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The Indian Startup Ecosystem — Something Isn’t Right

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By Nishant Rao:

Starting Up, Screenshot PitchersI am not even remotely involved with the Indian startup ecosystem. But unfortunately, I read a lot and try to make sense of it in equal measures. And from whatever I have been reading and observing regarding the Indian startup story, especially in the last 12 months, I feel something is not right. Let me cut to the chase right away. Here’s what I think:

1. Where Is India’s Google et al?

Google, Amazon etc were born out of the first internet wave in the US during the 90s. A decade or so later, China built its own Google named Baidu, and practically drove Google out, which otherwise, has a global search engine market share of roughly 80%. Further, the rise of Alibaba displaced Amazon. Circa 2015, if India has indeed become the third largest startup ecosystem, then where is India’s Google? Facebook? Or Twitter? Or such meta-level startups.

What’s wrong then? With due respect to the Indian innovators, IMHO (in my humble opinion), most Indian startups aim to be rent-seekers and not wealth creators in the true sense. They are not interested in the bigger picture, in solving genuine problems, creating new categories or trying to become leaders in the existing ones.

Without generalizing, I want to say that most Indian startups by and large look to copy an existing model, and fine tune it to serve the local need. There’s Ola for Uber, Gaana for Spotify, the N number of food delivery startups, and their extended versions delivering just about anything under the sun. InMobi is the only Indian startup that comes to my mind, which carved out a niche for itself. Again, I may not know enough names, but I hope I have driven home my point.

2. The Zuckerberg Syndrome

This is my biggest pain. Ever since Mark Zuckerberg created the behemoth that is Facebook, every 22-year-old graduating kid wants to become a CEO. The little things called experience and expertise be damned. And sugar-coated, half-told success stories floating on the Internet haven’t helped either.

What these young graduates often forget is that people like Steve Jobs, Jeff Bezos or the latest poster boy Elon Musk slogged for years, writing codes in anonymity, sharpening their skills to the point of perfection before jumping onto their grand idea. To put things in perspective, Elon Musk took many years to self-learn the nuts and bolts of rocket science and electric automobiles, literally. But all we want to see is the end product — SpaceX and Tesla.

This is where the latest breed of Indian founders falter. They do not want to wait. They have been overfed the idea that an ‘IDEA’ is all you need and you need to move fast, unless someone else beats you. Misinterpreting the overnight success of new-age startups like Pinterest, Instagram etc, they do not want to invest in honing their skills or gaining perspective about the sectors they wish to dive in.

The immediate tag of a CEO, CTO, COO (CXO) is way too enticing to let them go through the grind.

They should ask themselves — where is innovation in selling baby diapers online? Or loaning bean bags on rent for parties? Or delivering food from the local chicken-shawarma joint? Creating the most attractive and seamless website/app and hooking up with a local delivery service, while piggy-banking on investor money is NOT innovation. It is not sustainable and definitely not long term. It might be better to call it a normal business instead.

3. The Dichotomy Of Venture Capital And Angel Funds

It is interesting to note that most of the first generation startups in the US and also in China were bootstrapped. That played a huge role in their successes. Why? Because it is human nature which drives us that extra bit when our own money is involved.

However, the Indian startup scene right from the beginning is heavily marinated with huge Venture Capital and Angel funds. However ironic it may sound, this is what I feel is rotting the entire system. Young, creative, enthusiastic professionals leaving their jobs, higher education etc, drawn by the charm of easy investor money and an imaginary million dollar idea. Well, any idea would seem like a million dollar shot when funding is a non-issue.

Add this to what I discussed above and you can see a reasonable argument in why this generation of Indian innovators do not want to wait. The grand vision gets restricted to building a workable model of any existing idea, get funded and then hope for a million dollar exit. This is the purported life-cycle of most Indian startups.

To an outsider like me, the Indian startup ecosystem resembles a large casino where Mc-Daddy VCs come to play their bets.

4. Forcing Western Models In Indian Markets

A entrepreneur works at his computer laptop at the so-called "incubator" of French high-tech start-ups "TheFamily" in Paris, France, July 27, 2015. REUTERS/Charles Platiau - RTX1LZF7
Image source: REUTERS/Charles Platiau

Let me explain by quoting an example — online grocery delivery makes sense in the US, where the nearest Walmart or Kroger might be miles away. Secondly, most food items there are frozen with a longer shelf life. Thirdly, from personal experience I have observed, a US family has a more or less fixed weekly or bi-weekly grocery list with strong brand loyalties.

The Indian system is as opposite as it can get. There’s a Kirana (mom and pop) store at every nook and corner, complemented by the rapidly expanding supermarket chains like Food Bazaar, Big Apple to name a few. But even more important is that we Indians largely consume fresh food — vegetables, milk, fruits etc. Many Indian mothers might not be able to cook in peace until and unless they’ve handpicked their vegetables.

Thus, the Indian market for online grocery shopping gets restricted to the young and working population in urban centres, who are anyhow increasingly eating in office or outside. My point is that there are many such startups in India, trying to fit a western model into Indian markets without fully working out the ground level movements. That’s why they hit a roadblock when it comes to scaling, and end up being the proverbial frog in their respective wells.

5. The Mind Numbing Valuations

I am old school. Hence, I believe that profit is the main driving force behind any venture. And that any venture should be valued according to how profitable it is presently, or might be in the definite future. But when a startup with no profit to show in the near future, and a multi-million cash burn rate, get valued in billions, a layman like me fails to understand the equation being worked out, even after factoring the much talked about cost of customer acquisition. To be fair, this is a more global phenomenon and not just specific to Indian startups.
It almost sounds obscene when Uber is valued at $60 billion. That might be more than the GDP of some countries.

The problem is exacerbated in case of India because nascent startups lose the plot in the glitz of inflated valuations, even before they get a hang of their basic modalities. VC firms often end up sucking out a major portion of total equity in the bargain, leaving very little for the original founders to play around with. Except for the paper tag of being freshly made millionaires, if not more.

6. The Talent, Or The Lack Of It

I wanted to keep this point for the end, because it might surprise a few. Dare I say this — I feel the potential of Indian graduates is being oversold. We are relying on the past laurels of the IIT-IIM system, when it used to be relevant.

With the mushrooming of sub-standard engineering colleges, a major chunk of the talent pool of freshly graduating students is barely employable, let alone equipped with the powers to create a truly disruptive startup. It is no secret that the Indian education system lays little emphasis on practical training. Thus, what we end up doing is building poor products by copying existing codes/tools available on Google. In defense of early stage startups, they just don’t have the resources and time to train an employee whose sole aim might be to make a quick stopover, while on his way to greener shores.

I want to conclude by accepting that it is easier to rant and pick up faults. The likes of Google or Amazon had the first mover’s advantage, backed by strong and developed national economies. In comparison, the task is cut out for anyone starting now. The world order is far from just, and the bigger players do every bit by arm twisting developing countries to their advantage. The Indian startup ecosystem faces somewhat similar problems in its limited domain. Having said that, I do wish to see Indian startups someday working on truly cutting-edge technologies in areas like defense, space, automobiles and opening new vistas, not just for India, but the entire world.

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  1. Harshul Singhal

    Nicely written & well observed….! liked it..

  2. Utkarsh

    I’m a startup co-founder and I thought I’d find something to learn here. Rather this sounded like a bitch-about
    session on Indian startups. Since you are an “outsider” to the start-up ecosystem and most of your knowledge is
    based out of what you read online, your idea of the Indian start-up seems to oversimplify the work that goes into
    building one.

    So I hope to throw in my 2 cents on your points, hoping to probably give you something to think about.

    1. Where is India’s Google?
    Zomato (based out of New Delhi) – acquired Seattle based UrbanSpoon in Jan 2015
    FlipKart – gives a scary competition to Amazon

    2. The Zuckerberg syndrome.
    This was a fun one to read.
    Steve Jobs never wrote code. He “thought” of selling Apple I (invented by Steve Woz.) at the age of 21.
    Elon Musk did learn about Electric Cars and Rocket Science, but while building his companies on the side.

    The most important things for any entrepreneur is time and how to get a job done. Most learn and develop skills
    on the go. Nobody can learn how to be a CEO or a CTO. Experience is over-rated. The important part is to take the
    dive and get the job done. Most entrepreneurs figure that out pretty soon. I am glad India is becoming a country
    where young 21 somethings are trying to solve problems around them and also getting their hands-dirty in the mud
    than waiting to gain experience. And I think, the startup ecosystem in India, is just starting to buzz up. Such excitement
    leads to big changes in the community. American Silicon Valley didn’t pop up in a day.

    3. The Dichotomy of VCs and Angel Funds
    It seems like a fairy tale story when you hear a startup get funded on YourStory. But its really not that easy to crack
    even a meeting with these guys or to even explain them your idea. It’s a lot of questions and a lot of riddles to solve.
    We might however, need more risk-taking VCs in the Indian ecosystem. Those that can take their bets on future
    Facebooks and Googles.

    4. Forcing Western Models in India
    It works. It Shows Results. It Makes Money. Job Done! VCs happy.
    Seems like a straight-forward formula. Trust me, Flipkart would have had to go through so many hurdles to get people
    buying stuff online. Every business is different. Models can’t be exactly replicated. There’s always so much to work with
    and so many problems to solve to get a business customised to the environment.

    5. Mind Numbing Valuations
    The value of a company today isn’t just counted in terms of its tangible assets but a number of intangible one’s too.
    If a company has the potential to hold together a significant traction, I’m sure VCs calculate what future value propositions
    the company aims to provide to its customers. Obviously to the general public it seems inflated valuation because they might
    be unaware of what the vision of the company really is. A lot of times, valuations might not make sense, but then
    again, they’re not always mean’t to be taken so seriously or get scared of or ridicule. It’s only a number. Intangible value.
    Serious entrepreneurs, probably are guided by their vision than a valuation number. Nevertheless, they are entitled to
    enjoy it in good spirit. They’ve earned it.

    6. Lack of Talent Or The Lack of It.
    Trust me. If you can get the job done! To heck with talent.

  3. Souvik guha

    If u want a example of how people’s mind are full of negativity then u should read this article..
    1.Nishant Rao you are a out sider of start up ecosystem.. If u dont knw anything then try to avoid the topic..otherwise u lost people’s respect.. mean to say if we make second Google then only we can progress… really don’t knw anything..
    3.if any investors wants to invest for the sake of the companies better future,den who the hell are u to talking about..
    4.if u want to start a business u need many thing ,and for most of the people they have idea but they don’t have money so they try to convince VC for fund..
    5.I am cent percent sure that you are one of those who wants to be a entrepreneur but due to lack of ability u didn’t establish ur self as a entrepreneur.. Better luck next time bro.
    6.every body wants to become millionaire.. Its not there fault..dreaming is not a crime..
    7.and this is my request to youthkiawaaz plz review ur article before publish..people luv to read ur article.. Dont dissapoint dem..otherwise they change the platform..

  4. Akshay

    Nice to read about the start-up ecosystem from a more conservative perspective. Few points like burn rate of millions, no real profit and obscene valuations really makes us question about today’s scenario. But there are some case where young entrepreneurs are really taking a lot of efforts trying to solve our genuine problems. All I have to say that it is a good sign and this is just the beginning and i
    t is too soon to draw any conclusions

  5. Rohit Thomas

    To Utkarsh and Souvik Guha :

    Reality is INDIAN STARTUPS are falling in value including Flipkart + not so innovative like Micromax
    which is getting knocked by Chinese competitors too. TOO MANY STARTUPS using COPYCAT MODE

    Also when it comes to EDUCATION and SKILL-SETS – Think EDUCATION is ENOUGH? Think THEORY is
    COMMUNICATION – not just talking but MOST IMPORTANT LISTENING and then replying back using

    How to get Critical and Logical Thinking? Not via mugging up and vomiting that is done at INDIAN

    Also, Reality is MANY of INDIA’s firms have HUGE debts while around 35% of the leading 500 non
    financial institutions are in MESS.

    And if want to read the above in depth:
    Finally, the reality is that MNCs from abroad beat the local organisations-hardly any innovations and
    so on which includes many of India’s startups (including Flipkart) that have fallen in valuations. INDIA
    needs to 1st fix the basics – Infrastructure, Soft skills, Critical and Logical Thinking at many of the
    educational institutions, etc.
    – Why do you think 69% of INDIAN JOBS are headed for AUTOMATION within NEXT 10 YEARS OR SO
    (less than China’s 77%, Thailand’s 72% but way more than most western countries including USA which
    leads with 49%).

    India still has issues with 1880s stuff – Electricity – Frequent Power Cuts + High Voltage Fluctuations.
    Even many roads have potholes in them. Same goes with pollution where garbage is there all around
    the country – DIRTY and FILTHY. Railway tracks and stations around the country – same though it is
    also mixed with human shit or faeces as well as plastic bottles, food and so on. Same can be seen with
    India’s so-called cleanest places including Goa’s beaches – FILTHY and DIRTY. SADLY, even the
    HERITAGE SITES are POLLUTED (That is why India holds the distinction of having 13 out of the 20 most
    polluted cities within the world where India is also a leader and in some cases, the leader for various
    diseases like Dengue, Malaria, Heart Attacks, Suicides, Obesity, Malnutrition, etc).

    LOGICAL THINKING and then ANSWERING BACK. India has issues with that in relation to SOFT SKILLS
    by both graduates and employees (This is for school+college kids, employees good or bad at
    communicating + leadership skills – Toastmasters is a very good place for both whether good at it or
    not (can always improve) and IT’S CHEAP (fees differs from club to club which can have mixture of
    employees and students). Toastmasters helps with both COMMUNICATION + LEADERSHIP SKILLS).

    CHANGE YOUR STYLE OF THINKING if you want to survive as OLD THINKING won’t help – just like the
    movie KI AND KA which has existed in many parts of the world for a very long time now.

    Schools important? For some people, maybe but not all. Education and Engineering alone won’t help.

    Heard of Richard Branson who never even completed his schooling? Heard of Larry Ellison? Here are
    few more – Also, heard of DEBTS and LOANS with
    TRADITIONAL EDUCATION which by the way has shifted to MOOCs and ROBOT TEACHERS? Heard of
    Paypal Peter Thiel and his buddies who actually control the Silicon Valley? (Yup that is right they either
    started own firms or have control in many of the leading ones including YOUTUBE that was started by
    PayPal people)(Try telling Peter Thiel about EDUCATION especially if you have awesome ideas).

    Education and Engineering skills including IT ones alone won’t help as Skill set in 1 area won’t help in
    the 21st Century whether be an Engineer, Doctor or whatever as there are Content Comparison and
    Advertising tools for doctors, dentists, teachers, lawyers, sales personnel and so on where all areas
    have integrated within each field for every industry so 1 would require designing skills, digital tech
    skills (traditional won’t help all that much but would require bits ok knowledge within database and
    web programming + awesome systems admin skills), knowledge of copyright and spam laws,
    journalistic skills, digital marketing skills (traditional marketing, advertising, branding, etc won’t help
    a lot as PUSH STRATEGY has been over for more than 10 years while PULL STRATEGY has existed for
    around 20 years where everything transparent) and so on – INDIVIDUAL BRANDING DEPENDS ON
    are replaced by Tasks, No More Just Outsourcing to Countries as Can Outsource Locally too.
    Crowdsourcing is done on AUCTION BASIS + INVOLVES ONLINE REPUTATION TOOLS as well as
    RANKINGS and REVIEWS by clients tasks done for and so much more.

    Also, INDIA’s EDUCATION of mugging and vomiting along with the rest of the areas has to change as
    NORDIC and SCANDINAVIAN COUNTRIES – well, RIVALS work together even from a young age.
    STUDENTS learn from each other via RESEARCHING and READING, not just from teachers –
    HELPS WITH CRITICAL and LOGICAL THINKING which helps with CREATIVITY which helps with
    INNOVATIONS in the end. Thus, they are 1 of the world’s best Innovators along with having world’s
    largest NATURAL RESOURCES as well.

    Additionally, heard of blockchain technology that started within the crypotocurrencies area which
    includes Bitcoin and which has moved to JEWELLERY and other industrial sectors? Days of early
    digital have been over for more than 10 years which includes Webs 1.0 and 2.0 and which went to 3.0
    10 years back and then to collaborative or sharing economy as well as Robotics (already exists with
    high AI in all industries around many countries…same goes with sharing economy and IoT). IoT or
    Internet of Things and Blockchain Technology are the tech leading within Industrial Revolution 4.0
    that leads to Robotics too though that already exists as mentioned before (mentioned blockchain
    technology too under previous posts). Is Uber there within Driverless or Autonomous tech? Yes, it is
    along with Google, Tesla, Rio Tinto, UK Cab industry, BMW, Volvo, Mercedes Benz and so on.

    What about 4D Printing-heard about that? It’s the next level to 3D Printing where objects can change
    shapes depending on environment.
    – Why do you think 69% of INDIAN JOBS are headed for AUTOMATION within NEXT 10 YEARS OR SO
    (less than China’s 77%, Thailand’s 72% but way more than most western countries including USA which
    leads with 49%)(which includes financial world with robots and so on that started more than 40 years
    back with debit and credit cards that went on to different payment systems including via devices
    which includes IoT or Internet of Things which will wipe out smartphones within the next 5 years or so
    and then to cryptocurrencies like Bitcoin and blockchain technology where blockchain technology
    has already started revolutionising a lot of industries including the financial world)? Can read and see
    all these under
    which will also show that the INDIAN skillsets are way behind amongst LOCAL INDIANS where even
    NRIs are thrashing them.

    Furthermore, taking another example where the link mentioned below is under the link mentioned
    above, can see how this world’s changing industries and this is just 1 example though it already exists
    in all industries within many fields headed for all fields in all industries:
    You do the realise that Japan, China, S Korea, Thailand, Israel, US, etc have robot chefs, waiters and
    waitresses? They already exist including restaurants filled with robots and drones. INDIA is LATE to
    the Manufacturing and Services worlds in most industries. will show
    it for most industries where robots, high level AI which already exists. Heard of the Grid? AI websites
    and it is not the only 1 within the tech world for AI. Heard of 4D Printing? 3D Printing where those
    objects changes shapes on own which already exists. And it goes on – already exists in all industries
    where hedge fund personnel, waiters, waitresses, teachers, doctors, chefs, IT personnel, writers, etc
    are all going though 1st jobs to go – repetitive and analytical ones before strategic and relationship
    building ones.

  6. Rohit Thomas

    wowie, the whole formatting has changed after submission of previous post

  7. Aashna

    This article should not have gone up without a pro-con debate.
    Friend, you need to be more ingrained into the Startup Ecosystem to write a more balanced article. The aim of most startups is to find a solution. A solution to some problem they have faced/seen. How can you assume that businesses built without the tag of a “startup” were all successful? Experience does not guarantee success.
    Point I’m trying to make is that the Startup Ecosystem in India has achieved a lot in a short time. And most importantly, it has led to students and youngsters look at finding their dreams and taking chances. Isn’t this what we needed in India? Building acceptance to the mindset that only certain careers are acceptable?

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