Why India’s Startup Ecosystem Needs Stronger Managerial Depth

Prof. Ruchi Agarwal, MDI Gurgaon in an interaction with Janifha Evangeline, Editor, Higher Education Review shared her views on the leadership gaps that are preventing startups from scaling successfully in India, why do many fast-growing startups struggle with operational discipline, how investors are evaluating leadership quality in Indian startups today and more.

Ruchi Agarwal is an Assistant Professor in the Strategy and Management area at MDI Gurgaon, India, where she also serves as the Faculty-in-Charge of the acceleration-cum-Incubation Centre. Previously, she worked as a Senior Researcher at the Indian School of Business (ISB), Hyderabad. She holds a PhD in Enterprise Risk Management from the University of Edinburgh Business School, UK. She is a Fellow of the Insurance Institute of India (FIII), and holds an Advanced Certification in Insurance (ACII) from the Chartered Insurance Institute, UK.

What leadership gaps are preventing startups from scaling successfully in India?

One of the most common leadership challenges arise when founders have early growth stage mindset. While startup leaders often succeed by wearing multiple hats and making rapid decisions, scaling requires them to become strategic architects to build and nurture system. Another challenge is related to delegation of authority and becoming agile to attract versatile talent despite resource constraints. Sometimes, leaders of successful start-ups call them as talent hunters as they define their biggest capability is to spot right talent at the right time for a specific job. Contrary to this, in large organizations, typically specialized teams try to optimize established processes and value chains. These leadership gaps prevent start-ups to scale in India.

What can India’s startup ecosystem learn from globally scaled companies?

One of the most important lessons from globally successful companies is that scaling is fundamentally an organizational transformation, not merely market expansion. High-performing firms invest early in leadership development, governance systems, scalable processes and cross-functional collaboration.

Indian start-ups possess several advantages over global competitors such as operating in highly diverse, price-sensitive and resource-constraint environment which promotes frugal innovation. Indian start-ups can learn from China’s scaling strategies to achieve cost leadership, while drawing inspiration from Europe to align technological capabilities with premium and luxury products.

Why are Indian startups shifting focus from valuation to sustainable execution?

The startup landscape is witnessing a healthy transition from a “growth-at-all-costs” mindset toward a stronger emphasis on profitability, operational resilience, and sustainable execution. Investors, employees and customers are increasingly rewarding businesses that demonstrate disciplined growth rather than merely pursuing higher valuations.

Initially, start-up founders imagined that if they have a well-developed idea, they would win the competitive battle, but over time they have come to appreciate the importance of ‘sustainable profitable growth’. The experience of several unicorns such as Byjus has shown that rapid customer acquisition, market expansion and high valuations alone are insufficient for long-term success. Many high growth ventures witnessed cash crunch, mounting losses when external funding became relatively scarce. As a result, start-ups increasingly acknowledge ‘sustainable profitable growth’ as a new mantra for sustainability. The goal is not merely to grow fast, but to grow in a manner that creates enduring value and ensures long-term survival.

This shift reflects a growing realization that scaling is not simply about expanding market presence but also about strengthening internal capabilities. Sustainable execution requires robust organizational structures, operational discipline and leadership readiness. Startups are recognizing that long-term value creation depends on balancing growth ambitions with organizational preparedness and financial sustainability.

Can stronger middle management become India’s next startup advantage?

Absolutely, strong middle management may well become one of the most important competitive advantages for Indian startups in the coming years. While founders provide vision and strategic direction, middle managers play a crucial role in translating that vision into consistent execution. Negotiation is the core competency of middle managers, who act as intermediaries between senior leaders and operational team. Overall, they are translating organizational goals into executable actions.

As startups scale, they require greater role clarity, coordination across functions and accountability mechanisms. Effective middle managers help institutionalize processes, improve communication, ensure operational consistency and support talent development. In many ways, the ability to build a capable managerial layer may determine whether a startup successfully transitions into a sustainable enterprise.

Why do many fast-growing startups struggle with operational discipline?

Rapid growth often creates pressure to prioritize speed over systems. In the pursuit of customer acquisition, market expansion and product development, startups sometimes postpone investments in governance structures, process standardization and operational controls.

While such flexibility may support early growth, the absence of operational discipline can create significant challenges as organizations scale. Weak processes often lead to coordination difficulties, employee burnout, inefficiencies and governance concerns. Sustainable growth requires startups to develop structured internal systems and managerial coherence alongside business expansion. The experience of Paytm highlights this challenge. During the expansion phase, Paytm focus was only to acquire more and more customers across multiple verticals. However, investors’ expectations shifted from ‘growth at any cost’ to ‘sustainable value creation’, the value of robust managerial systems and discipline became evident. For sustainable growth, start-ups require structured internal process, governance mechanism and managerial coherence along with business expansion.

Is weak managerial depth limiting India’s startup growth story?

India’s startup ecosystem has demonstrated remarkable entrepreneurial energy, innovation, and access to capital over the past decade. In the past few years, more than 2,30,000 start-ups have created over 2.5 million jobs, positioning India as world’s third-largest start-up ecosystem globally and a major hub of entrepreneurial growth.

However, as startups move beyond their early growth stages, they face multiple challenges in India. While start-ups can often secure initial financials through savings, family, friends, loans, angel funding or government support schemes, access to growth capital remains limited. As a result, an estimated 80-85% of Indian start-ups face funding constraints while balancing profitability along with sustainable growth. They also struggle to build strong teams with complementary skills and developing governance system. Consequently, building a successful start-up today requires far more promising idea or early-stage funding; it requires the ability to develop organizational capabilities, leadership structures and managerial coordination mechanisms that can sustain growth over time.

Many startups grow rapidly in their initial phases but struggle to institutionalize governance systems, decision-making processes and operational frameworks. In several cases, founders remain heavily involved in day-to-day decisions, which can constrain organizational maturity and limit scalability. Sustainable growth increasingly depends on a startup’s ability to build leadership capacity across levels rather than relying solely on founder-driven execution.

How are investors evaluating leadership quality in Indian startups today?

Investor expectations have evolved considerably. Beyond market opportunity and revenue growth, investors are increasingly evaluating leadership maturity, governance capability, execution readiness and organizational resilience. Most of the investors provide more weightage to start-up team capability of ‘execute, adapt and scale’ the idea than idea itself.

Leadership quality is often viewed as a strong indicator of a startup’s long-term sustainability. Investors seek evidence that founders can build teams, delegate effectively, foster accountability and adapt leadership approaches as the organization evolves. The focus is gradually shifting from founder charisma alone to the broader strength of the leadership ecosystem within the company.

Are Indian startups growing faster than their management capabilities?

In several instances, yes. Many startups have successfully accelerated growth through access to capital, technology and expanding markets. However, organizational capabilities do not always develop at the same pace.

Despite initiatives such as Startup India aimed at improving ease of doing business, regulatory compliance remains a bottleneck for start-up. Founders still navigate ways of GST filings, labor regulations, tax requirements, Intellectual Property procedures and corporate compliance under the Ministry of Corporate Affairs. For resource constraint start-ups, it becomes administrative burden.

When expansion outpaces managerial readiness, startups may experience coordination overload, fragmented organizational cultures, unclear reporting relationships and execution challenges. Growth without corresponding investments in leadership development, governance systems, and organizational structures can increase vulnerability and reduce long-term resilience. The challenge is not growth itself, but ensuring that management capabilities evolve alongside it.