Why we should tell aspiring Entrepreneurs about failure
India’s high start-up

India’s high start-up failure rate points to the necessity of being engaged in conversations about potential challenges and risks associated with starting a new venture.

There is a growing celebration of entrepreneurship in present-day India. From Shark Tank to rags-to-riches stories we read on social media to the ever-growing emphasis of policymakers on promoting innovation and entrepreneurship, there is a boom in the number of youngsters choosing to embark on an entrepreneurial journey.

According to a study by the IBM Institute for Business Value and Oxford Economics in 2021, around 90% of Indian start-ups fail within the first five years. That is more than 4 in 5 start-ups.

Thousands of enterprises failed at various stages, from the idea stage, prototype stage, and marketing stage to even becoming dysfunctional after running successfully for some good years.

During the COVID times, more entrepreneurs committed suicide than farmers.

The tragic death of Café Coffee Day founder, a celebrated entrepreneur who won Entrepreneur of the Year for 2002–03 by The Economic Times, V G Siddhartha, looms in our memory.

Considering the competitive nature of the economy and unavoidable probabilities for failure, at a time when the ecosystem encourages more youth to pursue entrepreneurship, are we making a blind spot about the difficulty of success, the long route to break even and succeed, and the importance of managing the venture through challenges and market shifts?

Is failure more certain than success?

India accounts for one-third of the total start-ups globally.

The Department for Promotion of Industry and Internal Trade (DPIIT) reported that as of November 2022, there were 84,012 recognized start-ups in India.

These start-ups work in almost all sectors, from education, health, agriculture, tourism, e-commerce to biotechnology and artificial intelligence and machine learning.

In the last three decades, the number of enterprises in India has increased by 200 percent.

There are various reasons for the start-up boom, including rising education, a desire for autonomy and self-expression, global connectivity, witnessing success stories of entrepreneurs, technological advancement, lack of employment opportunities, and flourishing ecosystems comprising incubators, accelerators, and funders.

If we borrow the words of Joseph Schumpeter, one of the pioneers who studied entrepreneurship,

Cutting through doubt, the need for innovations, entrepreneurs, and entrepreneurship emerges as the unwavering compass guiding India through its developmental vows.

However, considering the possibility of failures and the time a new venture may take to succeed, the ecosystem needs to give some emphasis to support those who potentially might fail despite having done most of the things right.

New business failure statistics reveal that 20% of projects fail at the end of the first year, 30% fail by the end of the second year, 50% fail by the end of the fifth year, and 70% fail by the end of the tenth year. As a shock to many, Venture-backed firms fail 7 out of 10 times.

This high failure rate is attributed to various factors ranging from lack of market demand, insufficient funding, poor business planning, and a lack of clear goals, strategies, and contingency plans to inadequate mentoring and stiff competition.

The Way Forward

Entrepreneurs are said to be those who pursue an opportunity regardless of certainty. Considering the very basic nature of entrepreneurship, it involves risk.

According to the U.S. Bureau of Labor, all businesses have a 70% failure rate in the long term. This failure rate escalates to 50% by the end of year five and jumps to 70% by year ten.

The average age of enterprise founders from Bangalore is less than that of Silicon Valley. When we say 9 out of 10 start-ups fail, that’s 9 out of 10 founders’ dreams and aspirations.

While promoting entrepreneurship among youth, we need to make sure that we are not asking them to become risk gamblers but risk managers, and they need to have the skill of taking calculated risks.

Just like how a batsman calculates multiple factors before hitting a ball in the air, a skilled batter might fail; even if he is better than anyone, maybe the opposition outplayed him. Whatever the reason, he deserves second chances, and as his career progresses, he ought to get second chances.

Second chances are essential for young entrepreneurs, as statistics reveal that only a few succeed in their first startup; 7 out of 10 accomplished entrepreneurs affirm that their success came from a second opportunity

While fostering entrepreneurship, it’s important to communicate that the journey towards success may encompass facing difficulties and challenges, not just enjoying easy progress.

Entrepreneurship promotion should not be a solution to hide growing unemployment but rather a strategy for allowing the demographic dividend to bring innovation and increase economic activity, by being aware of possible failure. Not to stop pursuing opportunities, to fade away, but to rise and shine to make the impossible possible.

The entrepreneurial ecosystem plays a vital role in mitigating the impact of start-up failures and fostering innovation.

At a micro level, diagnosing the root causes of failure is extremely important so that the ecosystem can significantly reduce the socio-economic costs associated with failures. Equipping future entrepreneurs with tolerance and persistence is essential to control the consequences related to failure.

To enhance support for founders, ecosystems should prioritize minimizing the cost of failure, allowing entrepreneurs the freedom to innovate without the fear of severe repercussions.