Currently, India, with a median age of 28.4 years, is one of the youngest nations in the world. The country can not sustain itself for long until and unless its young population is provided with enough employment opportunities. Public enterprises have limited resources to absorb the young population in jobs. So it is very imperative to provide room for private industries to grow and support the country in employment and other resource creations.
Observing the multiple objectives of private industries, the Indian government launched the Startups India program to provide institutional support to niche businesses to boost entrepreneurship, economic growth, and employment in the country. With an aim to make an idea into a market-ready product, the government provided enough policy relaxations like single window certifications, legal support, credit guarantee fundings, tax exemptions, and other indirect support to startups.
Absorbing the investor’s money
Launched on 16th January 2016, Startup India has been phenomenal in its aim. With about 60 thousand startups and 65 unicorns, India is now one of the leading countries in the expansion of startup culture. But in the glitz and glamour of startup culture, there are very few on the list who are making profits. Otherwise, maximum are loss-making and are only absorbing the funding of investors.
From 2014 to 2021, Indian startups have attracted about $70 billion of investments. The inflow of money to startups is due to the future prospects of the Indian market. With increased purchasing power capacity of 600 million middle-class population, the Indian market becomes very lucrative for investment. Further, the universal digital availability in the country has expanded the customer base of businesses and provided investors with great hope for returns.
This year, from January to May, about $16 billion has been invested in Indian Startups. But in the month of May, only $1.6 billion has been invested by investors. This is the lowest amount of investment in recent months.
It is a standard business practice in which startups absorb huge funds during pre-revenue periods. But due to market volatility, investors have slowed down funding. This funding winter has created a huge cash crunch in the startup market after years of spring.
Due to this, startups have started to lay off their employees in large numbers. The report suggests that many startups which were hiring in large numbers earlier have resorted to layoff employees citing the cost-cutting efforts.
This year about 32 Indian startups have fired over 11000 thousand employees in an effort to reduce their cost of business and expand their profit margins.
|S No.||Company||No. of Employees laid off|
Marketing, Products, and unsustainable business plans
The spree of laying off the employees comes when these startups started to face the real test of the market. At an early age, they were nurtured like a child through mass investment. With zero liabilities, they drained investor money in unwarranted marketing. Without focusing on the quality and future of their products, they flew in the wind of extravagant marketing, and the results of this market strategy reflected in the downfall of their balance sheets.
According to reports, only 3.5% of the startups that raised $100 million or above were profitable as compared to 29.2% a year ago. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) data of 57 startups states that only two of them have reported positive earnings. Further, only 23 of the 100 unicorns (valued at $1 billion or more) have shown profitability in the financial year 2021-22.
Launched in the age of digitalization, most of these companies are focusing on their online products. Without proper research, startups are running in the race of bad marketing. From hiring big-budget influencers to sponsoring big-ticket promotional events, they infused all of their money into the marketing of their product and left a meager budget for the research and development of the product.
The foundational pillar of a successful business is its quality of products. No matter how much you invest in the marketing of your product and highlight the same, until and unless the quality product is not sustaining the customer for a long time, the business will not succeed.
Most of these startups ‘danced’ on the investors’ money and when money started to dry up they resorted to firing employees with lame reasoning of cost-cutting. Lower strategic research on product & market, extravagant marketing strategy, and bad partnership model is proving to be the failure of these startups. With over 600 million middle-class populations and growing purchasing power capacity, India is heaven for investors. If these startups are still not able to make money then there is something missing in their business strategy.
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