For an outside observer, India’s tech startup ecosystem has for many years buzzed with action. Startups in popular domains like data analytics, artificial intelligence and block chain have routinely mopped up angel and seed funding; a few have even made headlines for their acquisition by global tech giants like Facebook, Google and Apple. These early-stage success stories naturally inspire more young people to test the waters.
Difficulties: However, what often remains hidden from the spotlight is the immense difficulties many of these startups face when they want to scale up. As of today, the number of startups who have successfully scaled their business to cover the whole of India or even ventured abroad can be counted on hands. For every Flipkart, Zomato and OYO Rooms; there are dozens of startups that just could not scale up despite showing a lot of promise in early stages. On the surface, the market environment appears to be favorable for the growth of Indian tech businesses. India has the world’s largest smartphone and the Internet-connected population at 300 million, with an ever-increasing spending power thanks to a growing economy. A large part of this population lives outside the metros, in cities and towns- big and small. The opportunity to crack and tap this market is there for taking – and indeed, all large startups have their sights set on it.
Opportunities: There is an even bigger emerging opportunity in serving the technology needs of Indian small and medium businesses; who have been forced to adapt to the online, always-connected ways of doing business post the twin shocks of demonetization and GST rollout. As these businesses get more comfortable with using technology in their routine business processes, they will open up a huge market for Indian tech startups.
Structural Deficiencies: Despite operating in a favorable market, why so few Indian startups have been able to scale their business? The answer lies in deep-rooted structural deficiencies that work against our homegrown startups and prevent them from scaling quickly and efficiently like their American counterparts. One such deficiency is lack of trust during hiring, in contracts and their enforcement. Our judicial system is unreliable and unpredictably slow and as a result, businesses are never sure of being able to enforce signed contracts. Ordinary business transactions that happen swiftly in markets like the US on the basis of a written contract become infuriatingly slow to process in India because the parties involved have to spend extra time and effort in due diligence. This adds tremendous friction to the day-to-day running of a business. This lack of trust also hurts growth in other ways. Several leading Internet startups do not allow customers from certain cities or states from ordering goods and services against cash on delivery. Consumers on the other hand find it difficult to trust and verify the online seller. Indeed, winning and establishing two-way trust is perhaps the biggest strategic imperative for any tech startup operating in India.
Conclusion: Perhaps this quandary itself presents as yet untapped opportunities to a new breed of tech startups that will use data and technology to build trust. Already, efforts are underway to offer trust-as-a-service; on demand and frictionless. Aadhaar could be a powerful enabler for these efforts, but a lot of work still needs to be done on ground to create data repositories that can help businesses quickly find crucial and relevant data to make a transaction-related decision. I believe the arrival of nationwide services that enable trust between businesses and their customers are absolutely critical to sustaining and nurturing our startup ecosystem. The demand is well established; it remains to be seen how quickly can the supply match up, for markets do not allow a vacuum to last for long.
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