The Hidden Side of Startups

Article by Hiba khan from Entrepreneurship Wing, GAEE JMI

Startups are new ventures that aim to change the world with their innovative products or services. It aspires to provide a service to society that does not currently exist. Today’s unicorns, such as Amazon, Facebook, Google, Apple, and Netflix, began as start-ups.

The Republic of India’s innovative mindsets received a much larger boost on August 15, 2015, when the Prime Minister of India announced a new initiative for young innovators called “the Startup India initiative” to create a robust system for nurturing innovation and startups across the country.

There was tense competition between fintech and e-commerce startups to raise more capital and achieve unicorn status by 2021. Furthermore, different healthcare, crypto, social commerce, and prop-tech industries saw their first startup unicorns this year.

But all of this success begged the question, “What is the success-failure rate of startups?” How are startups funded?

According to a report, 90% of Indian startups fail within the first five years, lacking innovation being the primary cause. 

They must go through several rounds:

1. Bootstrapping, in which they typically solicit funds from family and friends.
2. Seed funding from “angel investors.”
3. Series A, B, C, and D funding rounds, led by venture capital firms that invest millions of dollars in the companies.
4. Become a public company and open itself to outside moner via an IPO, SPAC, or directly listing on a stock exchange. 

Startups’ glorious and luminous world seems appealing to everyone, but not everything that shines is glitter, right?

We have seen a significant increase in Edtech startups in recent years, which has already raised the bar of competition in the market. Companies such as Byjus and Unacademy have captured a large portion of the market, making it difficult for newcomers to break in.

The new schemes and technology have captivated the innovative minds to do what hasn’t been done before, but the lack of resources and existing capitalism cannot be overlooked.

There have been numerous cases where a giant acquired a small venture, or a company that was losing money was merged with another giant, implying failure and secrecy in the newly established market of start-ups.

The government claims that startups will undoubtedly result in job creation and benefit those looking for work. However, if you pay close attention to the pattern, you will notice an increase in jobless situations and failed startups. As a result, it encourages people to pursue startups rather than having a backup plan first.

A backup to survive in the market, cover expenses for the time you are not working and invest in the start-up because data shows that most startups fail in their initial stages, and even if some survive, they require funds to survive for the first part of their new venture. According to a survey, approximately three thousand startups are approved every day, with 90% failing within the first 3 months of incorporation.

A lack of innovation, self-employment, and zeal to start new ventures results in low productivity, resource waste, and work quality. This causes the venture to lose money, and they are even unable to pay their employees’ salaries.

The majority of ventures are copies of foreign companies’ concepts; for example, Ola provides similar services to Uber, Hike is a copy of Whatsapp’s plan, Flipkart is a copy of Amazon’s plan, and so on.

Another reason for the failure is insufficient funding for such ventures. The following are some of the reasons that can explain the startup’s failure:

1.  Lack of capital

To start your own business, you’ll need a lot of money and a lot of back-ups to make it through the first few years. One of the most common reasons for a startup’s failure within the first year is a lack of capital.

2.  Increased competition in one kind of industry

Because there are a lot of ed-tech and technical startups being replicated in the startup world, your product/service should be something that hasn’t been done before.

3.  Failure of plans and models

There is a lack of proper plan and model implementation. Startups are unstructured organizations with no defined business processes or operational procedures. As a result, they are vulnerable to poor customer service, legal liability, and financial losses.

4.  Bad debts

Financial security is never guaranteed in a startup. One may have to suffer a significant loss, and his proposal may be repeatedly rejected or disapproved by his clients. A startup owner faces numerous challenges.

5.  Lack of human resource

A recent graduate is more likely to be drawn to renowned companies than a startup, resulting in a shortage of human resources for startups.

6.  Lack of experience

Building a company requires blood, sweat, and tears, and long working hours are the norm for startups. The rewards may be modest because it takes time to generate revenue and profits. Not everyone has the necessary experience to put in a startup’s hard work.

7.  Poor marketing strategies

A marketing strategy is the foundation of any company.

Budget constraints have an impact on marketing strategy. Rents, raw materials, and other overhead costs are still included in the budget. A marketing plan designed for a business should be organized so that it complements the organization’s goals and resources.

The Bottom Line 

While the concept of startups has given rise to the vigor of youth, it has also given rise to unemployment and failure. Start-ups have a long way to go before becoming sharks, but do we have enough support in the name of progressive schemes?

An idea like this requires proper planning, execution, and funding because “a goal without a plan is just a wish,” The goal of illuminating the startup world has become a wish due to a lack of planning.

This dark side of the startup world suggests that there is still much to be done. Young minds with innovative ideas should be provided with proper funding and an assistance team to help them with reducing the chances of their startup failing. Otherwise, the world that aspires to be progressive may face increased unemployment and poverty.

Article summary: A startup is a young company founded by one or more entrepreneurs. Working for a startup is becoming an increasingly popular career goal for young professionals, and the allure of this career path is undeniable. While there are numerous advantages to working for a startup, there are also some drawbacks to consider when deciding whether this is the right career path for you. Most people cannot deal with the chaos and uncertainty— those who require structures may become disoriented in the absence of performance metrics or best practices. Even though startups continue to thrive worldwide, the odds are stacked against them in countries with a closed economy and a lack of an innovation culture. Hopefully, these odds will diminish as more people realize that start-ups create jobs and wealth in economies of all sizes.