Challenges Faced by New Startups

Challenges Faced by New Startups

Important for Prelims:

Startup Ventures, ‘Startup India’ Scheme, ‘CRED’ Platform, Make in India

Important for main exam:

Government policies related to startup venture, challenges before startup venture, reasons, solutions.

October 23,2023

Context:

  • 'Startup' enterprises have an important role in increasing entrepreneurship among the youth and connecting them with self-employment. These enterprises provide products or services that are not generally available in the market. These act as new business structures with new technology and new innovations.

About Startup Enterprise:

  • Startup undertaking includes an entity which is not registered in India for more than five years and whose annual turnover does not exceed twenty-five crore rupees in any financial year.
  • This unit works towards innovation, development, expansion or commercialization of new products or services inspired by technology or intellectual property.

Registered Startups:

  • According to government data, a total of 26,522 new startups were registered in 2022 under the ‘Startup India’ scheme. In 2021 this figure was 19,989. That means there has been an increase of 32.6 percent in startup registration.
  • At present about ninety thousand startup units are registered in the country.

Startup Coverage:

  • Maharashtra, Karnataka, Delhi, Uttar Pradesh and Gujarat have the highest number of startup units.

Employment:

  • Startup units have provided direct employment to five and a half lakh persons. They have also made a significant contribution in the unorganized sector related to the distribution of their products and services.

Causes for Startup Success:

  • Startups Startup units have achieved success largely due to innovation, new ideas and ingenuity of entrepreneurs.
  • Startup enterprises have grown and expanded rapidly in the last few years. Although the concept of startup came into vogue about fifteen years ago, the pace of these ventures has increased significantly in the last five-six years.
  • The government has also taken several measures to promote these, including schemes to develop 'prototypes', test products and provide financial assistance to help them enter the market.
  • Excellent startups that contribute to economic development by promoting innovation and competition are also rewarded.

‘CRED’ platform for bill payments:

  • Established in the year 2018, ‘CRED’ is a platform where startup entities can pay their credit card bills.
  • The platform has created a new structure where users get ‘Cred Coins’ when they pay their bills through the Cred App.
  • These coins can later be redeemed to buy a product, participate in a contest, or attend a workshop.
  • This startup provides many services to the customers like ‘Credit’ and ‘Premium Catalog’ of products.

Challenges faced by startup enterprises:

At present, there are many challenges facing startup enterprises as follows:

  • Lack of practical experience: There is no effective system in our education system to provide vocational training and practical industry experience.
  • Startup enterprises are far behind in terms of research and development. There is a lack of working capital to run a startup.
  • Limited reach: Small startups have very limited reach to customers, hence they are able to market only to certain areas, which is limited to local people and local language.
  • Lack of qualified and skilled employees: Getting and retaining qualified and skilled employees is a big challenge for startup enterprises, because other competing big enterprises attract qualified and skilled employees by offering higher salaries and facilities. Therefore, they have to constantly struggle to attract and retain the best employees.
  • Competition: Due to the establishment of new startup ventures in the same field, there is intense competition among them. Due to this, it becomes difficult for startups to maintain themselves in competition.
  • Lack of communication facilities: About seventy percent of the country's population lives in rural areas, which is still deprived of reliable internet access.
  • As a result, many startups in rural areas remain unrecognized and remain deprived of government funding and other facilities. They are not even counted, even though they play an important role in providing local products and services.

Data related to closed startup ventures:

A large number of startup ventures have closed down in recent years due to these challenges:

  • According to ‘Tracson’ data, 2404 and 1012 units were closed in the year 2022 and 2021 respectively. Thus the number of units closed in a single year was more than double.
  • 3484 units were closed in the year 2018, which was the highest in the last five years.
  • ‘EdTech’ was one of the most affected sectors among Indian startups, with twenty-five funded startups in this sector closed down.
  • Healthtech and media sectors face huge challenges in 2022. Due to this, 26 companies in the healthtech sector and 24 in the media sector were closed. Even in the fintech sector, 26 startups could not reach 2023.

Due to closure:

  • The biggest reason for closure of units is lack of capital and non-adjustment of these units with the latest technologies.
  • According to Traxon, capital received by edtech companies in India will decline to $2.4 billion in 2022, from $4.1 billion last year.

Impact of closure of startup ventures:

  • Due to closure of enterprises, large scale retrenchment of employees took place.
  • According to a report, approximately nineteen thousand employees were laid off from startup ventures in 2022.

Conclusion:

  • In the last one or two years, startup ventures have had to shut down due to various reasons. Due to their closure, not only have a large number of people lost their jobs but the expectations of the Central Government related to Startup India have been affected. State governments have suffered huge financial losses in the field of e-commerce. In the year 2022, competition and due to lack of capital, a large number of startup units merged into big companies.
  • There is a need to make a practical policy regarding startups. There should be a simple, easy and transparent system for financial and other facilities provided to them. There should be an effective arrangement for marketing their products and services, so that they can maintain their position even in times of competition. To connect the youth with them, there should be proper arrangement for their practical knowledge and training in educational institutions, so that entrepreneurial qualities develop in the youth and they can be inspired to establish more and more startups instead of running after jobs.

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Mains Exam Question

Present your arguments to resolve the challenges faced by startup enterprises.