[David Strom's Web Informant] What are the warning signs your startup is about to fail

David Strom david at strom.com
Mon Nov 30 15:39:31 EST 2015


Web Informant, November 30, 2015:
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.

Comments always welcome: http://blog.strom.com/wp/?p=5096
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