Why Some Smaller States Are Beating Bigger Ones in Startup Performance

For a long time, India’s startup ecosystem was viewed through a simple lens: the bigger the state, the stronger the startup performance.

Large populations meant larger markets. Big cities meant deeper talent pools. Established industries meant easier access to capital and customers. By this logic, smaller states were expected to trail behind—learning, adapting, and eventually catching up.

But the latest States’ Startup Ecosystem Ranking tells a very different story.

Across multiple editions of the rankings, several smaller states and Union Territories are consistently outperforming much larger states on key startup performance indicators. This is not an anomaly or a one-off result. It reflects a deeper shift in how startup ecosystems are being built, governed, and scaled in India.

The message from the data is clear: size no longer guarantees success.

The Rankings Are About Outcomes, Not Optics

One of the most important reasons smaller states are rising faster lies in how the ranking framework itself is designed.

The States’ Startup Ecosystem Ranking does not reward hype, valuation milestones, or headline-grabbing unicorn counts. Instead, it evaluates states on measurable outcomes—how effectively they support startups from idea to market, how accessible policies are to founders, how inclusive ecosystems are, and whether entrepreneurship is spreading beyond capital cities into districts.

When judged on these parameters, smaller states often have a structural advantage.

With fewer layers of administration and tighter institutional coordination, they are able to move faster. Policies announced are more likely to be implemented on the ground. Grants reach startups quicker. Incubators are operational rather than aspirational. Feedback loops between founders and policymakers are shorter and more responsive.

In contrast, larger states often struggle with execution complexity. Even well-designed policies can get diluted as they move from state headquarters to districts, leading to uneven outcomes that the ranking framework captures clearly.

Execution, Not Announcements, Separates Leaders from Laggards

The report repeatedly highlights a familiar but often ignored reality: policy intent does not equal policy impact.

Large states frequently announce ambitious startup policies with large budgetary commitments. But execution at scale is hard. Multiple departments, vast geographies, and uneven institutional capacity slow things down. In many cases, startup support remains concentrated in one or two major cities, leaving the rest of the state underserved.

Smaller states, on the other hand, are able to execute with sharper focus. Their startup policies tend to be more targeted, their implementation timelines tighter, and their monitoring mechanisms stronger. With fewer districts to cover, state governments are better positioned to ensure that startup benefits actually reach founders on the ground.

This difference in execution quality is one of the biggest reasons smaller states are outperforming bigger ones in the rankings.

Founder Experience Is Better Where Systems Are Simpler

Another factor quietly shaping performance is founder experience.

In many large states, navigating the startup ecosystem can be daunting. Founders often deal with multiple agencies, delayed approvals, and fragmented support structures. Access to decision-makers is limited, and resolving bottlenecks can take months.

Smaller states offer a contrasting experience.

Founders there often have direct access to startup nodal officers, incubator heads, and even senior officials. Communication is easier, processes are clearer, and issues are resolved faster. This accessibility translates into higher founder satisfaction, better utilisation of schemes, and stronger ecosystem trust—elements that are reflected in ranking outcomes.

In effect, smaller states behave more like startups themselves: agile, responsive, and founder-focused.

Focused Ecosystems Beat Broad but Shallow Ones

The report also reveals that states with a clear sectoral focus tend to perform better than those trying to build everything everywhere.

Smaller states rarely attempt to replicate the entire startup spectrum. Instead, they pick sectors aligned with their local strengths—agriculture, tourism, healthcare, sustainability, logistics, or social innovation—and build deep ecosystems around them. Incubation, funding support, mentorship, and market access are all aligned to these focus areas.

Larger states, by contrast, often spread resources across too many sectors, resulting in diluted impact. While they may host more startups in absolute numbers, the per-startup depth of support is often lower.

The rankings consistently reward depth over breadth, a reality that works in favour of smaller, more focused ecosystems.

Better Per-Startup Support Leads to Better Outcomes

One underappreciated advantage smaller states enjoy is the ability to offer higher per-startup support.

With fewer startups competing for resources, states can invest more time, money, and mentorship in each venture. Incubators are not overcrowded. Grant programmes are not oversubscribed. Mentorship is more personalised.

This leads to stronger startup survival rates, better market readiness, and more tangible outcomes—factors that directly influence ranking performance.

In larger states, the sheer volume of startups can overwhelm support systems, reducing effectiveness even when budgets are larger.

Jobs and Inclusion Matter More Than Valuations

Perhaps the most telling insight from the report is the emphasis on employment generation and inclusivity.

India’s startups have created over 21.9 lakh direct jobs, and a growing share of these jobs is coming from Tier-2, Tier-3 cities and smaller states. Labour-intensive sectors such as healthcare, education, logistics, food processing, and waste management—where smaller states often have strong presence—are emerging as major employment engines.

The rankings place significant weight on such outcomes. States that prioritise job-rich sectors and inclusive entrepreneurship, including women-led startups and district-level participation, often score higher than those focused narrowly on valuation-driven growth.

In this framework, a state with fewer unicorns but more jobs can outperform a state with headline-grabbing startups but limited employment impact.

Lower Costs Are a Hidden Advantage

Cost efficiency also plays a role.

Startups in smaller states benefit from lower operating costs—cheaper real estate, lower talent costs, and reduced burn rates. This allows founders to extend runway, hire more people, and focus on sustainable growth rather than constant fundraising.

As funding cycles tighten and capital efficiency becomes more important, these advantages are increasingly reflected in performance metrics such as startup continuity and growth outcomes.

What This Means for Bigger States

The rankings do not suggest that large states are failing. They remain critical anchors of India’s startup economy. But the data does indicate that scale without execution is no longer enough.

For larger states to maintain leadership, they will need to decentralise startup support, empower districts, improve policy delivery, and move beyond metro-centric ecosystems. Without these changes, smaller, sharper states will continue to punch above their weight.

The Bigger Lesson: Governance Is the New Competitive Edge

Ultimately, the rise of smaller states in startup rankings is not about geography or population. It is about governance quality.

Startup ecosystems thrive where policies are executed well, founders are supported consistently, and outcomes are measured honestly. Smaller states are proving that with the right systems in place, size becomes secondary.

India’s startup race is no longer about who is biggest.
It is about who is best run.

And in that race, smaller states are increasingly leading from the front.