Startups fail for many reasons, such as having a non-commited team of founders, or poor market demand. The question is, would you be able to recognize the signs that your startup is on rocks, before it’s too late?
Having experienced both sides of the founder/investor equation, I have noticed 6 typical warning signs that alone, or together, are material for deep concern. In this VUCA world (Volatile, Uncertain, Complex and Ambiguous), the more clarity you can get about any subject, the higher your chances of succeeding will be. Most businesses don’t fail suddenly, but rather as the result of a problem that’s existed from the beginning. These issues are usually not detectable or not dealt with until it is too late, so read to assess your startup’s potential status.
1. Clients, representatives and the target market are not talking about you
Why do most startups focus on the size of their client base, instead of what their clients are saying as a multiplier factor for attracting more quality-oriented clients? What are your current clients saying about your company? What are they saying about the product, the service or the startup team on the social media channels, and in the rating and review sections of e-commerce and online reputation websites?
If you have representatives or resellers, what are they saying about your products and about your company? Are they engaging with your social media presence? The more people that are talking about your company, the better – starting with your own team members. If only a few people are talking about or interacting with your startup online, that is a bad signal as many of your leads in today’s digitally transformed world will come from those interactions.
2. You can’t define what your customers really want
If your startup is not getting into your customer’ minds and learning what is more valuable (and not valuable) for them in your offer, then you are on the pathway to destruction. Clients are more important than investors, as without clients your business does not exist. It is their recurring purchases that will be the life line of your operation.
What are their problems, goals and worries? Can you list them? Once you create a persona (or profile) of who is your typical client, then you can brand your product more impressively to them. Many startups are too busy managing invested funds or creating the next “super product that the whole world will irresistibly buy” and are just disconnected with reality and their customers – current and prospects alike.
- You’re not listening to your team or advisors
Your risk analysis must be built upon different points of view besides yours: your co-founders, advisors, the clients, the market as a whole. The bias that each person brings from their prior jobs, companies and culture cannot be underestimated; for example, the best practices you worked by in your last big corporation may not work in your startup environment or may not make sense at all. It’s therefore important to try to filter out bias when it comes to subjects that are important to the life of your startup. Try to avoid those biased mental pitfalls, as they may drag you into spirals that are very difficult to get rid of later.
4. You’re not generating any revenue
This one is simple, although in the day-to-day workings of small teams it is one of the most difficult challenges, especially in the first year. You have to keep generating recurring and new revenue, or your business will get stagnated, become less attractive for investors, and what’s worse, you will get in debt very soon.
Revenue and client satisfaction should be your two main goals. If your startup is not capable of generating revenue streams, it will close soon or increase liabilities, something nobody wants.
5. You’re executing slower than competitors
Execution is the most overlooked and undervalued skill in any startup team, more than cashflow management. If you can execute, you are better off than your competitors who don’t. If you execute fast, you will surpass your competitors who execute at a slower pace. Like in boxing, speed and stamina are more important than strenght, or capital.
How many ideas and failed products never made it to the market or the mainstream? Were they simply weak concepts, or were they poorly executed? Be extremely careful with this one, and have a recurring scorecard where you can measure execution. The OKR method is very helpful for this.
6. You don’t take market forces in consideration
The market has special and often hard ways of teaching you and your team about many disciplines like pricing, marketing, sales, competition, management, and the list goes on.
Even when you have a ‘blue ocean strategy’ and you have serene waters to sail, try to anticipate the market and do periodic exercises on scenarios that may evolve in one quarter, one semester, one year, two and three years. It is alright if you cannot go up to three years in forecasting, but at least the periods in the near future must be dealt with great attention by the team. This is your survival at stake as a company, and extracting insights from direct and indirect information should be a constant exercise for improvement of your performance in the present and future.
If you can locate these warning signs, you can better adjust the course of your startup to superior performance and to mitigate those risks on the road to survival and growth. Have any of these signs seemed familiar to your business ‘sday-to-day? Then act now, or seek help, before it is too late.