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Startups form an integral part of India’s business outlook and have mushroomed in the last decade. Despite the government’s initiative, a majority of the startups face a lot of hardships due to various factors. In this article, we will look into a few of the issues which hamper the growth of startups
The Government of India has been promoting startups in a big way to boost entrepreneurship, economic growth and employment across the country. Leaving behind lucrative job opportunities in multinational companies, young entrepreneurs in large numbers have embarked on to provide solutions with new and innovative products across sectors. However, the picture is not so rosy as a host of challenges are hampering the progress of startups.
A few of the major challenges being faced are financial resources, revenue generation, infrastructure, customer expectations, mentorship, lack of branding, logistics issues and employing the right candidates, to name a few. Added to it pandemics like the one of COVID-19, has made many startups shut their shop.
The food and beverage (F&B) industry is an ever-evolving industry. Companies large and small are trying innovative things to provide unique tastes to the consumers. Consumers have become health conscious with COVID-19 playing a major role and are very particular about what is being picked up from the store or ordered online. In the F&B sector, a large number of budding startups have ventured into the already super congested market. Apart from this, fruits, meat, drinks etc being perishable items, needs special storage places to ensure that fresh products reach the consumers within the stipulated date before the product crosses the expiry date.
In rural areas, a majority of the population stays away from ordering foods online. This is a major hindrance to the business growth in rural areas for F&B startups. A lot of the rural population still has the habit of going to the market and physically checking fruits, vegetables, meat etc before buying. Also, in urban areas, many still stick to the old habits of going and buying from the market.
Pricing is another issue being faced by startups. A lot of money is invested by various startups when it comes to providing organic, fresh healthy items which are sometimes free from harmful preservatives. High prices deter many consumers from buying such products.
Getting used to the concept of plant-based meat
Recently there is a trend of plant-based meat where a few startups ventured into the business. A mention can be made of the Mumbai-based Blue Tribe. Founded in 2020, the road was quite tricky for Blue Tribe and it was not an easy cakewalk for the startup. An upheaval task to launch a product as on the one hand some people religiously eat non-vegetarian food are more or less ignorant or simply not interested in learning about the drastic adverse effects it has on the environment while on the other people trying to live a vegetarian lifestyle.
Sandeep Singh, Co-Founder, Blue Tribe says, “It is more difficult for a brand like ours to establish itself effectively. But, we were determined to take this much-needed step and were forced to take this up on our own. The initial days were complex, sometimes even discouraging, but now that we see our products thriving and receiving excellent responses.”
Similar concerns were echoed by Debabrata Das, Co-founder and CEO, ProMeat. This Delhi-based plant-based meat startup founded in 2020 faced issues related to cold storage. Das, while being critical about the cold-chain infrastructure being offered by the government says, “Our products being frozen need a proper cold chain since in India cold chains are quite expensive and fragmented. It is a major challenge to set a robust cold chain for our products.”
Alternative protein industry
Also, lack of awareness about the importance of alternative proteins in the Indian market is challenging and explaining to consumers the importance and technology behind it and getting acceptance from their end is a major hurdle. “Investors in many cases are reluctant to be the first ones to invest since they are unsure about market acceptability in India,” opines Das.
Startups also need to look into long-term goals and short term profitability which means products provided need to be exceptionally good besides providing returns or refunds or extra products in case the customer expectations are average. Fuelled Nutrition, a Bengaluru-based startup that is into producing protein-rich treats is eyeing a revenue of $100 million in annual revenue by June 1, 2025. Says Rashmi Roy, Co-Founder, Fuelled Nutrition, “One of the biggest challenges is to not raise funds and still keep the doors open.”
The nutraceuticals market is expected to grow at $28 billion by 2025 and keeping an eye on this particular segment, Hyderabad-based Fitday was founded in 2019. It faced a daunting task when it ventured into the market with nutraceuticals. Till a few years back, consumers were not so inclined towards nutraceuticals, which included products like protein bars, gummies etc. According to P Suresh Raju, Founder, Fitday, Hyderabad, the lack of awareness and acceptance of nutraceuticals among the population is a major challenge being faced by us.” He also points out about employing the right staff that can cater to the demands of the clients.
Venturing into a new business in an already overcrowded market needs thorough research in the beginning. A unique problem is competing with MNC companies, those that are already established and are well known among the populace. A new entrant in the market takes time to establish itself and gaining one trust can be quite challenging.
Dadra and Nagar Haveli–based MyFitness faced similar issues when it was set up in 2019. MyFitness, which is into the production of the first US FDA approved peanut butter in India had to compete with MNCs to make its space in the ever-competitive market. Says Mohammad Patel, Founder and CEO, MyFitness, “The major challenge for a startup is to compete with the MNCs that are sitting on huge piles of cash. Product innovation and quality are the main focus for us to overcome the competition.”
Choosing the right investor
Getting the right investors is another challenge for startups. Investors are very particular about where to invest and try to foresee the future of the startup and its performance. Bengaluru-based DrinkPrime formed in 2016 provides personalised water purifiers that require a lot of working capital like any other startup. It started a subscription-based service so that the majority of the population can access them. Says Vijender Reddy Muthyala, Founder and CEO, DrinkPrime, “Initially, we found it difficult to have the working capital in place.”
Being a subscription-based service, DrinkPrime had to invest from its pocket to ensure that its subscribers can access DrinkPrime easily. There were no banks or non-banking financial companies ready to support initially as there was a conception that bringing in profit will take a lot of time.
DrinkPrime had to turn to angel investors, friends, and family members to get the support. Muthyala adds, “Also, the growth rate of a hardware company is different from that of a software company. Being a hardware company, we need to build products for each of our subscribers. It is entirely different from running the same code for every requirement. Due to this, we had to find investors who are in it for the long term. So, the investors we could target were limited.”
Perseverance and the ability to focus on things that matter made the road easier for Mumbai’s plant-based nutrition brand OZiva. Founded in 2016, finding a scalable business model was a daunting task. Says Aarti Gill, Co-founder and CEO, OZiva, Mumbai, “Today, I am proud of the team that we have built at OZiva.” Another challenge pointed out by OZiva was finding a scalable business model and building a good team.
Similar issues were echoed by Samrat Reddy, Managing Director, Drunken Monkey. The Hyderabad-based startup faced a lot of initial hiccups, which eventually made the startup gain more knowledge about the market and build a strong base.
The sourcing of raw materials is one of the concerns being faced by F&B startups. Fresh fruit-based beverages startup Drunken Monkey founded in 2016, faced hardships in sourcing raw materials. Fruits are a highly perishable product and are seasonal, with the taste and prices varying throughout the year. Samrat Reddy, Managing Director, Drunken Monkey, opines, “One of the major challenges was to maintain consistency and quality of smoothies across all outlets in various cities. And once we were able to tackle that, it was also going to be the Drunken Monkey’s strongest point and also an entry barrier for competition.”
The way forward
COVID-19 has forced many organisations to shut shop and startups were no exception to this. The pandemic has placed startups and the ecosystem in a dicey situation. Running out of cash on one hand and watching venture capital dry out on the other has given a death blow to many. However, one good sign is that post COVID-19 many people have resorted to a healthy lifestyle and with it are slowly adopting healthy foods.
The market is full of F&B startups offering a wide range of products. The startups have to think out of the box and come up with something new. With so many different products available for purchase across a multitude of channels, product innovation and differentiation is getting increasingly important. Also, during the initial days of launch, getting the right investor, though a matter of luck, will help one to establish and make a strong base. Studying the market thoroughly and reading consumers’ minds will help new startups to a certain extent.
The government is promoting startups and providing loans. However, finding the right investors has always been a challenge. There is a need for the government to monitor the startups and fund them till they are established. Besides, relaxed norms for public procurements, tax exemptions, legal support and fast-tracking patent examination at lower costs, organising startup fests are some of the initiatives which can help the startups sustain themselves in the long run.
The pricing of products is a major challenge. Using organic and long shelf-life ingredients and perishable products need a lot of investment, which are eventually passed on to consumers, to ensure that the profit margin is intact. On the other hand already settled branded products have made a strong base in the market. This is where a lot of consumers will shy away from using an expensive product. Maintaining the right pricing strategy is what startups need to ponder over to reach out to a larger population.
Decisive policy action is the need of the hour. Along with implementing the right strategies, doing an in-depth analysis before launching any new product, finding the right investor and lastly recruiting the right workforce will help startups sustain in the long run.
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Sanjiv Das