Startup fever grips India: What economic challenges, surprises lie ahead?

“My brother has committed suicide, I think,” said a familiar voice on a phone call in the early morning.

 

“Oh god, what happened?” I asked.

 

“He had pledged our family home to a bank to borrow money for his startup and then he couldn’t repay the loan. So, the bank possessed the home and has asked all our family members, including our old grandparents, to vacate it … and they have nowhere else to go! I think that’s why he has swallowed some pills and is not waking up today!”

 

I was so shocked that I found myself speechless; mercifully, my friend disconnected the phone, leaving me in a deep reverie. I, like most others in today’s world, look at startups as the solution to all modern economic challenges: Create quality jobs, grow the economy, protect our economy from foreign tech marauders … the list of our expectations from startups is never-ending.

 

The government has jumped in equally enthusiastically: Its Startup India Mission in 2022-23 saw nearly 23,000 units getting registered and statistics for the current year indicate even more are registering. In addition, practically every IIT (Indian Institute of Technology) and IIM (Indian Institute of Management) and similar educational institutions have launched their own startup centres! We, Indians, have caught the startup fever!

 

But what gives me sleepless nights is that in India, amid all this clapping and cheering about startups, at policymaking level we need to dive a lot deeper into the startup process. It is not that every startup will flower and result in a venture that makes its founders and funders wealthy people. Statistics from the United States and from India show that nine out of 10 startups don’t make it; ie only 10 per cent survive and prosper. A further analysis shows that 20 per cent of startups fall apart after a year, another 30 per cent close down within two years, 20 per cent shut their door within five years, and the remaining 20 per cent dissolve within 10 years, meaning only one out of 10 startups ever makes it to any economic worth. Which conveys learning to deal with failure in a startup venture appears to be as important, if not more important, than learning to celebrate success. Otherwise, a startup founder and his family could end up as tragically as my friend’s brother did.

 

Before we dive into the ways of dealing with failure, let us analyse the reasons behind it. Statistics reveal the most important reason for failure among startups is that the product/service created by a startup does not appeal to the market, ie it lacks a product-market fit. The second-most important reason is that the initial funds a startup had at its disposal are used up too quickly. The third-most important reason is failing to hire the right people — just getting together with friends and/or relatives doesn’t help. The founders should complement each other’s skills, for example: If one is a tech whiz, the other founder needs to be a marketing whiz. The final reason for failure is that something could happen in the environment, which is beyond your control but damages your business. Some examples are a sudden devaluation of the currency or an imposition of very heavy duties on a critical component you needed to import … and so on.

 

In this context, the World Wide Web (WWW) may be at a juncture where its basic structure can suddenly change and if current startups and even stably successful ones don’t watch out for this possible cataclysmic change, they may be in for serious trouble.

 

To fully understand what this change may be about, we must listen to Tim Berners-Lee. Tim Berners-Lee, to quote verbatim from Wikipedia, is “an English computer scientist best known as the inventor of the WWW, the HTML markup language, the URL system, and HTTP”. Reading these brief descriptions, you will notice that without any background in computer science, these acronyms describe all that is critical to creating the WWW, which we all love and admire and think has made the modern world.

 

But please hold your breath and listen for a moment to what this genius of a man, who has effectively created our modern world, says about today’s web (all quotes here from his website). He says that today’s web is made up of “deliberate, malicious intent, such as state-sponsored hacking and attacks, criminal behaviour, online harassment, and its system is designed in a way that user value is sacrificed such as an ad-based revenue models that commercially reward clickbait and the viral spread of misinformation”. This has resulted in negative consequences like “outraged and polarised tone and quality of online discourse”.

 

The founder of the web could not have used stronger words to express his disappointment and outrage about what his magical innovation has ended up becoming. He strongly believes that companies must do more to ensure their pursuit of short-term profit is not at the expense of human rights, democracy, scientific facts, or public safety.

 

Is it likely that startups that listen carefully to what Tim Berners-Lee has to say are the ones that will thrive in tomorrow’s world (the so-called Web 3.0)? Will all others playing along with current theories meet the end that resembles the sad story that this article started with? That means startups that abide by a decentralised model where users have more control of their data, focusing on decentralised organisations and reliable identity management are the key. Technologies like blockchain, smart contracts, and decentralised apps are likely to be the stars. 

The writer (ajitb@rediffmail.com) is now devoted to understanding how technology is socially constructed