India’s nascent startup incubation ecosystem should look beyond short-term gains to replicate Silicon Valley success

While India’s incubators and accelerators are doing a tremendous job of helping startups reach their optimum potential, they are not the panacea for everything that startups would like to get solved for in the future.

India, with its abundant and innate capabilities, has never looked more attractive to global investors. The country’s vibrant and nimble entrepreneurial scene, driven by innovation, is rewriting India’s growth story. In this ecosystem, led by the drive to tap into India’s entrepreneurial spirit, a strong support mechanism has emerged in the form on incubators, enabling the creation of sustainable businesses that take startups from “idea” to “market”. These incubators enable startups in their early days to launch and scale business models, propelling organisations to the next stage of growth.

As per a NASSCOM-Zinnov report titled ‘Indian Startup Ecosystem 2018: Approaching Escape Velocity’, as many as eight Indian startups became unicorns in 2018 and over 210 active incubators and accelerators were added during the same period.

Accelerated Path

If India has emerged as the third biggest startup hub in the world, we must be doing something right. This brings me to another critical point. Besides incubators, there are also accelerators, the other key enablers that help budding entrepreneurial communities scale up and get on the fast-track to growth. Typically, it is startups that have already found a problem-solution fit and received validation from customers, which enter the acceleration phase for a set timeframe. Simply put, acceleration is the later stage of incubation and strategically advances a startup’s business model. Accelerators are attractive propositions to startups as they offer funding opportunities in exchange for a certain amount of equity.

However, a word of caution for first-time entrepreneurs is required. In the enthusiasm to be projected as fundable entities, startups should ensure that their business model and vision is a good fit with the accelerator programme. If entrepreneurs shift their focus from the company’s core vision to chasing revenues too early in the game, they could lose control over how to evolve the company. Therefore, it would be advisable for startups to bootstrap for as long as possible, as this would enable entrepreneurs to make a sound judgement about the kind of investors they want to bring on board to steer the company forward.

Further, just as startups must be discerning when bringing in investors, organisations also need to carefully evaluate incubators and accelerators before participating in their programmes. Among a few things to consider would be the organisation’s track record, associates and mentoring capabilities, and how these factors would enable a startup’s success.

Relevance with Scale

While India’s incubators and accelerators are doing a tremendous job of helping startups reach their optimum potential, they are not the panacea for everything that startups would like to get solved for in the future. This is because accelerators are themselves startups and remain relevant only so long as they keep on evolving to the current requirements of the startups they take on board.

Take the case of Upekkha, an accelerator which is growing early-stage SaaS-based startups. The accelerator took a fair bit of time to understand the market, evolve a certain model and serve a particular set of customers, before it started scaling its own operations — just like any startup would. Subsequently, Upekkha also figured out its commercial numbers and business model. Since Upekkha’s initial focus was on helping startups the best way it could, its innovative approach has held it in good stead in the long-run.

Ecosystem Support

Even as entrepreneurs are rapidly mushrooming in India’s tier-II and tier-III cities, incubators and startups alike are fraught with infrastructural and other challenges. Therefore, the government is aggressively backing India’s startup movement to counter such impediments. Niti Aayog has enabled the creation of a robust nationwide incubation network by linking startups with new and established incubators. The incubators help startups to accelerate by providing infrastructure, hands-on mentorship, funding opportunities, job creation, and other support.

Seeing how deeply the startup mentality has penetrated the Indian psyche, corporate India is also exploring innovative incubation and acceleration programmes within their organisations. These programmes help them nurture the entrepreneurial spirit among their workforce and gain a strategic competitive advantage.

Strategic Guidance

It is still early days for India’s incubation ecosystem, which still must go a long way before it replicates the success of the Silicon Valley. But an important beginning has been made, and the road ahead is promising. However, the future of incubation in India will clearly rest on its ability to look beyond short-term gain and enable every startup to relentlessly pursue the path of continuous business innovation.

Incubators should be able to advise startups to cut any losses and exit when products and solutions are a sub-optimal fit in the market. Most importantly, incubators should encourage startups to fearlessly reinvent themselves if required. Even the alumni from incubator and accelerator programmes should pay it forward and help the new breed of entrepreneurs — only then can the startup ecosystem sustain in the long-term.

While the fundamentals of entrepreneurship are remarkably sound in India, startups should always be prepared for the next slowdown — and their possible failure. In my role as a mentor in several ecosystems around the world, I believe incubators play a crucial role in not just accelerating success, but failure too.

Authored by Ravi Narayan, CEO, T-Hub

Also published in Financial Express on 5th May 2019.