Why Indian Startups Fail and How To Avoid It
India is now the third-largest startup ecosystem in the world, just after the USA and China. From technology to food delivery, Indian entrepreneurs are building companies in every industry. Every year, thousands of startups are launched. But sadly, many of them shut down within 2-5 years.
In fact, according to reports, around 90% of Indian startups fail within the first 5 years. This sounds scary. But why does this happen? What mistakes are being made? And more importantly, how can new startups avoid failure?
In this blog, we will explore the common reasons why Indian startups fail, give real-life examples, and share tips to avoid the same fate.
1. No Market Need
One of the biggest reasons for startup failure is creating a product or service that people don’t really need. Sometimes founders build something they think is “cool” or “innovative” without checking if there is a real demand for it.
Example: Dazo
Dazo was a food delivery startup that started in Bengaluru in 2015. They provided a limited menu and focused on quality meals. While the idea was good, the market was already crowded with players like Swiggy and Zomato. Customers didn’t see a strong reason to switch. Eventually, Dazo shutdown within a year.
How to Avoid:
- Talk to real customers before launching.
- Do market research.
- Ask: “Is this solving a real problem?”
2. Running Out of Money
Another common reason is poor financial planning. Startups often spend too much money on marketing, fancy offices, or hiring too fast. Once the money runs out, they struggle to survive.
Example: Stayzilla
Stayzilla was a homestay startup that tried to compete with Airbnb. At first, they raised a lot of funds and expanded fast. But they couldn’t manage their cash flow and had trouble building trust with users. In 2017, they had to shut down.
How to Avoid:
- Keep track of your expenses.
- Don’t scale too fast.
- Always have a 12-month runway (enough money to survive for 12 months).
3. Weak Business Model
Some startups offer services for free or at very low prices to attract users, hoping to make money later. But if they can’t figure out a way to earn profits, they can’t survive long term.
Example: VivoTech (E-commerce)
VivoTech offered electronics at heavy discounts to gain customers. But they didn’t have a plan to make profits. Eventually, they couldn’t keep up and had to shut operations.
How to Avoid:
- Know how you will make money.
- Have a pricing strategy.
- Understand your costs and margins.
4. Bad Team or Leadership Issues
Startups are not just about ideas—they’re about execution. And that depends on having the right team. Many startups fail because of team conflicts, lack of experience, or poor leadership.
Example: TinyOwl
TinyOwl was a food delivery app that raised a lot of funding. But internal issues, poor coordination, and bad decisions led to layoffs and shutdowns. They expanded too fast without proper planning.
How to Avoid:
- Build a strong, balanced team.
- Ensure clear communication.
- Hire slow, fire fast.
5. Ignoring Customer Feedback
Some startups fail because they are too focused on their own vision and ignore customer feedback. They don’t update or improve based on what users want.
Example: Frankly.me
This was a video Q&A platform that allowed users to ask questions to celebrities. While it gained attention initially, it didn’t evolve with user interest and engagement dropped.
How to Avoid:
- Keep listening to your users.
- Take feedback seriously.
- Keep improving your product.
6. Tough Competition
Sometimes, the market becomes too competitive. Big companies with more money enter the market and small startups can't survive.
Example: PepperTap
PepperTap was a grocery delivery app. It raised over $50 million but couldn’t survive when big players like Grofers, BigBasket, and Amazon entered the market. They shut down in 2016.
How to Avoid:
- Focus on a niche (small specific market).
- Offer better customer service.
- Build customer loyalty.
7. Poor Marketing and Branding
Even if you have a great product, if people don’t know about it, they won’t buy it. Many startups fail because they don’t invest in proper marketing or branding.
Example: Zebpay (before its comeback)
Zebpay was one of the biggest crypto exchanges in India. But due to regulatory issues and weak communication, it lost user trust and had to shut down temporarily in 2018.
How to Avoid:
- Create a strong online presence.
- Use social media and digital marketing.
- Build trust with clear communication.
8. Legal and Regulatory Challenges
Some startups fail due to legal issues, especially in industries like fintech, cryptocurrency, healthcare, or education. Not following the law can lead to bans or fines.
Example: Crypto startups
Many small crypto exchanges in India had to shut down due to RBI regulations and lack of legal clarity around digital currencies.
How to Avoid:
- Understand the laws in your industry.
- Hire a legal advisor.
- Stay updated with government policies.
How Can Indian Startups Succeed?
Now that we’ve seen the reasons for failure, let’s talk about how startups can succeed.
1. Solve a Real Problem
Always build a product or service that solves a real-world problem. Talk to customers and understand their pain points.
2. Start Small, Grow Steady
Don’t try to grow too fast. First, test your idea with a small group of users. Then expand slowly based on demand.
3. Build a Great Team
Your team is your biggest asset. Hire people who are skilled, passionate, and reliable.
4. Plan Finances Well
Make a budget and stick to it. Don’t overspend just because you raised funding.
5. Adapt and Improve
Be open to feedback and ready to change. The market keeps changing—your startup should too.
6. Focus on Customer Experience
Always make sure your customers are happy. A loyal customer will bring 10 more customers.
7. Stay Legal
Make sure your business is legal, your taxes are paid, and your licenses are clear.
Startup life is exciting, but it’s also full of challenges. In India, the number of startups is growing fast, but the failure rate is high too. By learning from past failures and planning wisely, new entrepreneurs can increase their chances of success.
If you’re thinking of starting up—do your research, stay focused, and never stop learning.
Remember: It’s not just about having a great idea. It’s about building something that people need and doing it better than others.