Why Startups Going Out Of Business Is Not Necessarily A Bad Thing

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The title of this article may incite anger, and understandably so, especially if you are running or working at a company that is struggling during these testing times. But bear with me, and you would see how the Covid-19 induced economic hardship is not as bad as it seems for the overall startup ecosystem.

In this piece, I argue that economies evolve through cycles of growth and shrinkage and that the overall health of an ecosystem, much like the Amazon forest, depends on the constant reinvention of various species. For the jungle to thrive and sustain, an act of “creative destruction” is not only inevitable but also, sometimes, urgent. And we are amid those times.

A recent report by NASSCOM puts the COVID-19 induced mortality rate for startups at as high as 40% and states that about 70% of tech start-ups have a runway of less than 3 months. The results are based on a survey of 250 startups, of which 60% are bootstrapped and over 70% are in early and mid-stage tech tenure. Once you pay attention to the profile and the sheer size of startups you quickly understand that the picture is not as bad as it seems. When was the startup mortality rate low?

Even in ordinary times, founders live on the edge, with their venture’s chances of survival at about 5% to 10%. The lockdown ensued slowdown has only made the problem more glaring, but by no means that it has led to the problem. Entrepreneurs can blame the socioeconomic landscape for their failures, or blame the inadequate financial interventions by the state, but they all knew what they were signing for, and if they didn’t I must “welcome” them to the arena.

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