Startup & Business

Startups

Author: Prasun Sarkar, KIIT

Introduction

The term “startup” has been bandied around with increasing frequency over the past few years to describe scrappy young ventures, hip San Francisco apps, and huge tech companies.^[1] To put it in simple words, startups are small and new businesses that provide or bring about a certain product or service in the market that has not been provided before. The business idea is completely novel which is founded by two or more entrepreneurs. In its initial days, it requires funding from an outsider, especially a venture capitalist, that gives them a boost to conduct their business until it starts earning profits and business is stable. However, it is not easy to get venture capitalists to provide capital. Venture Capitalists do not provide capital until and unless they find the business idea to be profitable. Not only do they look at whether the idea pitched is new or not, but they also look into other prospects i.e. whether such an idea will find a suitable place in the market or whether such an idea has any scope of surviving in the competitive market. Another essential element that needs to be kept in mind is that startups are very risky. The reason being startups have no history. They start a business from recurring losses and there is no guarantee that these losses will be converted into profits. There is no hard and fast rule for successful startups. Even though an idea may seem profitable and novel there is no assurance of its success.

How is a startup different from a regular business

There are certain fundamental differences between startups and other business concerns. A very essential ingredient of a startup is the uniqueness of the business. The reason why a startup comes into being is to provide something new or enhance something that already exists. For instance, startup Airbnb was created with a never seen business model. It provides houses for rent in different cities and filters searches according to the preference of the customers. However, a regular business concern doesn’t have to be something new or innovative. It can be anything that already exists, for instance opening up a new restaurant. Another striking difference between startups and regular business concerns is the use of technology. A regular business doesn’t use much technology in terms of promotion of the business or working of the business. In contrast to that, a startup has a lot of dependencies on technology. The working of most startups is through websites or mobile applications. This helps in faster growth and the startup is better promoted and becomes well known in a shorter period of time. A startup doesn’t intend to make profits from the very first day or rather they can’t. It mainly focuses on establishing the business and promoting it as much as possible. On the other hand, a regular business seeks to make a profit from the very first day. The sole purpose for which a regular business exists is to make profits, and the moment they stop making profits the business is shut down. Apart from these differences, another point of difference is the risk factor between the two types of businesses. The business of all types has risks and disadvantages. It’s almost that business and risk are synonymous. However, the risk involved in a regular business may be far too less than that of a startup. A regular business is not necessarily something new. Therefore the risks involved can be assumed to some extent from beforehand taking references from previous similar businesses. But in case of a startup, assuming the risks is far too difficult because the business idea is completely new and there is no way one could ascertain the risks that might be involved.  This makes the risk factor much greater compared to other businesses.

Who can initiate a startup

A startup can be initiated by any individual entrepreneur who has a new business idea. Specifically, there are no prerequisites as to who might be eligible to initiate a start up. Any entrepreneur who has a new business idea and such an idea which has the potential to be successful, can initiate a startup. When a potential business idea is pitched before the investor, if he feels that the idea has a scope of succeeding in the market he gives his consent to fund the business. Zomato, which today is a two billion dollar startup, had two entrepreneurs, Deepinder Goyal and Pankaj Chaddah who were alumni of  IIT Delhi. They didn’t have a business background but all they had was a great idea. While they used to work for a company in Delhi, they observed that people had to wait for a long time just to get a menu card of a restaurant. This was the first time that the idea of online food delivery service came into their minds. 

Steps to take off a startup

• ●        Step 1

The first step that has to be taken is to evaluate oneself. Evaluating oneself means questioning oneself as to what kind of business one wants to open i.e. a food service or cab service etc. One has to identify their strengths and make a plan that can be used for making the business successful. Identifying weaknesses is also necessary so that one can know what are the areas that one has to improve upon. Basically one has to do a SWOT analysis of one’s own self.

• ●        Step 2

The second step that is to be taken is to think of a business idea or plan. In order to start a startup, one needs to have a proper business plan which is capable of being executed. Having a sound business plan makes all the difference in a startup. Only having a sound business plan doesn’t help, it has to be developed and given proper shape and tested.

• ●        Step 3

This step involves studying the market in which one is planning to get into. This time a SWOT analysis of the market has to be made. One has to study in detail about their rivals and the way they conduct their business. Proper surveys have to be made in order to understand the market conditions properly and accurately.

• ●        Step 4

The next step is the most difficult among them all. A product prototype has to be created. It has to be seen that the product is unique and presentable. After creating the product prototype one has to get feedback for the product. Feedback has to be taken from a fresh perspective who can identify the flaws in the product and make suggestions as to how one can improve and make the product better.

• ●        Step 5

The fifth step involves where the entrepreneur looks for funding. There are a number of options available for funding i.e. it can be obtained either from government initiatives like Startup India program or institutions like SIDBI, IDBI etc. Funding can also be obtained from Venture Capitalists or Angel Investors.  

• ●        Step 6

This step involves building a designated team. A team of responsible and worthy individuals has to be gathered who can be trusted and can help in further developing the product. While building the team, they should be clear as to what are the goals of the business and how one wants to proceed with making the business successful. Apart from this, strict professional protocols have to be maintained between the entrepreneur and the designated team members.

• ●        Step 7

The last step involves finding a suitable location for a business. While looking for an office that has to have ease of access, competition in the area, accessibility, and parking. Having an attractive office building always helps in boosting business as it creates a good impression on the customers. One also has to make an attractive and illustrative web page. The web page has to be precise as well as soothing to the eyes and also the advertisements have to be kept to the minimum. 

One has to take the necessary steps to promote the business. Proper promotion is a must. There are several businesses that get lost due to a lack of proper promotion and market strategy. One also has to identify the right group of customers to whom they need to cater.

Government Initiative

The Government has taken impressive steps to inject the startup culture in India. Identifying the impact and importance of startups the government has launched several schemes to promote the development of startups. The most important and prominent among them being the Startup India Initiative. This initiative launched by the Prime Minister of the country, in January 2016 seeks to change the work sector of the country i.e. transforming India into a country of job creators rather than job seekers. The dedicated startup team is managed and supervised by the Department for Industrial Policy and Promotion.^[2]

The Startup India team is solely dedicated to easier establishments of startups. The various compliances that need to be made, are to be processed through the Startup India team. They keep the compliance to the minimum in order to finish the paperwork as soon as possible. They also provide easy exit mechanisms for failed startups. They make tracking of patents much easier and there are various other procedures that can be completed through the website and one doesn’t have to run to various departments to complete the necessary formalities. Apart from ease of establishment, they also provide tax exemptions on income tax and capital gains. They also ensure that the right amount of funds are infused into the potential startups along with a scheme for credit guarantee. They also have taken the initiative to open incubators and innovation labs to conduct research and development.

Economical Impact

Startups do have a significant impact on the economy of the country.  Recent econometric evidence suggests that entrepreneurship is a vital determinant of economic growth, and the positive and statistically robust link between entrepreneurship and economic growth has now been verified across a wide spectrum of units of observation, spanning the establishment, the enterprise, the industry, the region, and the country.^[3] The government was fast in realizing this fact and hence took strict initiatives to promote this kind of business. The multiple advantages that a startup provides are the addition of products and services thereby increasing competition for existing business setups both national and foreign. It fulfills the aim and vision with which the government created the dedicated startup team i.e. provides employment. Creating job opportunities makes a huge impact at a macro level especially in a more or less mixed economic set up like India. Startups are the means of advancement, it makes people tech savvy by acquainting them to new technology and thereby enhancing the quality of life. Through various data, it has been inferred that the highest number of employment has been provided through startups. The creation of job opportunities helps in eradicating the problem of unemployment.^[4] But there is some controversy in regard to whether this contribution is primarily the result of many small start-ups and incremental expansions, or if a small minority of high growth businesses contribute the lion’s share of new employment.^[5] It is often said that startups in the initial years grow at an extraordinary pace. However, in the consequent years, the rate of growth reduces significantly.[6] India has been in economic turmoil since time immemorial. The various governments that have come to power tried several mechanisms and implemented various policies to promote entrepreneurship. However, startups have been the most successful business mechanism among them all. Not only does it provide employment but also contribute towards the balance of payments of the country by increasing potential export. Startups have also brought out the importance of institutional credit for the growth of start-ups.^[7] The approach adopted by the government has shown some promising results. However, there is still a long list of unachieved goals that need to be accomplished.

Successful Startups in India

One of the earliest and successful startups in India was Ola, a taxi service. Being a victim to a cab driver, Bhavish Aggarwal the CEO of Ola, while traveling from Bangalore to Bandipur decided to solve such problems for good. He was dropped in the middle of the road by the driver and he had no means of transport to travel further. This inspired him to start his currently 6.2 billion valuation business. Currently, Ola runs in more than fifty cities in India as well as in Australia and New Zealand.

Another startup that attracted a lot of attention is Byju’s. This startup was India’s only edtech unicorn. Within a short period of time Byju’s generated a lot of buzz in the Indian market and ultimately growing into one of the world’s biggest edtech brands. Byju’s provided online courses that were suited for Indian schools and also prepared students for various competitive exams. Recently joined hands with US-based media company Disney, to form the Disney-Byju’s Early Learn app to cater to the needs of the domestic market.

Though Indian has adopted the startup culture, still there exists certain fundamental differences between the mindset and working with these startups firms from those operating in the Silicon Valley. Indian startups are more  customer oriented i.e. they put the needs of the customer first rather than being tech oriented. Flipkart introduced the concept of COD or Cash on Delivery, keeping in mind that there are still people who prefer cash transactions and consider it more secure. However, entrepreneurs of the Silicon Valley are more product and tech oriented. In India, failed startups are looked down upon. There is hardly any news about startups that didn’t work out. It is not so that it doesn’t take place but the media only hypes the successful startups. In Silicon Valley an entrepreneur with a failed startup has a high regard. They are willing to help out other budding entrepreneurs with their knowledge so that they become a successful entrepreneur. Investors or Venture Capitalists do not support a project until and unless they are absolutely sure that, the project will be successful. In Silicon Valley, investors are more supportive and always encourage new ideas from budding entrepreneurs. When an idea is pitched to them, they find out the flaws in it and help the entrepreneurs to come up with a better business idea. Also, the existing and successful startup entrepreneurs do not encourage other budding entrepreneurs to initiate a startup. However, in Silicon Valley existing entrepreneurs encourage other entrepreneurs to come forward with their business ideas.

Conclusion

Despite various struggles, India has come a long way with startups. Previously a new business would be very difficult to establish due to a number of problems like lack of capital, lack of encouragement, difficulty in finding an investor, etc. However, we have come a long way since the government itself has taken the initiative to promote startups. The trend of startups has been nothing but an upward graph. With a large number of successful startups, it is encouraging other entrepreneurs to build a startup of their own. The reason why the government has taken so much initiative is due to the fact that startups have a positive impact on the economy of the country. However, there is still a long way to go. There is a need for more and more investors to come and encourage entrepreneurs, encouragement is needed from successful startup entrepreneurs. They should be the ones taking more initiative to encourage budding entrepreneurs by helping them find investors or they themselves investing in their ideas. They should act as mentors and educate them to be as successful as them.

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[1] https://www.forbes.com/sites/natalierobehmed/2013/12/16/what-is-a-startup/

[2] https://www.startupindia.gov.in/content/sih/en/about-startup-india-initiative.html

[3] Thurik and Wennekers, 2004.

[4] Gibcus et al., 2006.

[5] Dobbs and Hamilton, 2007.

[6] Dobbs and Hamilton, 2007.

[7] Subhash V. Kasturi and M.H. Bala Subrahmanya, Int. J. Entrepreneurial Venturing, Vol. 6, No. 3, 2014.