An article in The Economist, written early in 2020, was somewhat pessimistic about the country’s start-up story. This pessimism, while possibly well-meant, was perhaps a little too harsh. India has demonstrated unimaginable resilience in the face of adversity—whether it be in adhering to its cultural moorings through millenniums of migrations and invasions or in surprising a world sceptical of its success as a democracy. There is little doubt that its budding start-up story would be equally, if not more, resilient.
India’s start-up story is new, and there is bound to be birthing pain. Therefore, as its start-up obstetrics develops and matures, it becomes critical to ensure that the start-ups do not die at birth, that is, due to lack of an ecosystem. And, if they do, it is only because they do not survive “natural selection”, or the laws of demand and supply in the market.
The Start-Up Success Framework
The model determining the level of success and smoothness of the journey of a start-up can be visualised to be quite like a locomotive engine running on a railway track. The efficiency of this engine can be measured by determining the operational strength of the start-up—its market disruption potential, solution differentiation, technological edge and socio-environmental impact—as well as its maturity, which is determined by its talent pool and its experience. The fuel mix which runs this engine comprises a start-up’s funding and valuation (which, in turn, determines continuity of funding, among other factors).
A start-up’s financial performance parameters are its gauges, which determine, at any given time, how well the engine is performing. The ecosystem support which the start-up receives, both at macro or state level, and micro, that is, city or cluster level, is like two parallel lines of the railway track. This, in its essence, forms the entire framework of the Outlook Start-Up Outperformers 2023 rankings. It is a simplistic model, of course, to explain highly complex dynamics of start-up success, but once we understand this model, it is not too difficult to recommend what needs to be done for ensuring a smooth journey for a start-up.
The engine’s machinery needs to be consistently oiled, its fuel supply never be allowed to run dry and the tracks on which it runs not only be continued in a state of constant maintenance but also regular upgrades. While our in-depth research into these interesting dynamics of start-up success in India reveals the “what-is”, it also throws not-so-subtle hints on “what-should-be”.
For example, we find a high correlation between the funding and investment performance index of a start-up and at least one, and in some cases more, of the operational strength parameters. This highlights the urgent need for start-ups to be on their toes and keep sharpening their craft and offerings to remain ever relevant in their markets. For example, the direct-to-consumer (D2C) and ecommerce start-ups need to focus on maintaining their technological edge, which, for these two sectors, ensures a steady supply of this crucial fuel. On the other hand, the fintech start-ups need to demonstrate their potential for a greater disruption of the current way of doing things. Edtech and healthtech start-ups are seen not just as profit-making ventures but also as agents of change, given the inherent nature of the sectors. And, therefore, it is their positive impact on society and environment which helps them get better funding and valuation.
Determinants of State and City Performance
It is not surprising that states such as Maharashtra, Tamil Nadu and Gujarat, which were industrial hubs even before “start-up” became a buzzword in India, and cities such as Mumbai and New Delhi, which have been the financial and administrative capitals respectively for decades, feature in the top five performers. They already had the necessary ecosystem and infrastructure in place to support business activities, including that of start-ups. However, it is the rise of states like Karnataka and Haryana, and cities like Bangalore and Gurgaon, which gives hope for a greater democratisation and spread of the start-up ecosystem in India. Legacy, while important, is not the only determinant of an ecosystem which ensures start-up success, and much can be done which can quickly yield promising results.
In case of states, for instance, not only are the performances on categories such as innovation and entrepreneurship push, infrastructure and facilities, and knowledge edge highly correlated with each other, but they are also, more significantly, highly correlated individually with the state’s performance on funding and investment index. Many of the parameters associated with these categories, such as access to information through state start-up portals, developing knowledge databases and resources, preparing a pool of mentors across various disciplines as well as conducting and hosting programmes to connect start-ups with investors, can be undertaken almost immediately.
Likewise, in case of cities, performance on knowledge edge and human capital are both highly correlated with each other and, independently, to funding and investment index of the city. Further, the regression analysis clearly indicates the need to set up a strong incubation support, which can be done in a shorter period of around two to four years. On a mid-term basis, that is, in five to 10 years, the cities should aim to host high-ranking institutes of higher and technical education.
A larger pool of employees in start-ups in a city is another determinant of performance on funding and investment index and, therefore, suitable incentives may be provided to start-ups for setting up shops in the city, thereby creating a vibrant start-up hub.
The Road to Start-Up Success
Other critical factors, such as investing in developing a skilled human resources pool, building state-of-the-art infrastructure, rewarding innovation and entrepreneurial spirit and ensuring safe, secure, sustainable and just environment, etc., which will pay dividends in the medium to long run, should be focused upon in a planned and time-bound way. States and cities aiming to write start-up success stories would only neglect these factors at their own peril.
Rome was not built in a day, and, likewise, the journey of creating an ecosystem enabling start-up success is a long one. Even the top performing newer cities like Bangalore and Gurgaon have been decades in their making. Without doubt, the emerging states and cities have a long haul ahead of them. The best time to set out on the road of start-up success lies in the past, of course. But the next best time is now.
The author is the founder and principal consultant at Ayvole, a market research-based consulting firm
