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Why startups fail in India? Explained [2020 Updated]

Why startups fail in India: Despite being one of the top startup ecosystems in the world, India is also home to 90% of startu
Why startups fail in India: Despite being one of the top startup ecosystems in the world, India is also home to 90% of startups that fail within 5 years.

India, in recent years, has emerged to become one of the largest startup hubs in the world, marking its place at the third spot in the Hurun’s Global Unicorn List 2019, following China and the US (1). However, according to a report by IBM Institute for Business Value and Oxford Economics, over 90% of the Indian startups fail within merely 5 years of inception (2).

Why startups fail in India

So, what is the reason that leads to failure of startups in India, despite being one of the biggest startup unicorns in the world? There are multiple layers to this answer and cannot be elaborated in one way possible.

In this article, we’ve tried to work our way out on digging up and extracting the reasons why startups fail in India, despite being offered a startup-friendly environment by the authorities. While some start loose, others become over-enthusiastic in their entrepreneurial journey, which leads to ultimate startup failures.

Note: Startups in India often imitate western ideas, generate employment, and shut down due to lack of funds. (3)

7 Reasons Why Startups Fail in India:

There are several reasons why startups fail in India, which is further subdivided into another stream of reasons. If you’re an entrepreneur willing to invest and start a new business, ensure you go through the reasons given below to help you gain a headstart in the startup ecosystem.

1. When a founder’s under-confident

Confidence undoubtedly goes a long way. Indian founders of startups, especially the ones who commence on their first-ever entrepreneurial journey, find entrepreneurship a nerve-wracking experience.

A founder needs to remain confident in his endeavors, which helps in keeping the morale of the team high, in turn, constituting to building an awesome startup.

Why startups fail in India

Note: Sometimes, when you lack confidence, follow the ideology of ‘Fake it till you make it‘ by imitating confidence, competence & an optimistic mindset.

2. When a business model lacks innovation

All the businesses that have been able to conquer the startup ecosystem are the ones that contained innovation. However, despite innovation being the central element of a startup, the majority of the startups lack it altogether.

Indian startups are mostly copying or imitating the business ideas from successful companies abroad, which one of the reasons why our country has witnessed a significant dip in the overseas investment funding in Indian startups.

Note: Attempt to use the business model design techniques through four epicenters of business model innovation – ideation, visualization, prototyping, and scenario building.

3. When the market niche is saturated

India, being one of the most populous countries in the world, is oversaturated with products and services that entered the market in multiple forms ages ago. It is challenging, but not impossible, to discover an untapped industry in the Indian ecosystem, which constitutes a successful startup.

Why startups fail in India

Note: Try to look for market gaps and brings solutions fulfilling the gap to the table.

4. When one functions on negative cash flow & working capital

A business must maintain a continuous cash flow to run his/her business smoothly without any interruptions. A negative working capital not only demotivates the team but also results in either shutting down the business operation due to a lack of funds or seeking investment opportunities in the cut-throat investment marketplace.

Note: Negative cash flow doesn’t necessarily mean losses. It just directs towards a mismatch of expenditure and income.

5. When one works on forceful expansion

Many times, when a startup starts functioning with increasing sales, the core team often ends up taking executive decisions with their hearts and not minds. Do not think about expansion, at least until you reach your adequate gross profit margin or else get ready to take a dip in the losses.

Why startups fail in India

Note: Prefer not to make rash decisions and ensure making executive decisions whilst discussing consequences with your core team.

6. When there’s a lack of motivated team

A business runs successfully with a team of highly motivated individuals willing to put in their hard work and effort into making the business a success. Build a team of enthusiastic, energetic, and talented individuals that help in executing your plan and vision to turn your startup success into a reality.

Note: Instead of leading the team, try being a part of the team, which helps to build a bond with your team members, in turn, creating a robust work environment.

7. When the feedback isn’t taken seriously

Many businesses consider customers their god in India as they bring in income and help in running their household. The majority of the startups have adopted customer-oriented business models where customer satisfaction is regarded as the key priority of the company. Take customer feedback and improve upon it if you don’t want your customer base to shift to using the services of your competitor.

Why startups fail in India

Note: Customer feedback adds value to your relationship with them, and by improving upon their complaints, you display the importance a customer holds in your business.


While commencing on an entrepreneurial journey requires a level of courage, staying stable and growing in your venture is another challenge that needs to be addressed. Ensure you hold your grounds while working on making your startup successful and remains optimistic, no matter how hard the situation gets. Overall, these were some of the reasons why startups fail in India.