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Outsourcing innovation: Why Indian corporates need to show faith in start-up incubators

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The problem with Indian startups has been that they rely on copycat and/or weak business and revenue models which often lack innovation and fail to solve real-world problems.

Outsourcing innovation: Why Indian corporates need to show faith in start-up incubators
The startup ecosystem in India has been on the rise. What started in Bengaluru, the heart of India’s ‘Silicon Valley’, mostly circling around technology, is now spreading to other parts of the country and to other sectors as well. However, even with the great story that lies ahead, there are only a few superstars that have emerged. Keeping analogy aside, apart from the few shining startups or Unicorns, a lot of other budding startups have failed.
A study conducted by IBM concluded that 90 percent of Indian startups fail within 5 years of inception. The report, titled ‘Entrepreneurial India’ also mentioned that Indian startups lacked uniqueness with 77 percent of the venture capitalists saying they don’t have unique business models. This failure rate and lack of uniqueness often found large companies disinterested in them, nearly neglecting the whole startup ecosystem or as many calls it the ‘innovation cradle’.
Startups are a critical component of the business ecosystem of any economy. These might be smaller companies but they have the potential of playing the hero’s role in shaping the economic as well business environment. They create jobs, shape in newer verticals, challenge business laggards and most importantly spur innovation and inject competition. Corporates and large business houses benefit a lot from the startups as they always keep them on their toes and also help them strategically innovate which is very much needed to boost the economy.
Indian corporates and startups: A sweet-sour relationship
Globally, innovative startups and corporates have had some of the amazing relationships. While a lot of startups have kept even the largest of the corporates on their toes to innovate themselves, in many cases startups have provided some amazing synergies to corporates by partnering or getting acquired by them. While the global scene seems to bask in the sun, the Indian startup ecosystem seems to be in the dark.
Indian startups are frequently termed as non-innovative and non-disruptive and more often than not startups have been snubbed by corporates. Blame it on the environment, the support system, the entrepreneurial spirit or the risk appetite, Indian startups have not been able to please many industry stalwarts including Ratan Tata, who has provided support to at least a dozen of startups and early-stage companies as an angel investor.
The problem with Indian startups has been that they rely on copycat and/or weak business and revenue models which often lack innovation and fail to solve real-world problems. This makes corporates least interested in them as none would want to waste time on fixing broken pieces of something that lacks longevity.
If not corporates, then who has to fix these pieces? A question that has been unanswered for a while. Again, if we look at the global picture, a lot of these patches have been filled up by these incubators and accelerators, which not just help startups correct their model but also assist a lot of corporates in ‘outsourcing’ innovation.
Incubators: The support system to the startups ecosystem
Incubators, across the globe, have provided the much-needed support to the startup ecosystem. Incubators and Accelerators have provided startups with a range of initiatives and services which not only stimulates but also provides the much-needed support to the startups and their founders. This also has led to the creation and development of innovative companies. The results of this incubator-startup relationship, in developed markets, have been amazing and many of the poster boy startups of today have come from well-known incubator stables. For example, Airbnb, Dropbox, Zenefits, Instacart and Reddit, which today are billion-dollar companies, once were incubated by Y Combinator. This is just one on the list which is nearly endless. The assistance that incubators and accelerators provide startups is pivotal as they help them stay on track with their vision. This includes:
  • Professional mentorship: Usually an incubator has a battery of experts, influencers and mentors that bring in tonnes of experience from their respective fields. These experts work closely with the startups and ensure that they are on the right track to growth.
  • Industry connects: A lot of incubators have great industry connects where they allow incubating companies to showcase their products to a lot of top executives to get first-hand feedback.
  • Tools to scale: Due to their connect with vendors and service partners, incubators provide access to a lot of tools that can help startups in their scaling process. Be it cloud credits or human resource assistance incubators usually have all of them at disposal to bring it to the startup.
  • Access to capital: Just like experts, incubators too are connected to investor community. This investor could be angel investors, micro venture capitalists, venture capitalists, and family offices.
  • Can Incubators bridge the gap between corporates and startups in India?
    Incubators and Accelerators can provide everything to Indian startups that currently form the reason for their failures. Be it business model or be it go-to market strategy, Incubators and Accelerators can patch things that are currently deflating the wheel of startups ecosystem.
    Again if we look globally, a lot of fortune 500 companies and leading corporates have looked at incubators to fill in the shoes for innovation that was away from their actual core. Some of the prominent ones being Techstarts helped Nike in 2012 to enhance its digital platform Nike+ which now happily resides in a lot of Apple devices including the iPhone and Apple Watch among many other devices. Among others, Nestle USA too partnered with Terra Food and Agriculture Accelerator, which is founded by joint efforts of RocketSpace and Rabobank, where it plans to bring together innovators from both large corporations and emerging growth companies. By way of this partnership Nestle got access to startups which were creating on-trend foods focused on plant-based nutrition, simple labels, and fresh ingredients. This also helped Nestle in innovating something that was in on-trend without moving much of its resources.
    But when we look at the Indian scenario, not many corporates have shown this kind of confidence in incubators and accelerators. A lot of companies have created their own accelerator programmes which, in view of many, may not yield the same result as the professional incubators would do.
    One has to also note that the Indian start-up ecosystem is outpacing the incubators in the country. While we just stand behind the US and China in the number of incubators, the gap between India and the top two is wide -- according to some estimates, it's just 10 percent of the top two. While Atal Innovation Mission (AIM), government policies and some institutions are trying to change the game, it's still a long way to go. Hence it's necessary for corporates to show faith in professional incubators and accelerators that can help outsource innovation in India.
    With all that has happened globally and with the state at which Indian startup ecosystem is shaping, corporates do have an opportunity to outsource innovation. It is just that they have to pick up the right incubator and accelerator partners which in turn would work with startups leading to the growth of the ecosystem and minimisation of failure rate in startups.
    Nilesh Maurya is Director-Investment Banking at Omega Capital Consultants.

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