Why Is It So Hard To Start A Business in India?

By Anirudh Suri WG’12, founder and CEO of Findable.in

I’ve been in the startup trenches in India for the last three years. I’m currently the CEO of Findable.in, a location-based product search platform based in India, and I’m also the Founding Partner of India Internet Group, an early stage venture capital fund based in Mumbai, Delhi and New York. I think this is the best time ever to be an entrepreneur in India. However, it’s also an incredibly difficult journey.

In this post, I explain what makes starting a business in India so hard. But don’t be discouraged! My next post will explain why this is actually such a great time to be an entrepreneur in India.

An Incredibly Difficult Journey…

  1. Poor labor market. It’s tough to hire great people in India to work at startups. This is changing, but many smart folks don’t want to join your startup for a low salary, especially since people worry that equity or options won’t pay off in the long run. As a result, the top layer in Indian startups is world-class, but then you see a big dip in the middle and lower levels. While some of the startup founders in India are as motivated and talented as their counterparts in the U.S., motivating employees is much harder in India than it is in the U.S. This hurts the startup’s productivity levels as well as its ability to innovate and scale.
  2. Red tape. India has an incredible way of bogging you down with procedural, compliance and other such issues. As a CEO, I am spending way more time dealing with accounting, legal, and corporate compliance-related issues than I expected. At least twice a week, I have to sit down with our Chartered Accountant or our lawyers or the Company Secretary to ensure that we have met the TDS (Tax Deducted at Source) requirements, completed our compliance with the RoC (Registrar of Companies), etc. Combine that with the time spent motivating un-motivated employees, and some weeks, you have no idea where your week went!
  3. Lack of quality mentors. The quantity and quality of mentors in India (with the possible exception of Bangalore) is not quite up to the level of what you would find in Silicon Valley or other startup hubs such as New York, Philly or Boston.  Not entire surprising, since tech entrepreneurship is still in its infancy in India. The oldest successful tech startup founders are probably 10 years old in the industry, but really the bulk of the companies have been founded since 2008. The founders of these companies will likely become, in a few years, the kind of investors and mentors that Silicon Valley boasts of. Already, some successful entrepreneurs – the likes of Naveen Tiwari (InMobi), Kunal Bahl (Snapdeal, WG’06), Amar Goel (Komli), K. Ganesh (Tutorvista), Sanjeev Bikchandani (Infoedge, Naukri.com) – are starting to become active investors and mentors. India could use a lot more such mentors and investors.
  4. Slow consumer traction. The Indian internet consumer is also just learning how to consume the internet, or mobile apps for that matter. This means that customer traction is often very slow, and requires a lot of customer education. For example, OLX and Quikr – two prominent classified sites in India – as well as eBay have had to spend a lot of time, effort and money in educating the Indian consumer on how to sell old products online. Similarly, for my first startup, EkSMS.com, it took us a long time to educate restaurants and bars on using the SMS or web platforms for their marketing. The Indian consumer hasn’t quite displayed the same kind of early adopter characteristics as users in California might have.
  5. Problems getting paid. Moreover, the Indian consumer (or the Indian small business) is not very willing to shell out cash quite yet, so recurring credit card subscription businesses (the likes of Netflix, etc.) as well as others that require consumers or small businesses to pay are very hard to build here. With EkSMS.com and Findable.in, we have often had to run after our customers to get longstanding bills cleared. This also requires Indian startups to be even more frugal in their initial stages than their Silicon Valley counterparts.

These challenges are very real, and any entrepreneur interested in starting a company in India should be aware of them. However, I can’t say enough times that this is truly the best time to be an entrepreneur in India. Stay tuned for my next post, when I explain exactly why.

Anirudh SuriBio: Anirudh Suri WG’12, is currently the CEO of Findable.in, a location-based product search platform based in India. He is also the Founding Partner of India Internet Group, an early stage venture capital fund based in Mumbai, Delhi and New York. Previously, Anirudh worked at McKinsey& Company, Goldman Sachs, and as a policy advisor to fellow Wharton alumnus and the Hon’ble Minister of State for Communications and Technology in the Government of India, Mr. Sachin Pilot. At Wharton, Anirudh was a member of the Venture Initiation Program and the Entrepreneurship Club; organized the BizTech Conference and the Wharton India Economic Forum; and also partied a lot in Center City Philadelphia.

5 comments on “Why Is It So Hard To Start A Business in India?

  1. Very insightful and observations are right on the mark. Indian markets and consumers have few more years to go before the maturity and risk taking ability(in youngsters to view start-ups as a career option post MBAs or BTechs)comes in.

  2. Hi Anirudh…yes its a fantastic time to be an entrepreneur in India now

    with billion mouths to feed and million problem to solve
    India is land of opportunity

  3. I believe the problems that you have identified in your article are spot on. It will be great to know about the impact of poor implementation of copyright and IP laws in India on startups.

  4. The first one could apply anywhere. Worry about equity/options not paying up is real and not at all specific to India. I know so may British and American firms (including some from close association) that eventually do not end up leading to equity/options being of any value. Most such firms never go public or exit. The ones who do, do it after stretching out the patience. And some have equity/options deliberately structured that by design the founders never have to share anything eventually even if they succeed and take the firm public. Broadly using the 80-20 rule, only 20% of startups succeed and if you further multiply by 80-20 rule where only 20% of successful firms lead to financial payout for equity/option holders, that makes it just 4% chance you would get something substantial and that gets factored in as a slight cut in salary you might be willing to take. Don’t expect an employee to take a major part of the remuneration in ESOPs. You as the founder is taking the risk and hoping to get the return. The employees of a startup have varying shades of stake and matching commitment/passion. You as the founder can design the actual ‘shade’ such that you are able to attract the right people with the right motivation. e.g. I know a case where a founder gave out ‘shadow stock’ to the CEO with no vesting date or closure or condition whatsoever and that founder had no intent of growth let alone an exit in the foreseeable future. The CEO could see that the stock promise wasn’t even worth its weight in paper. These type of founders create the wrong example for other genuine people.

  5. Hi Anirudh,

    You hit the bulls eye with those points. I am a wannabe entrepreneur myself. I have worked in a software firm for one year. I resigned and took a couple of small strides towards starting a s/w firm. But faced all these problems you just mentioned.

    In addition to these,another problem I faced, and still facing is from the family.In India, if you are not from a “not-so-rich” family, they will do literally anything to prevent you from starting a business. It is not because they do not love you, but they have a prejudice that business is a game of rich guys. So it will restrain lots of youngsters from starting a business.

    In my opinion ,if the family gives some moral support and the big players in business lend a hand for beginners like me to get some initial connections or to share our concerns, we could create wonders.

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