Why some tech start-ups fail, some don’t

In times of uncertainty, failure is normal — even in the so-called ‘hot’ sectors.

India has for long ridden on the technology and IT-enabled services space.

And although funding is not necessarily always easily available to start-ups in IT services, many newbie business owners begin the journey of entrepreneurship here.

The IT products segment is beginning to show some promise as well. Those willing to go down the route, a shot in the arm is very much needed.

An entrepreneur behind a software services company that has been chugging along steadily for 10 years and a venture capitalist with a keen interest and deep expertise in the technology sector share why it’s easy to fail even in the tech sector.

T8 Software Services was started about 10 years ago, which according to some studies is a critical time window for many businesses to prove themselves in tough markets. However, the number of years in operation regardless, nothing matters more than the team at the top. Although this is crucial in every phase of the company’s growth, some things have to be set in place right at the outset.

Roopa Venkatesh, Founder and CEO of the company, who comes with years of expertise in the banking domain points out, “Smaller companies need to plan for ‘what if’ situations. In times of crisis, sometimes only one person at the top may be carrying the baton. This happens because when a start-up sets shop often, there is just one or two people at the helm of affairs.”

Supratim Basu, former Director at and currently Advisor to Frontline Strategy, a venture capital and private equity firm, says, “IT service companies have to focus on differentiating themselves from the rest and market strategically to their target geographies. Often, such companies fail because of the discrepancy in their payments and receivables cycle – a time window of 30 days, for example, must be maintained for both. You can’t afford to run out of cash. But more importantly, there is a great need for thought leadership in the IT services sector. Many companies are still unable to comprehensively anlayse the needs at the client’s end and propose solutions.”

Something to think about: how does a client firm then pick out the right services company to tackle its needs in the great glut of small IT businesses out there?

In the technology sector, whether with products or services, there is no doing away with knowledge.

“Senior folks in a small IT services business must have comprehensive knowledge of the technology and the domain to be able to gain traction with clients. If there is no deep understanding of the space they are working in, an IT services company becomes very vulnerable over time,” says Roopa.

When we look at the IT products segment, it is easy to see how a mere getting on the bandwagon of core banking product suites, for example, gets us nowhere. The Oracles of the world have been there and done that; similar attempts by smaller companies are failing.

“The products space in IT has become very interesting with the emergence of SaaS and Cloud. It’s important now to demonstrate expertise in niche areas and be able to build products for specific needs of the financial services sector. What’s required is for product start-ups to look at specialisation, to narrow down on something they do well and to allocate sustainable funds to marketing (many companies grossly underestimate the costs for marketing),” Supratim emphasises.

Bottomline: Bootstrapping and stretching resources may be necessary sometimes. However, it can be unhelpful for businesses looking to differentiate themselves. Technology start-ups increasingly need experts on board and healthy allocations towards marketing efforts.