Start-up shutdowns: Besides funding, there are other reasons to blame

Recently, drone operating system start-up Airware shut shop. Airware is not just any other name in the global start-up market. It's a venture that had only a while ago raised $118 million from a bunch of high-profile investors including Google.

This setback mirrors 2017, when wearables start-up Jawbone, that had raised $1billion and had a peak valuation of $3billion had closed down. Experts say start-up shutdowns are becoming increasingly prevalent and lack of funding no longer holds much weight in this.

Data shows that in Silicon Valley, 10 start-ups that had raised $1.695 billion collectively in venture capital funding had failed in 2017, with Jawbone being the most prominent example. In India, over 270 start-ups failed last year including Stayzilla, Yumist, Kaaryah as per Tracxn data.

"There are multiple reasons why start-ups fail and lack of funding is just one of them," say experts. A study by IBM Institute for Business value and Oxford Economics shows that 90% of Indian start-ups fail, with lack of innovation cited as the most common reason.

But failure to excel in R&D is again not the chief reason, believe certain experts, who cite examples of successful Indian start-ups such as Ola, Flipkart, Gaana.com that carry cloned business models of Uber, Amazon and Spotify. "Ola and Flipkart have thrived and become unicorns despite having no clear and distinct innovation in their business and service models," say experts.

There are a great number of other reasons why start-ups fail, says investor and techpreneur Nilesh Jain who feels the failure to engage strongly with investors and mentors is a crucial factor. "It is important to be involved with investors in the early phase of the business as investors bring experience, connects and are more capable in designing effective business plans as compared to budding entrepreneurs who can then focus on R&D. Start-ups should not shy away from engaging investors in their plans and should not be afraid to seek help."

Another big reason for start-up failure is poor financial management. Jain says many start-ups with great products and vision have failed due to mismanagement of funds, as they focused more on product promotion than on product development, consumer needs and competition assessment. "It is imperative for the founder(s) to plan and execute activities that provide long-term gains. The two most important things that founders need are product and team. It is the reason customers love you and ultimately why people come to work," explains Jain.

Overconfidence in customer acquisition is another key reason for failures. Arunprasad Durairaj, CEO and co-founder, Flinto Learning Solutions, says often founders assume their product/service will become a hit the moment it launches. "The first few customers might show interest, but eventually the process of attracting customers becomes an expensive task. "

Furthermore, product-market fit, growth challenges based on product need, pricing are other common reasons, believe experts, for start-up failures, as not finding the right product-market fit before the funds dry up can cause shutdowns in the start-up world.

Start-up failure should be perceived in the right manner. Hitesh Ahuja, founder and CEO of Yumlane says start-up failure indicates there is room for risk-taking, which is being encouraged by the system.

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To curb chances of failure, entrepreneurs need to be agile, advise experts. Harsh Dhand, founder and CEO of online rental venture RentSher, says agility in both pivoting, as well as business models, can help in periods where the start-up has to sustain on low funds. "We realised that the peer-to-peer model is good on paper but takes a lot of funds to execute at scale. The asset led model in rentals gives short-term profits but is costly in the long term. After a couple of pivots, we finally selected a more scalable model around events, electronics and equipment rentals as a marketplace."