Startups need to focus on profitability to solve unemployment hurdle

India has the third-largest startup ecosystem in the world. Not only from the perspective of wealth creation, but startups have also emerged as one of the important sources of employment generation in recent years. Recent data released by the Ministry of Commerce and Industry showed that more than 34,000 startups employed 4.2 lakh people by September 2020. This was a significant rise from the 2016 level when 1.9 lakh people were directly employed in around 16,000 startups. These numbers are derived from those startups which are registered under the 'Startup India' initiative. So, headcounts are likely to be higher than the reporting numbers if unregistered startups are considered.

At a time when India has one of the youngest populations in this ageing world, gainful employment is a must to cash in from this demographic dividend. Otherwise, Indian society may face unrest from a huge unemployment problem. Therefore, healthy growth of the startup ecosystem is a must to solve the country's unemployment problem.

During this ongoing pandemic, startups have shown resilience in coping up with the disruption. Though many new-age companies have resorted to laying off people as part of cost-cutting measures, many of them have already seen business growth at the pre-Covid level. This is heartening given the scale of global disruption. According to a recent report by industry body Nasscom, India added 12 unicorns in 2020 despite a pandemic year.

The total number of unicorns in India now stands at 38. Unicorns are those startups with a market valuation of more than $1 billion (around Rs 7,000 crore). Last year witnessed companies like Glance (a subsidiary of InMobi), Zerodha, Razorpay, and Dailyhunt among others joining the unicorn club. The industry body predicts that India can have more than 50 unicorns in the coming years, given the strong interest from global investors. Another distinct feature of the Indian startup world is that most of these companies are using technology platforms. So, new ways of solving problems through technology put them in good stead for future growth.

However, things are not only hunky-dory in this space. Most of the Indian startups are running on losses and burning cash raised through multiple rounds of fundraising. This wild chase of top-line without much care for profitability can take a wrong turn once funding dries up. In this process, employees will be adversely impacted owing to this faulty business model. Therefore, the Indian startup ecosystem should take the learning from the traditional business world and show prudence in the form of focusing also on the bottom line. Once the ecosystem matures with such prudence, India can surely solve the most gigantic problem of unemployment through these young entrepreneurs.