The Real Reasons Behind Indian Startups Shutting Down

In April on-demand grocery delivery service PepperTap shut shop. Very recently online beauty services provider Amber Wellness, which was operating in Bangalore, New Delhi and Mumbai, closed down on 2 May.

But these are not isolated cases. In 2015, around 13 startups closed operations. Others, such as food technology startups TinyOwl and Zomato, scaled down last year. Between the two companies, more than 400 people lost their jobs last year.

The Quint spoke to experts to tell you what’s going wrong.

Gold Rush

For startups in India, 2014 was a real turning point. Global investors pumped in billions of dollars — India was being touted as the next China.

“Investors wanted to replicate the Chinese success story,” Kashyap Deorah, author of The Golden Tap: The Inside Story of Hyper-Funded Indian Startups, told The Quint. They saw “market potential”, with India being home to over a billion smartphone users.

Kashyap DeorahIt led to a gold rush. But now that gold rush has expired. These startups were hyperfunded — too much money too soon.

After the brouhaha of the initial years, investors are now looking at “classical, traditional companies,” and asking tough questions on spending and valuations.

Too Big, Too Quickly

“In the race to pepper the whole country with PepperTap, we had brought too many stores online far too quickly,” Navneet Singh, CEO at PepperTap, wrote in a post on YourStory. The startup was present in 17 cities, a year and a half after it started.

Kashyap DeorahThe instruction (from investors) to them (startups) was to keep going — and to get to the highest scale very quickly.

Investor Pressure

It wasn’t until this February that Zomato became India’s first unicorn startup to break even — and it is headed for profits.

But that’s not the case for most startups in India. “There’s investor pressure. They want companies to become profitable and sustainable before they are even ready,” Sanchit Gogia, chief analyst at research advisory firm Greyhound Research told The Quint. “And if not profits, companies are under tremendous pressure to show user acquisition.”

This mostly happens because the investor community tries to compare the Silicon Valley-run US market to the nascent Indian market.

(Infographic: The Quint)

Numbers That Lie

According to Deorah, the valuation story sold by the Indian media is false. “One billion is just a number. How is it magical?” asked Deorah.

“If they didn’t get the money, no one would have cared about them,” he said.

“A lot of me-too and copycat companies are coming up. But only the best in each category will survive. For instance, Meru is being wiped out by Ola and Uber,” Sanchit Gogia said.

Discounts Galore

From e-commerce to grocery delivery, services are doling out heavy discounts but more often that not, these are just not working. Of course, discounts as investors see it, are not sustainable.

Navneet Singh, CEO, PepperTap

We were spending a lot of time and energy to devise clever sales and discount schemes. In a world where everything for sale through an app (think electronics, taxis, food) is synonymous with vastly cheaper prices compared to physical stores, this exercise often resulted in higher outright discounts with every passing week.

“Most e-commerce companies focus on discounts. So they hardly see repeat customers because for the Indian consumer, it’s all about the price. So now, moving from cost-based conversations to value-based conversations is too little too late,” Gogia said.

Where’s the Talent?

Often, newer companies lack the talent for non-traditional roles, or they are too expensive, said Gogia.

Moreover, the founder doesn’t necessarily make for good CEOs, Gogia added. “Starting a company is one thing and scaling it is another. To be able to manage the employees requires professional management. (and Rahul Yadav) is a classic example.”

“A lot of startups are not able to adapt because they are stuck to their original idea. They are not very open to listening to other people,” Gogia said.

Not so Tech-savvy

The PepperTap CEO admitted that the company failed on the technology front too. For instance, their customers were, at times, “unable to see the entire selection of items from a store.”

The marriage of technology and conventional setups isn’t easy either.

“We had to convince the smaller of these stores to adopt electronic inventory management and billing systems. For the bigger chains and hypermarkets, we needed to take the data generated by their systems and plug it into ours,” he added.