What are the warning signs your startup is about to fail

There have been plenty of articles written about how to form a startup company, but not as much as been written about when you need to ask for help for an ailing startup, when it might be near the end of its life.

The average startup doesn’t tend to live very long: many expire after a year or two, succumbing to a variety of diseases. Certainly, the biggest reason is running out of money. This is why most startups fail, because they are under-funded, or over-estimate their market size, or under-estimate the time it will take them to go to market, or they spend money in the wrong places. But there are a lot of other warning signs before you get to the end of the line and I will offer a few ways that you can cure these illnesses.

  • When a founder takes a “real” job to bring in money to support his/her family. I have mentored many startups where this sadly happens. It usually means the beginning of a death spiral, because the founder has to take his or her eye off the startup and devote less time to its growth and operations. Cure: Make sure you have enough savings and early revenues to sustain your business for an extra six to nine months beyond where you initially estimate.
  • When a venture has to cancel its outsourcing programming project because of one reason or another. Maybe the programmers didn’t deliver the goods, or maybe there was a lack of communication between the founder and the tech team. Or maybe the outsourcer got a better offer, or is just incompetent. Whatever the reason, having bad tech is often a fatal disease. Cure: vet your programming team carefully, and set up specific milestones that they need to meet.
  • When founders are paying themselves too much in salary. Most founders shouldn’t be working for a startup for the money: they should be pumping as much of their revenues back into the business. If they are too comfortable, the startup is likely to fail. Cure: don’t be tempted, keep your own salary lower than anyone else on staff.
  • Pivots can be good, but too many pivots are not. The trendy term refers to a radical change in direction, whether that is product design, market focus, or some other major decision. Certainly, one great aspect about startups is that they should change their focus when they learn more about the market they intend to serve. Cure: too many pivots can waste a lot of resources, time, and energy. Choose a pivot when you have exhausted all other options.
  • Likewise, having mentors and advisors are good, but not listening to them can often prove fatal. Many times I have been in a mentoring session where the founder isn’t paying attention, or getting advice that she or he doesn’t really want to hear. Cure: founders need to develop their listening skills, and understand when they are going down the wrong path.
  • Developing more than one business concurrently. Oftentimes I have seen startups that are really entering more than one business. And while it is great to have lots of ideas and be innovative, you really only have time to work on one business at a time. Cure: stick to your knitting!
  • Moving back home to save on office expenses. Just like boomerang twenty-somethings that have to return home, this move is often an indication of a larger problem. And while it is great that you can drop the office expense, having to meet around your kitchen table or a local coffee shop can make it difficult to get any actual work done. Cure: this is a last-ditch effort, and often there isn’t any cure.
  • The opposite is also a sign, when a founder has to leave town to live in Silicon Valley or some other major metro area. While the amount of venture capital available on the coasts is important, it can take the founder out of running the day-to-day business too. The balance is important.

One thought on “What are the warning signs your startup is about to fail

  1. While it is great to think like Steve Jobs and predict that users will want your innovation when they see it, occasional reality checks are needed. If you are going out on a limb like Steve, but customers do not flock to a new product, then a pivot is needed (and hopefully you have the time and resources).

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