Over 90% of Indian startups fail within the first five years of their inception largely because they lack innovation and are merely copycat versions of successful global models, according to an IBM study.
As many as 77% of the venture capitalists surveyed for the study cited lack of innovation based on new technologies or unique business models as the top most reason for startup failures
The IBM study, 'Entrepreneurial India', states that 70% of the venture capitalists believe talent acquisition is one of the biggest challenges faced by Indian startups. Limited availability of necessary skills impedes growth, it said.
Most startups say hiring talent is one of the biggest parts of their operational costs. Lack of sufficient funding both at entry and exit stages was found to be the third major roadblock with 65% of venture capitalists calling it as a challenge for these companies.
"We believe that startups need to focus on societal problems like healthcare, sanitation, education, transportation, alternate energy management and others, which would help deal with the issues that India and the world face. These require investments in deep technology and products which are built to scale globally", said Nipun Mehrotra, chief digital officer, IBM (India/South Asia).
The study said inadequate formal mentoring, poor business ethics and lack of experienced leadership were other obstacles for Indian startups.
The challenges can be overcome by getting startups and established organizations to proactively collaborate with each other.
"This will harden business models for startups, accelerate growth and help them leapfrog into the big league, while enabling established companies to share in the entrepreneurial spirit of innovation and agility," the study said.
Almost 80% of executives from established companies say collaboration with startups accelerates new ideas.
"Their mutual success will drive India toward an evermore dynamic future," it said. The study is based on interviews with more than 1,300 Indian executives, including 600 startup entrepreneurs, 100 venture capitalists, 100 government leaders, 500 leaders of established companies and 22 educational institution leaders to analyze the macro impact of startups on the country economy.
As per a study, 80% of engineering graduates in India are deemed unemployable and 48% of employers in India face difficulty in filling vacancies, the IBM report states.
However, eminent professors at IITs have dismissed the study as an exaggeration although they admit that there are a large number of engineers churned out by private engineering colleges are not fit for employment.
The year 2016 proved to be devastating for startups as a total of 212 of them were forced to shut shop due to heavy operational costs, according to data analytics firm Tracxn.
The startup death figure is 50% higher than in 2015, when 140 startups were shut down.
"Socially, Indians are not encouraged to take risks. So, we end up making too many me-too products," said Kunal Khattar of advantEdge, an early stage venture capital fund.
"It was always considered easier to raise money for business ideas which have succeeded," he added.