Should we aim for quantity or quality in Indian startups?

I had a very good discussion with 2 folks over the last week about the current state of technology entrepreneurship in India. The rough estimates from multiple sources indicate a varied number from 250 (low estimate) to 1000 (high estimate) technology product startups each year in India. Compared to that, the US produces tens of thousands and even Israel beats India by having 3-4 times that number.

There are a few folks in the ecosystem that suggest that we should focus on fewer but better quality startups in the technology space. They have some strong points in their argument which include a) the total amount of funding available in the system will only support 50-100 companies annually b) if more companies were to be started, more will fail, which will deter more folks from becoming entrepreneurs and c) there are not too many experienced entrepreneurs & seasoned executives who can tackle issues of scale yet.

I fall on the other camp and my focus is to get more people to buy into the religion. I agree with the premise that most startups fail and that’s the nature of the beast. That has not changed much (or at all) with the number of accelerators or incubators in the last few years. Startups die for multiple reasons and many of them are not easy to fix.

The main reason I think we should focus on quantity first is so we can increase the pool of risk-takers in India. Entrepreneurs take the most amount of risk in the ecosystem. We need more of them, in fact more than the system can really handle. So how do we address the arguments from the “Quality first” side?

1. Most product entrepreneurs I meet in India (I meet a new batch of 5 EVERY week) dont really want to build a company to exit. They would prefer to build strong profitable companies and run time for a long time. They do need some funding initially when they are ready to test a few of their hypothesis. Many build products that take a few pivots to get right and most operate in markets that take long to mature. So what if the ecosystem can only support 50-100 currently? We should be able to find ways to get the not so successful ones to pick up, dust-off and get on the horse again. The other point I make that we really have a lot of money sitting on the sidelines in India, with a fairly immature angel investment ecosystem. Each week I meet one new person interested in investing in technology companies, usually a technology executive at a large software company like Microsoft, SAP or VMware. They are enough to get our entrepreneurs started and build good companies.

2. If the percentage of startups that succeed is fairly constant, then the argument for more startups is even stronger. If we increase the pool of startups and the failure rate is still a constant, we should get more successful startups. The failure rate has not dramatically increased or decreased over the last 5 years, so if we have 2000 startups and a 99% failure rate we will still have 20 successes vs. 250 startups and 95% failure rate.

3. The best way to have “serial” entrepreneurs is to have more people go through the experience once. Regardless of whether they failed at their first startup, the success rate of a repeat entrepreneur is dramatically higher. They are more experienced, seasoned and more willing to understand the importance of persistence.

I believe that we need more, not less technology startups overall to help our ecosystem grow dramatically.

10 thoughts on “Should we aim for quantity or quality in Indian startups?”

  1. I was skeptical about quantity but i totally buy your point after reading your arguments. I wonder if there a way to get both quality and quantity. Good

  2. Your point seems valid. There are a lot of Entrepreneurs coming just because many of them are fascinated by the word Entrepreneurship and a lot lack experience. The success ratio is not high for startups, there must be few startups which must make a difference and impact like startups in US or elsewhere do.

  3. I am absolutely “For” quantity. In fact, I read a recent article somewhere that said somewhere around sixteen thousand five hundred something product startups started each year in US. The number, as you agree, is pretty low in India. We need to increase that number by at least 10-20 times in the coming year or two. And, I don’t think there is lack of money to fund startups, its just that the entire ecosystem is a little young right now and needs a little time to mature.

    I have also noticed, a lot of young entrepreneurs jump in with the hope of funding. They expect to get funded the way US startups do. I think young entrepreneurs should focus on self sustaining their business more than looking for funds. So, that even if you do not get funds, you can keep going.

  4. I think what the ecosystem can enable is effectively quantity. Quality of the startup is something the market effectively determines, and the startup discovers over time, through it’s offerings to the market (greater the market’s acceptance of its offering, better the quality of the startup). Given the dearth of an organised angel investing ecosystem, and the number of individuals willing to do seed investments, a highly effective route will be to encourage more people to become entrepreneurs and invest in more wannabe entrepreneurs. Over time, a critical mass of startups will emerge at every stage, and will contribute to the ecosystem significantly.

  5. At the very least…..a failed startup still ensures a lot of learning……even the failed guys who do not do a startup again will contribute better to ecosystem by their learning and knowledge 🙂

  6. Recently somebody asked a question whether – “As a startup would you prefer to give business to another startup or would you rather be a customer for a well established player in the market?” This question wouldn’t arise at all if there are plenty of start ups. Then start ups would be a common occurrence in the market & consumers would FREQUENTLY do business with start ups resulting in a better Eco-system. And even if not, start ups can amongst themselves always have enough services to buy or sell to battle competition from big players (something the small retailers’ fraternity does outside India). Wouldn’t this then wonderfully reduce time to break-even & start up failure rates?

  7. I am all for quantity, the market has a pretty good mechanism to figure out what ticks and doesn’t and this is a joy ride in itself…:O)

    We need folks in DST / Educational institutions / ecosystem players to plug in to start up creations at the degree level itself, we have a long way to go.

    To nurture talent is to hone it when in degree or +2 level itself, change the mandatory engineering / management project work to mandatory imbibe a product they would love to create ( let them live the dream of creation).

    Institutions as an accelerator / incubator should facilitate the initial seeding – Let a part of collected college fees go to product creation.- Make them nurture this from day 0.

    Every college – should churn out X amount product start ups every year, if we can churn out so many graduates we can come up with start ups as well.
    We have the biggest and best brains – lets just roll up our sleeves and start – the STARTUP FACTORY..

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