The Indian Startup Ecosystem — Something isn’t right

An outsider’s view

Credits: TVF Pitchers

I am not even remotely involved with the Indian startup ecosystem. But unfortunately, I read a lot and try to make sense of it in equal measures. And from whatever I have been reading and observing regarding the Indian startup story (especially in the last 12 months) I feel something is not right. Let me cut to the chase; here’s what I think:

1. Where is India’s Google etc.?

Google, Amazon etc were born out of the first internet wave in the US during the 90s. A decade or so later, China built its own Google named Baidu, and practically drove Google out, which otherwise, has a global search engine market share of over 80%. Further, the rise of Alibaba displaced Amazon. Circa 2015, if India has indeed become the third largest startup ecosystem, then where is India’s Google? Facebook? Or Twitter? or such meta-level startups. [edit: I use these names only as examples. I am not literally asking for India’s Google or Microsoft. I know about China’s restrictive policies. My point is: Where are India’s first-generation (meta-level) startups? ]

What’s wrong then? With due respect to the Indian innovators, IMHO, most Indian startups aim to be rent-seekers and not wealth creators in the true sense. They are not interested in the bigger picture, in solving genuine problems, creating new categories or trying to become leaders in the existing ones.

At the risk of generalizing, I want to say that most Indian startups by and large look to copy an existing model, and fine tune it to serve the local need. There’s Ola for Uber, Gaana for Spotify, the N number of food delivery startups, and their extended versions delivering just about anything under the sun. InMobi is the only Indian startup that comes to my mind, which carved out a niche for itself. Again, I may not know enough names, but I hope I have driven home my point.

2. The Zuckerberg Syndrome

This is my biggest pain. Ever since Mark Zuckerberg created the behemoth that is Facebook, every 22 year old graduating kid wants to become a CEO. The little things called experience and expertise be damned. And those sugar-coated, half-told success stories floating on the internet haven’t helped either.

What these young graduates often forget is that people like Steve Jobs, Jeff Bezos or the latest poster boy Elon Musk slogged for years, worked in anonymity, sharpening their skills to the point of perfection before jumping onto their grand idea. To put things in perspective, Elon Musk took many years to self-learn the nuts and bolts of rocket science and electric automobiles, literally. But all we want to see is the end product — SpaceX and Tesla.

This is where the latest breed of Indian founders falter. They do not want to wait. They have been overfed the idea that an ‘IDEA’ is all you need and you need to move fast, unless someone else beats you. Misinterpreting the overnight success of new age startups like Pinterest, Instagram etc., they do not want to invest in honing their skills or gaining perspective about the sectors they wish to dive in.

The immediate tag of a CEO, CTO, COO (CXO) is way too enticing to let them go through the grind.

They should ask themselves — where is innovation in selling baby diapers online? Or loaning bean bags on rent for parties? Or delivering food from the local chicken-shawarma joint? Creating the most attractive and seamless website/app and hooking up with a local delivery service, while piggy-banking on investor money is NOT innovation. It is not sustainable and definitely not long term. It might be better to call it a normal business instead.

3. The dichotomy of VC and Angel Funds

It is interesting to note that most of the first generation startups in the US and also in China were bootstrapped. That played a huge role in their successes. Why? Because it is human nature which drives us that extra bit when our own money is involved.

On the contrary, the Indian startup scene right from the beginning is heavily marinated with huge VC and Angel funds. However ironic it may sound, this is what I feel is rotting the entire system. Young, creative, enthusiastic professionals leaving their jobs, higher education etc, drawn by the charm of easy investor money and an imaginary million dollar idea. Well, any idea would seems like a million dollar shot when funding is a non-issue.

Add this to what I discussed above and you can see a reasonable argument in why this generation of Indian innovators do not want to wait. The grand vision gets restricted to building a workable model of any existing idea, get funded and then hope for a million dollar exit. This is the purported life-cycle of most Indian startups.

To an outsider like me, the Indian startup ecosystem resembles a large casino where Mc-Daddy VCs come to play their bets.

4. Forcing western models onto Indian markets

Let me explain by quoting an example — online grocery delivery makes sense in the US, where the nearest Walmart or Kroger might be miles away. Secondly, most food items there are frozen with a longer shelf life. Thirdly, from personal experience I have observed, a US family has a more or less fixed weekly or bi-weekly grocery list with strong brand loyalties.

The Indian system is as opposite as it can get. There’s a Kirana (mom and pop) store at every nook and corner, complemented by the rapidly expanding supermarket chains like Food Bazaar, Big Apple to name a few. But even more important is that we Indians largely consume fresh food — vegetables, milk, fruits etc. Indian mothers won’t cook in peace until and unless they’ve handpicked their vegetables.

Thus, the Indian market for online grocery shopping gets restricted to the young and working population in urban centres, who are anyhow increasingly eating in office or outside. My point is that there are many such startups in India, trying to fit a western model into Indian markets without fully working out the ground level movements. That’s why they hit a roadblock when it comes to scaling, and end up being the proverbial frog in their respective wells.

5. The mind numbing valuations

I am old school. Hence, I believe that profit is the main driving force behind any venture. And that any venture should be valued according to how profitable it is presently, or might be in the definite future. But when a startup with no profit to show in the near future, and a multi-million cash burn rate, get valued in billions, a layman like me fails to understand the equation being worked out, even after factoring the much talked about cost of customer acquisition. To be fair, this is more of a global phenomenon and not just specific to Indian startups.

It almost sounds obscene when Uber is valued at 60 billion $. That might be more than the GDP of some countries.

The problem is exacerbated in case of India because nascent startups lose the plot in the glitz of inflated valuations, even before they get a hang of their basic modalities. VC firms often end up sucking out a major portion of total equity in the bargain, leaving very little for the original founders to play around with. Except for the paper tag of being freshly made millionaires, if not more.

6. The Talent or the lack of it

I wanted to keep this point for the end, because it might surprise a few. Dare I say this — I feel the potential of Indian graduates is being oversold. We are still relying on the past laurels of the IIT-IIM system, when it used to be relevant.

With the mushrooming of sub-standard engineering colleges, a major chunk of the talent pool of freshly graduating students is barely employable, let alone equipped with the powers to create a truly disruptive startup. It is no secret that the Indian education system lays little emphasis on practical training. Thus, what we end up doing is building poor products by copying existing codes/tools available on Google. In defense of early stage startups, they just don’t have the resources and time to train an employee whose sole aim might be to make a quick stopover, while on his way to greener shores.

I want to conclude by accepting that it is easier to rant and pick up faults. The likes of Google or Amazon had the first mover’s advantage, backed by strong and developed national economies. In comparison, the task is cut out for anyone starting now. The world order is far from just, and the bigger players do every bit by arm twisting developing countries to their advantage. The Indian startup ecosystem faces somewhat similar problems in its limited domain. Having said that, I do wish to see Indian startups someday working on truly cutting edge technologies in areas like defense, space, automobiles and opening new vistas, not just for India, but the entire world.