7 REASONS WHY BUSINESSES FAIL IN INDIA

 

Are you planning to start your own new business?

You have no prior business experience?

Are you struggling to Scale Up your business?

Are you weighing your risks?

If you answer “Yes” to these questions then you may be ready with all the positive parameters that will make your business a success. However, did you look at the flip side? Assessing and accounting for the pit falls and challenges of starting a new business is equally important as it prepares you for the difficulties and the obstacles that you may have to face once you get started.

Do you know that almost 80% or more businesses fail within the first 5 years of operation? That is 8 out of 10!! Businesses closing doing. And for every 2 that survive the first 5 years, there is only 50/50 chance that they will scale up profitably and go past 10 years. These are the current statistics which are very scary for anyone who wishes to start a new business. Failure of one’s Business has its own consequences. There are financial losses to the promoter, loss of self-confidence and also promoter getting labelled as a failure leading to sudden setback and blockage in the entrepreneur’s career path.

I am Milind Sahanie, 10X Productivity Coach and founder of "New Skills for the New World" Platform. My goal is to increase the revenues of 30000 Entrepreneurs by 10X in next 5 years.

If sustainability after 5 years is a challenge, the next challenge comes in form of Scalability. Indian business really struggle to scale beyond a certain point, resulting in stagnancy, loss of interest from promoters and eventually possible closure of business. It is seen that most small scale business find it difficult to move to second generation. Either the first generation promoter closes it down due to lack of support for scaling or the second generation, when they take over, close it down and cash out.

So what causes this high rate of business failures in India? There are quite a few and let’s have a look at some of the major and standout reasons: 

1.  Absence of Original Ideas:

As per most Venture Capitalists, Lack of Innovation is the biggest reason for business failures in India. Indian Start-ups usually borrow their ideas from successful Global companies. You can find a Flipkart for an Amazon, Ola for a Uber, and so on. Some may argue that it is Ok to borrow from successful ideas and customize them to cater to local needs. But is it really innovation? I don’t think so. We don’t have a Google or a Facebook coming out of India. And then what happens when the original guys expand their base in India, just like Uber or Amazon? Can the locally adapted “clones” take them on? We all know what happened to “Thumbs Up” when Coca Cola and Pepsi entered India. Now it has become even easier for the Global giants to expand their businesses in other countries, especially in a huge market like India. Countries like India are going out of their way to invite Global Companies to invest in the country for earning Foreign Exchange, generating employment for such a huge population and many others. That the Government is inviting Global Companies to invest and create employment itself is a big concern because this is the job of MSMEs and this indicates that we are failing somewhere. Unless you have a really unique and innovative product that stands out, the scare of getting wiped out or gobbled by the Global competition will always be there.

 2,  Absence or Poor Business Plan:

Most small businesses and start-ups lack clear vision. There is no clear Purpose, Mission Statement or a proper Long and Short Term Strategy. There is NO WHY for the business or if there is it is mostly attached to Revenue generation. Without this, decision making is very difficult, as you don’t know how to differentiate between what is good for you and what is bad. Without a clear WHY, strategies and planning, policies and controls cannot be set which are so essential for a smooth functioning of any business, big and small. Without proper Accounting Policies and Budget Controls, clear Operational Procedures, working becomes inefficient and losses are preset in the very functioning of the organization. In such a scenario, generating funds for the business becomes difficult. Investors need a long term outlook for them to feel safe to invest their money in your business. They need to feel assured that the business is run smoothly with all controls and checks in place, so that their money is protected and returns  guaranteed. 

3.  Lack of Focus towards Target Customers: 

Small and New companies focus of fast revenue generation with a belief that once revenues are generated it will be easier for them to get funding. And in the rush to generate revenues they lose focus on customer needs. The try to satisfy every customer that comes their way and thus diluting the uniqueness of their product. No single product can satisfy all customers.  In the process, sooner than later, they start losing customers. It is also observed that  focus is mostly on bringing in new customers while losing sight of existing customers. For any business to flourish and scale up, it is very important to have a close watch on its customer base. Bringing new customers is certainly not easy and hence everyone pays attention to that. However, they forget that losing a customer is very easy and not much efforts are put to investigate the reason behind losing a customer. Hence there is no focus or corrective actions that are taken to bring that lost customer back. 

4.   Lack of Expertise and Professionalism:

Entrepreneurs, however good they may be, cannot be experts in all areas. They need able support in all areas of business like Sales, Marketing, Operations, HR, Procurement, Finance and for this they need to have a good team to support them. Getting a good team is always a challenge for a small company because of factors ranging from pay scale to career growth to pride. They also tend to cut corners on essential marcom tools such as spending on building an attractive website, printing nice brochures, having attractive work areas and many other things which are very important to build a professional image of the company that helps in attracting talented people to work for their company.

5. Unchecked Expansion: 

When the business starts rolling in the initial years, most of the time business owners get too excited and start expanding without proper resources, plan or budget. They start forward or backward integrating or even diversifying in areas which they have no knowledge about. They start believing that if they could generate revenue in one area, then they can do the same in other areas too. They tend to forget that every area of business requires specialized skills and going away from your Core Strength, more often than not, results in a setback and these setbacks have huge impact, even on your Core Business. 

6.  Lack of Learning Model:

Eric Ries in his book The Lean Start Up talks about importance of learning from the feedback received from target customers. Lot of small business owners don’t set up a proper mechanism to receive and analyze customer feedback/complaints. Resolving customer concerns is very important for any organization small or big. However, it is more significant for start-ups, as this is a Learning they receive, which they can use to make their product/ service better and more acceptable to their customers. It is the customer who pays good money for your product/ service and makes it successful and if they are unable to meet that customer’s needs, business is bound to fail. Small business and Start-Ups do not invest in resources that are required for a proper Market Research to help them understand where and how they need to position their product or service. Product/ Service which is wrongly Positioned in the market place is viewed incorrectly by the customers and there is very high chance that customers will reject such a product because they just don’t understand the purpose of the product/service.

7.  Lack of Funds:

Any business requires a lot of cash flow, positive cash flow. More so for the start-ups, as there is a lot of Initial Investment that is required when the company is just in the building phase of a product/ service. Most start-ups are founded using promoters own money. Small business owners have a difficult time generating capital from Banks or Investors due to several reasons some of them are listed above. Also there is always a thought of Making Profit on Volume especially with the start-ups which get some initial funding. They believe that they don’t need to make profit on every sale and they can make it up once the volume builds. This is a wrong thought and certainly results in negative cash flow. Without proper cash flow, sacrifices are made on brand building, hiring of talent, product development, R&D, and sometime even on product quality. All this is a potent recipe for failure. Most of the time small business owners think of external funding only when they want to scale up. However, it becomes very difficult to make the required changes in your operations and procedures once you and your team get used to a certain way of working and there is a lot of reluctance all around to the changes that are needed to attract investors for your business.

There are many more reasons that can cause the businesses to crumble and just a few have been mentioned here. The premise of this blog is not to scare you away from starting your own business. For many failed businesses, there are also success stories of entrepreneurs who made it really big. Brands like Mufti, Kimirica Hunter, Nykaa are just few names who are successful that too in a crowded market. Idea is to cover all the bases before jumping into a uncharted territory which a young entrepreneur steps in. No one likes to have a business that fails. It is bad, not just for the promoter but also for those people who work for him and for the country too. Just make sure that you have in depth understanding of both, the positives and negatives, that will come your way and be prepared to effectively manage those situations when they come up. So get back to your drawing board and make your Business Plan full proof.

 If you wish to start your business or wish to scale up and wish to discuss the subject further, you can connect with me by emailing directly at NewSkills4NewWorld@gmail.com

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