Low on innovation

Cost can't remain a core strategy for Indian start-ups

Start-ups have the potential to become the engine of job creation in India especially when many large companies are reducing headcount, John Chambers, Cisco System’s executive chairman, asserted recently. It’s true that Indian start-ups, mainly in the tech space, have been at the centre of action for their rising numbers and fund-raising. In 2017 alone, more than 1,000 technology start-ups were added in India while taking the total to 5,200 in the space, according to Nasscom’s latest figures. Another set of data from Tracxn suggests business to business (B2B) e-commerce start-ups have raised $196.5 million so far this year and that this is the highest since 2010.

But the numbers often tell half the story, maybe even less. While the start-up numbers have grown in the country, dearth of originality and innovation has been a challenge. Start-ups are meant to innovate, rather than replicate a successful model elsewhere. Even as many marquee international investors have bet on Indian start-ups over the recent years, that should not be seen as the only benchmark to assess the success of entrepreneurship in the country, even if they do generate jobs to a certain extent. Last year, Harvard Business Review raised the question about job creation by start-ups around the world. It argued that so many companies fail in their first year itself that start-ups cannot be seen as ultimate job-creators. Another study argued that only those who survived beyond 11 years had a lasting impact on employment and that the most common reason for failure was lack of innovation. In fact, a recent Forbes survey said 77 per cent venture capitalists found Indian start-ups lacked unique business models and filed much lower international patents than their global peers.

Although Silicon Valley and the Bay Area in the US have produced the best start-ups like Apple, Facebook, Google, Amazon, and Twitter, others such as Israel, South Korea, and China have been increasingly making their own place in the top charts of the Global Innovation Index. South Korea, Israel, and China are not far from the global innovation leaders. India too has made some gains in the index, but it still has a lot of ground to cover before being part of the top league table.

The overall innovation spirit of a country is reflected in the start-up culture too. For instance, Israel, known for its vibrant start-up ethos, has cloud-based drone delivery systems to ocean traffic data firms as the most-watched entrepreneurs. In South Korea, it’s a mix of fintech and cybersecurity players that are in the limelight. The two leading unicorns from China are into providing one-on-one video teaching sessions to children (Vipkid) and developing a brain-inspired processor chip for deep learning (Cambricon). In most of these countries, the bulk of innovation comes from early-stage companies that have fewer vested interests in the present and can afford to think differently.

In contrast, for most of the start-ups in India, the default strategy has been to compete on cost, which is an easier strategy to adopt than differentiation. But it is a short-sighted approach as over the longer term, cost advantage will be competed away. Start-ups must think of themselves as the breeding ground of new thinking, and adopt innovation, rather than cost, as a core strategy.