Why Business Startups Fail In India: Case Studies

Are you planning for a stunning startup?

But the fact that puts you off is the rising number of startup failures, specifically in India, when you look around. 

About 90% of startups fail in India during the first five years of their inception, according to a survey by the Institute for Business Value and Oxford Economics. Everyone wants to know what could be the reason behind such a vast startup failure rate in India.

  1. Why do business startups fail in India?

Startups have to tackle a regrettable failure when they lack innovative ideas and fail to introduce a product apt to the market need. They fail to develop a productive business model in an India-like saturated market and the startup runs out of cash. 

Let me expose the obscure reasons for the startup failures in detail to satisfy those who are curious to discover the causes behind the fact of startups failure in India? And to those who want to avoid their own startup failures.

  1. Not All Startups Fail: Indian Startup Case Study

Keep your spirits up; not all startups fail. There are many successful startups in India.

  • Urban Company is one of the most successful startups in India with $445,920,356 of funding, founded by Abhiraj Singh, Raghav Chandra, and, Varun Khaitan in 2014.
  • A successful educational startup Classplus was founded in 2018 by Bhaswat Agarwal, Bikash Dash, Mukul Rustagi, Nikhil Goel, and Vatsal Rustagi.
  •  Dunzo, Razorpay, Digit insurance, CRED, and Yellow messenger are other successful business startups in India.

Why Tech Startups Fail Stories: Failed Startups

But more than 5 million startups are founded every year, according to research made in 2019. 

Unfortunately, only 10% (500,000) of these startups could survive for long.

Among these 90% startup failures, the following are a few biggest startup failure stories in India that had to suffer a huge loss.

  • Monkeybox, Wydr, Mr. Needs, and, Shotang are the startups that had to shut their shop due to fierce competition.
  • PortDesk and BabyBerry are popular startup failures for unknown reasons. 
  • Yumist, a home-cooked food service, was founded by Alok Jain and Abhimanyu Maheshwari. 

It was funded with 3 million dollars but eventually failed.

The reason was the same as in most cases; the startup ran out of cash.

  • Overcart, a platform for purchasing pre-owned items, and overstock stuff, was founded in 2012. 

The startup failed to sustain itself due to poor customer service. 

  • Stayzilla, MrNeeds, Roder, Turant Delivery, and Filomena are the other famous startup failure stories that failed to last for too long in the market due to the reasons mentioned below.

Reasons Why Business Startups Fail In India 

Sustaining a startup is undoubtedly the most challenging phase for any entrepreneur. 

He has to go through various obstacles, that if overwhelmed, give a successful startup.

You may consider numerous reasons for startup failures in India.

 But after a survey, we found only a few reasons that plunge an alluring startup.  

Most of the startup failures are caused by failure of the product, unreliable customer services, finance concerns, inability, lack of innovation, lack of focus, and weak business models. 

Before your own startup, you must know the reasons for startup failures in India in order to avoid your own downfall.

1. Product Market Fit

Tazzo, a bike rental startup, in 2018, had to face a startup bust. One of its partners told the reason for startup failure.

 It was a failed product-market fit that led to a lack of funding, and ultimately it ended up closing their business.

The main reason for startup failures is product failure. Does your product have the ability to survive in the competitive market? 

  • Is your product efficient for the consumer?
  • What is the market need for your product?
  • Is your product valuable to your customers?

Many startups launch a product beyond the market need.

 If there is no need, then there is no place for that product in the upgrading market. 

Sometimes, the startups just make a futile attempt by launching a product having no market need. 

Many times your product couldn’t satisfy your customers, or it is not efficient enough. 

And ultimately, the product breakdown is followed by the failure of the startup.

How to avoid product failure in your startup?

  • Know who your customers are.
  • Try to find out what your customers need.
  • Win the trust of your customers first.

2. Inadequate Financial Resources 

We all may consider a number of ideas for startups, but what is holding us back is the finance coins.

Yumist, Stayzilla, Turant Delivery, Doodhwala, Russsh, Loanmeet, and many other popular startups in India failed due to a lack of fundings. 

It is concluded to be the main reason why startups fail. 

  • Reduction of proper financial planning
  • Mixing off personal and business finances
  • Failure to meet the financial goals

These are the financial failures that lead to the failure of your startups.

 Failure to make enough earnings through your startup to meet your business expenses is an alarm alert to your startup failure. 

How to maintain your business finance?

  • Establishing a proper financial business model.
  • Trace your profit margins even from the very beginning.

3. Inefficient Customer Service 

The customer is the king. So, you’re supposed to treat them like a king. 

Another reason why business startups fail in India is the ignorant behaviour of startup owners. 

Improving your customer services will lead to a successful startup in India. 

Overcart, founded in 2012 but shut down too earlier in 2017 and the reason was the poor customer service. 

About 14% of the startups closed down for ignoring their customers.

In a wide list of startup planning and management, consumer services are usually ignored, leading the startup to a failure. 

Customers’ service should be the most prior management consideration. 

Their satisfaction is the first step on the upstairs of your success. 

Rude behaviour with customers or inefficient customer service is equivalent to burying your startup with your own hands.

How can you improve your customer dealings?

  • Be in touch with your customers.
  • Hear your customer complaints, queries, and suggestions. 
  • Be polite to them and try to satisfy them.

4. Poor Management Team

The success of a startup not only depends on the founders but mainly on the management team. 

Without good team management, your startup is just a short-term venture. 

Surviving in a competitive marketing environment is not possible with a poor management team. 

Inability to innovate new ideas, unskilful approaches, and inefficient customer services are the weaknesses of illegible management that will leave your startup to a deadly end.

If you have failed to build an enthusiastic, energetic, and talented team, you might have failed to build a long-term startup.

How can you develop your management?

  • Keep a strict focus on recruitments.
  • Hire talented and experienced staff.
  • Train them in order to meet your startup goals.

5. Marketing Failures

Even a classic product fails to draw the attention of consumers because of an inappropriate marketing strategy. 

On the contrary, sometimes the worst product achieves success in the competitive market when presented productively, sold efficiently, and marketed smartly. 

In fact, advertisement and marketing determine the future of the product and the startup as well.

 It is the most important step to build a place for your startup in the competitive market. 

Successful marketing drives your startup to its heights, but the marketing failure buries it deep in the ground.

How to improve your startup marketing?

  • Use innovative strategies to market your startup.

6. Lack Of Confidence and Competency

The most underestimated reason behind startup failures is the lack of confidence, ability, expertise, and competency. 

Surprisingly, about 23% of failures in business startups are due to the inability of the owner and the management. 

Inefficient leadership, incapable recruitments, startup planning failure, and management inability are caused by the lack of competency of the founder. 

How to avoid this?

It is not as easy to control as it seems. You will have to work on yourself to compete in the market. 

  • An entrepreneur must be passionate about his startup. 
  • He should look for experts’ advice in case of any inconvenience.

7. Business Model Failure

A business startup could meet a regrettable failure if it lacks a profitable business model despite enough funding.

For a successful business startup, you should build up your business model according to your idea and its execution, and the potency of your product, keeping in mind the market needs of the product.startup failure stories

About 17% of the total startup failures are caused by the failure of the business model.

Just Buy Live, an e-commerce platform founded by Bharat Balachandran and Sahil Sani in 2015. 

It failed due to an unscalable business model and negative cash flow.

Choose what you think is suitable for your startup.

 Don’t be scared of any change if you don’t feel you are on the right path. 

8. Lack Of Focus

Focus is among the secret qualities of a successful startup. But how?

Tim Hyer, a Graduate of the Silicon Valley Founder Institute. 

His startup Getable discussed the development of Getable in the article, “Behind the Business Plan: Getable”, by Adam C. Uzialko. 

Among other pieces of advice, Hyer constantly insisted on remaining focused.

A Yahoo small business article entitled “Focus: The Most Important Quality Your Startup Needs” clarifies the importance of focus for the success of your startup.

How to improve your focus?

  • Choose a particular business model and stick to it.
  • Pick out the primary goal the company is based on and leave the others.

9. Leadership Gaps

Leadership is the capacity to translate vision into reality, says Warren Bennis. Mean to say that if the founder is a good leader, he will be able to make his business ideas come true. 

Otherwise, the business startup may endure a failure.

Another reason for the startup failures in India is the lack of vision and leadership skills in the founders. 

A startup is managed by the founder and its team. But what if the founder himself had no idea how to lead his startup and team.

A leader is the one who knows the way, goes the way, and shows the way. ~John. C. Maxwell

Some entrepreneurs are god-gifted with intense leadership qualities. Others may have to develop them on their own.

How to fill up the leadership gaps?

  • Enhance your own skills by practicing leadership. Keep trying. It may take time.
  • Hire someone who may play the role of a leader for you.

10. Lack Of Innovation

India has the third-largest ecosystem for startups after the United States and China. But unfortunately, most of the startups fail earlier. 

The most prominent reason found to be is the lack of innovation.

Google, Twitter, Amazon, and such successful startups have built up their reputation all around the world by virtue of their innovative ideas but are from overseas but not from India.

 It would cause a massive disruption among people if they shut them down today.

About half of the Indian startups are not needed at all, though they lack originality and fail to survive in the market despite the best efforts of investors and founders. 

 A clone can never be successful in the market.

Most Indian startups lack innovative business models and ideas.

 Indian startups are seen to be duplicated versions of those successful startups elsewhere in the world. 

But their startups failed to establish their own uniqueness.


  • Don’t be a copycat. Create your own unique ideas.

11. India Is A Saturated Market

Most of the startups fail in India. 

But why does this happen mainly in India?

India has become a saturated market. 

The rural population of India is about 68.84% of the total population in 2021.

 But most of the startups are pursuing the urban population and the rural people are still not approached by most of the startups. 

However, most of the startups are just targeting mainly 31.16% of the urban population. 

As a result, the Indian market has become saturated with a number of startups with limited consumers.

 It leads to the failure of most of the startups.

How to overcome this?

  • Try to explore the ways to target the 68% rural public.

Entrepreneurship is not about counting the bulks of cash. But an entrepreneur needs to be daring and innovative, full of passion, and not afraid of taking risks that lead to a successful startup.

Try to learn from the mistakes made by others and withdraw them so that you won’t suffer from them in the future.

Have a firm grip over these points to sustain bulky growth in your startup. 

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