5 Key Challenges Faced By Startups From Tier 2, 3 and Beyond We are seeing a rise of startups from towns such as Trivandrum, Jaipur, Kanpur, Ahmedabad, Bhubaneswar, Vishakapatnam, Chandigarh and others, but the growth comes at the cost of multiple hurdles
By S Shanthi
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Tier 2, 3 and beyond are the most significant market today for consumer activities in the digital space. Every startup is trying to capture the small-town pie through offerings such as vernacular content and competitive pricing.
In this race, startup founders starting out from small towns have a competitive edge over others. These startups understand the ground reality well and have first-hand knowledge of issues in these towns. That is why, we are seeing a rise of startups from towns such as Trivandrum, Jaipur, Kanpur, Ahmedabad, Bhubaneswar, Vishakapatnam, Chandigarh, Kolkata and others.
Having said that, even today, hurdles galore. Here are the 5 key challenges faced by these startups.
Finding talent
Experts say that the challenges these startups face is mainly access to the right talent. Even though things have changed to a great extent, access is less as compared to metros. The reason talent has been available widely in Tier 1 cities is the migration of students to these cities for a better quality of education. Further, for many years, cities like Bengaluru, Mumbai, Pune, Chennai and Hyderabad have been the tech capitals of India where large Indian service companies such as Infosys, Wipro, TCS and Cognizant have set up shop. "Also, you have global tech firms namely Amazon, Google, Facebook and Microsoft that have set up large teams in these cities. This bedrock of talent is what comes out and starts companies. Hence, there is a concentration of unicorns in a few places," said Rajiv Raghunandan, founding partner, Arali Ventures.
Lack of ecosystem
Also, metros have a vast network of startup founders, investors and mentors, who often have many meetings and get-togethers during weekends. Budding startup founders in these cities use these events as an opportunity to learn and build their businesses, something that small towns and cities still lack. For some entrepreneurs, this also means often traveling to cities to have meetings with investors, government agencies and other stakeholders.
Weak communication skills
Lack of communication skills has been observed to be one of the challenges being faced by the founders from Tier 2 and beyond. "This can be overcome with a lot more interaction and mock sessions on the art of pitching. To an extent, the Indian edition of Shark Tank, is reducing the gap and making the founders believe in their product and themselves, which is the key factor," said Brijesh Damodaran, co-founder and chief investment officer, Auxano Capital.
Lack of access to funds
Most investors are today based out of urban cities. It thus makes it easy for startups based out of these places to raise funding. "The total funding raised by Tier 2 cities startups in the last six years accounted for approximately 2 per cent of the total funding raised by Indian startups. It is clear that for a company to grow while underlying operational metrics are key, it is essential to have ready access to growth capital," said Ankur Bansal, co-founder and director, BlackSoil.
High logistics costs
Further, they also face operating challenges such as high logistics costs, lack of warehousing facilities, power shortages, and the like. "These challenges at the initial stages, sometimes become a roadblock to attracting institutional investors in later rounds, where growth capital is essential for the business to thrive," said Aparna Pittie, Principal, Artha India Ventures.
