The Ecosystem Factors Influencing Start-ups in Smaller Cities of India: A Multiple Case Study

Abstract

Economic progress is driven by the ideas, innovations and actions of entrepreneurs. Despite having enough natural resources and cheap skilled workers, the entrepreneurial growth in India is far from satisfactory, especially in the smaller cities, towns and interior regions of the country. How does the context affect the growth of startups in our country? Does the ecosystems in the smaller cities lack some important support systems which deter the growth of the new entrepreneurial ventures. What are the viewpoints of the entrepreneurs in this regard? These are some of the questions which the current study aims to explore. The purpose is to identify the major elements of ecosystems in smaller cities and understand how they pose challenges as well as offer opportunities for the startups operating in those places. The study explores how the startups respond to these challenges and also highlights some unique strategies adopted by them to survive and overcome them. The study uses a multiple case study method to explore the ecosystem related issues faced by in startups in India. The cases selected for the study where from the Hubli city (tier-II city) of North Karnataka in India. The research identifies difficulty in access to critical information, smaller market size in tier-II cities, dearth of adequately skilled employees, finance related problems, lack of managerial skills as major challenges faced by startups in smaller cities of India. Lack of adequate raw materials, unavailability of latest equipment and other inputs, skeptical attitude towards the entrepreneurs, lack of professionalism, lack of trust and credibility are other factors which may hamper growth prospects of aspiring startups in smaller cities. The research also highlights opportunities such as unexplored market, lack of competition, cheaper labor, lower operational cost, government initiatives to promote these cities as smart cities of future. Ease of getting connected with customers, vendors, supplier and other business associates at personal level and greater value for emotional bonding some of the major benefits for start-ups in Hubli and such smaller cities. Entrepreneurs’ understanding of local ecosystem and their existing networks in it leads to business idea creation and multiple support systems for startup growth. Research highlights that business incubators, academic institutions and other professional institutions are emerging as crucial constituents of startup ecosystems in supporting their evolution in early stages of firm growth. Entrepreneurs leverage their social capital and resources accessed through networks in these ecosystems play a significant role in survival and growth of resource starved startups. The study points out that the entrepreneurship scenario is undergoing major transformational changes in smaller cities accompanied by decisive positive shift in people’s perception towards start-ups. The study has multiple practical implications for startup entrepreneurs, stakeholders of startups, incubation centres, researchers in the domain, policymakers, etc. The study provides useful insights to the startups regarding their unique responses to ecosystem challenges. This study contributes to the literature in the domains of startup ecosystem, constituents of ecosystem, challenges faced by startups in smaller towns and cities, and exploring the mechanisms used by them to overcome such challenges.