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Time will test the success of Start-up Action Plan

Exit clause will be a booster for the start-up ecosystem, say experts

The spotlight remains on the increasing number of entrepreneurs that give wings to their ideas every day, but a large number of them also go bust quickly. Will the government’s Start-Up Action plan, help them stay afloat longer or exit faster?

A first look at the Action Plan shows that while there will be ease of doing business, there also will be new revenue streams because of government tenders. But, the success rate will be only known once the Action Plan is implemented, experts believe.

Key reasons for failure

Explaining some of the reasons that lead to failure for start-ups, Sreedhar Prasad, Partner – E-Commerce & Start-ups , KPMG in India, said, “Often start-ups do not have accurate insights on the right addressable market that they should be targeting or have a go-to market strategy in place. They also sometimes end up focusing too much on the idea and not the end product & ecosystem required, focusing less on how consumers and investors will view their idea as a product. Start-ups need to know on how their business model will generate money, as not every start-up can afford to bleed for long.”

While there is not much statistics available on the number of start-ups that fail every year, experts believe the failure rate is high. Experts believe a regulatory process that encourages entrepreneurship could play a role in developing a conducive ecosystem.

Prasad said that initiatives on enabling faster processing such as self-certifications, mobile app and fast tracking patent application would help start-ups focus more on their business and less on administrative requirements.

He added, “Further, the policy encourages entrepreneurs to apply for public procurement opening up a new possible revenue stream for many start-ups.”

Experts say winding down operations is painful and involves complicated processes like taking No Objection certificates from several agencies.

Exit clause

Rajat Tandon, Vice-President, Nasscom 10,000 Startups, said, “If entrepreneurs fail, the exit clause (included in the Insolvency & Bankruptcy Bill) will help them exit and restart all over again. I believe it is fantastic step, as it has been more painful for companies to exit than to start operations as it involves complicated regulatory processes. So, this will be an added booster for the start-up ecosystem.”

He added that the various incubation centres that will be set up at schools, colleges and eminent institutions will help strengthen grassroot levels of the ecosystem.

“It will also spur competition among various incubation centres which will ensure more quality checks will be in place right at the beginning, for start-ups,” he added.

Added Harish HV, Partner-India Leadership Team, Grant Thornton India, ease of doing business and the fact that government’s procurement plans in the future will include buying products and services from entrepreneurs opens up market access.

This article was published in the Hindu Business Line, to read please click here.