas (2011) revealed in their study that families play an important part as motivators for
taking up entrepreneurship. Once convinced, the family members can provide moral support,
guidance, and financial help as needed by these entrepreneurs. In the words of Rizvi and Gupta
(2009), government-sponsored development activities and schemes have benefited only by a
small section of entrepreneurs which may be primarily due to their level of education, access
to information, and family support.
Disruptive companies like Airbnb, DraftKings, Tinder, and Uber have changed the way their
industries think (Rivlin-Nadler, 2016). Their innovation is often unable to be replicated by
established firms and allows them to gain solid entry to the market (Christensen, 1997). What
determines the success of a startup is its ability to build sound business practices and plans that
set it up for success (Cierpicki, Wright, Malcolm, & Sharp, 2000; Sedighadeli & Kachouie,
2013). This paper put forwards and highlights one of the most important parts of any
entrepreneurship venture (startups) is the right kind of planning while taking into consideration
the future needs and consumer preferences. As a startup, you have to be on your toes to rightly
infer and adapt to consumer demands by constantly engaging in innovation.

In our research paper, we have tried and evaluated all these factors mentioned in the papers through
primary data research among different sectors and industries. Also, we have formed our hypothesis
based on our observation, in the latter part we have tried to establish the relationship using the
data.

Research Methodology
Description of the sample
The data has been collected by primary sources only. The information provided has been taken by
conducting a survey from a sample of various startups whose data was collected from personal
sources, websites, official platforms like LinkedIn etc. The number of respondents are 13 which
consist of startups from varied fields like Edtech, Personal hygiene and beauty care, SaaS, E-
commerce, Consulting etc. The data has been collected through online mode due to the pandemic.
All of the startups are functioning.

9
Industry-Wise Distribution of Startups in the Sample

10
Most of the founders have an average experience of <2<5 years of job. This constitutes 38.5% of
the total survey. 53.8% (7 out of 13) startups are running in profit.

Findings of the study

The survey results revealed that the majority of startups met their financial requirements through
family and friends and bootstrapping. The values have been computed as the percentages of
startups reporting sources of finance. No single startup availed themselves of financing from
startup incubators, startup accelerators, pitching competition and government grants. Only 7.7%
of the startups sought for crowd funding and bank loans each as the source of finance.

This depicts that the government needs to create more awareness about its programs along with

11
making them accessible and updating them with the changing trends so that no entrepreneur faces
difficulty in raising funds and launching a startup.

Moving forward, when asked about the major reasons for startup performance/status, a large
portion of respondents gave first preference to swift technological advancements, second
preference to availability to best financing options, third to entrepreneurship skills and team
management, fourth preference to excellent marketing and product positioning and last preference
to product category which caters to customer needs and wants.

Reasons Values

Swift technological advancements 1

Excellent marketing and product positioning 3

Availability to best financing options 2

Entrepreneurship skills and team management 4

Product category caters to customer needs and wants 5

1. Study shows that 5 out of 13 (38.5%) startups have recorded there sales growth more than
5%. 23.1% of the startups recorded there sales growth more than 20% and between 5%-
10%. There are only 2 startups who have sales growth between 10% and 20%. This
concludes that most of the startups have sales growth more than 5% and very few say only
3 have sales growth more than 20%.

12
Methodology

Variables under study on which we will be performing our hypothesis and making conclusions are
whether the startup is running in profit or not, the sales growth in the past few years, founder’s
experience on an average basis, reasons of performance or status of the startup such as swift
technological adaption, funding options, team composition, marketing strategies, and catering
customer needs.

Out of all these variables our dependent variables would be whether the startup is running in profit
or not and the sales growth. Since these are the only two variables that can determine the success
and they are dependent on other variables, change in other factors would lead to change in the
dependent variable. More conclusions and results are further discussed in this paper.Other
variables can be treated as independent variables as they only affect our dependent variable and
they are not affected by any other variable.

Since our collected data mostly consists of qualitative information and we cannot go for any sort
of parametric tests so instead of using that we will be using non-parametric tests. Non-parametric
tests are conducted when we have categorical data.

13
To check whether there is any relationship/association between the variables we use the Chi-square
test of Association. Before performing that we need to make some data requirements such as-

1. There must be two categorical variables

2. Two or more categories/groups for each variable
3. The categorical variables are not paired (such as pre-test/post-test)

Point to be noted: Chi-Square test of independence can only compare categorical variables.
Comparisons between a continuous variable and a categorical variable cannot be done.

The hypotheses here taken are as follows:

H₀: [Variable 1] is independent of [Variable 2]

H₁: [Variable 1] is not independent of [Variable 2]

OR

H₀: [Variable 1] is not associated with [Variable 2]

H₁: [Variable 1] is associated with [Variable 2]

The test statistic for the Chi-Square test of Independence is denoted by X² and is computed as:

Where,

oij is the observed cell count in the ith row and jth column of the table

eij is the expected cell count in the ith row and jth column of the table,

14
then the calculated X² value is then compared with the tabulated or critical value from the X²
distribution table with degrees of freedom df = (R-1) (C-1) and the chosen confidence level.
Rejection criteria depend on the fact that if the calculated X² > critical X² value, reject the null
hypothesis.

Using STATA we had obtained a relationship between two variables however the result is not
significant but it is close to significant. It shows the relationship between the customers' needs and
whether a startup is running in profit or not.
The result we got is the Chi-Square value of 8.305 at 12 degrees of freedom. This has a probability
value of 0.081 which however is greater than 0.05 and is not a significant result but as it is close
to 0.05 then it can be considered as a finding and can be shown as a result.

15
If we go according to the hypothesis, the null hypothesis which is “Customer needs and wants are
independent of startup running in profit” is rejected and turns out that there is no association
between these two. Regardless of the fact that there is no association the probability value of 0.081
shows that it is close to 0.05 and can be said that there might be some relation.

Conclusion
Through the survey we conclude that for starting a business, entrepreneurs majorly rely on friends
and family or bootstrapping when it comes to raising funds. When asked about the possible reasons
why other startups fail, the majority of them voted for lack of additional funds as the main reason.
This means that starting up a business is not much of a concern rather than raising the funds for
running the firm. The advice given by the entrepreneurs was to be constant, keep on improving the
marketing skills so as to target the right audience, to focus on the early team as they will lay the
first impression of the startup and knowing the customer will boost the business in an unfathomable
way.

Limitations

The sample size of the startup is 13 which is a small sample size, however, seeing the reluctance
of entrepreneurs and also tracing them was also not that easy at such a scale. Also, the study is
more focused on the Indian scenario, so we can’t generalized this paper as not all variables
particularly extraneous variables.

16
References

1. Tomy, S., & Pardede, E. (2018) - From Uncertainties to Successful Start Ups: A Data
Analytic Approach to Predict Success in Technological Entrepreneurship. Sustainability
2. Krishna, A., Agrawal, A., & Choudhary, A. (2016) - Predicting the Outcome of Startups:
Less Failure, More Success
3. Kakati, M. (2003) Success Criteria In High-Tech New Ventures; Technovation, 23(5), 447
– 457
4. Hyder, S., & Lussier, R. N. (2016) - Why Businesses Succeed Or Fail - A Study On Small
Businesses In Pakistan; Journal Of Entrepreneurship
5. Gatewood, E.J., Shaver, K.G. and Gartner, W.B. (1995) A longitudinal study of cognitive
factors influencing start-up behaviors and success at venture creation; Journal of Business
Venturing, 10(5), 371-391
6. Ganesaraman, Kalyanasundaram (2018) - Why Do Startups Fail? A Case Study Based
Empirical Analysis in Bangalore; Asian Journal of Innovation and Policy, Volume 7 Issue
1
7. S. Vargheese Antony Jesurajan and Dr. M. Edwin Gnanadhas - A Study On The Factors
Motivating Women To Become Entrepreneurs In Tirunelveli District; Asian Journal of
Business and Economics, Volume 1, No.1.1 Quarter I 2011, ISSN: 2231-3699
8. Miguel Soriano (Singapore Management University, 2018) - How Fintech Startups
Succeed In Financial Inclusion; Asian Management Insights Centre for Management
Practice
9. Schaul Chorev, Alistair R. Anderson (2006) - Success In Israeli High-Tech Start-Ups;
Critical Factors And Process; Charles P. Skene Centre for Entrepreneurship, Aberdeen
Business School, The Robert Gordon University, Garthdee Road, Aberdeen AB10 7QE,
Scotland, UK
10. Islam, M.; Fremeth, A.; Marcus, A. Signaling By Early Stage Startups; US Government
Government Research Grants And Aventure Capital Funding. J. Bus. Ventur. 2018, 33,
35–51

17