13 Signs Of A Failing Startup
That 90% of startups fail is an adage about the success rate that has been around for years (or maybe even decades) now. And, yes, it is still true. But if you don’t spot a disaster coming your way early enough your startup can last longer than it should, consuming a big deal of time, money, management skill and talent. And these are certainly could be useful when working on a more viable product.
You must admit that, as an entrepreneur, you tend to see “your baby” with a bias given how much effort you put into it. This makes it especially painful to recognize it’s time to call it quits on your startup. Being unable to differentiate courage against failure from a refusal to admit high probability of it you can get into a dangerous trap. As a result, you keep pushing on, burning resources and heading towards a disaster. If it doesn’t kill you today it still can kill you tomorrow.
Yet if you’re reading this article the seed of doubt has already been planted by some events. Don’t worry, this post has no purpose of nourishing it, or undermining your self-belief. It’s only aiming to warn you and let you check if your feelings are reasonable or not, and thus help you decide whether to stay persistent or put your business to bed.
- Loss of passion for business
- No love from customers
- Can’t attract and keep talented employees
- Competitors are outpacing you, and you’re failing to catch up
- Real expenses overshadow the return
- Declining acquisition rate
- Shrinking of your market has become apparent
- You core product idea hasn’t changed
- All your investment comes from close relatives and friends
- A switch to survival mode
- Your genuine audience is completely satisfied with another solution
- Growth is less than 5% a week
- You're facing the same problems again and again
There’s probably no one and only way to define how much passion you have left for what you’re into. Would you tackle something different, something new rather than doing the important business routine for your startup? Are you still excited to work on the incredible idea that made you start it? Do you still think it can be as successful as you believed it at the beginning? If you answer ‘no’ to any of these questions it’s a warning sign. This doesn’t necessarily means you’ve lost all the passion, no. Probably, you’re just experiencing a little serendipity, or you simply haven’t slept or eaten enough and healthily recently, or it’s just that you’re ready for a pivot. It’s up to you to decide what is more true for your situation.
If your answer to all of these questions is ‘yes’ then yours isn’t a case of lost excitement. However, founder’s passion is not the only thing a startup needs to grow, or even survive.
Apparently, no one will ever love your product as much as you love it. Still, you need customers, otherwise you’re not doing business, right? If you have tried all available options on marketing and your product proved capable of attracting people only with great marketing effort it’s another warning sign.
Not finding a life partner and being unable to attract and retain talented employees are completely different matters. The second is definitely a very dangerous sign because people with experience and strong skills can see their niche deeper than you. Alternatively, talk to your employees straight, and you may find out you need to reconsider your personnel policy quickly. If no change comes of it then probably it’s time to reconsider the whole business.
If you’re about to start building your MVP make sure you don’t fail too early.
As soon as you noticed your competitors are going faster than you, you changed up your strategy. You probably left your full-time job to concentrate on your startup, might have hired more employees to make things done more rapidly, and you just changed the way your business is getting done. And yet you’re still behind the competition. Quite a warning, isn’t it?
Successful business model for a startup is the one that is reproducible and scalable. When money is leaking out here and there, and you can’t find a way to cut those expenses or make them work for your benefit, this is a bad sign meaning the risk is too high to keep on pushing the rock up the hill. Once you notice that, the business starts to scare you, rather than excite. At this point, burn rate outpacing growth can take you to a place worse than where you started from. Of course, risk is an integral part of entrepreneurship, but not when it’s higher than possible outcome in case of success.
When new customers are getting harder and harder to attract over the last few quarters after the initial buzz you have another red flag. This always reflects on a monthly billing figure that won’t grow. If you find yourself incapable of changing the situation this is grounds to pull the plug.
When you notice that your business shifts into lower gear take a look at your competitors. If most of them, regardless of pricing strategy or competitiveness, experience growth stagnation, too, it’s probably market demand rates that are decreasing. Staying in a market like this isn’t an option if you want to sustain and scale your business. It’s time to consider moving into a different market or even pivot away from the product or service you currently offer.
Building your core product you create, more or less, a kind of an MVP, or minimum viable product. It’s no accident that it’s called minimum viable, as when you start your resources are limited and only allow you to build something you can test, learn and pivot from. If you haven’t pivoted then, most probably, haven’t properly tested the product’s features, or you failed to gain important knowledge from testing.
To better understand which factors might cause startup failure let's take a look at those who had a nice start but then ended up in a startup graveyard.
Your first idea is hardly ever the best one. "The key to innovation is to distrust the first answer and to send it back. The brain takes the path of least resistance because it's the most efficient," - David Eagleman, neuroscientist at Baylor College of Medicine explains .
And it’s rarely a case that a founder knows exactly which market the product will satisfy from the very day the idea is born. Normally, finding it takes some period of time. It’s all about rebuilding features of your core product, changing the team, diversifying into a different market, switching to different pricing, marketing and positioning strategies.
Let’s face it: if people who care about you do not fund your product. They rather blindly invest in your well-being, unless they have direct experience in the domain you’re targeting. If you are unable to capture or sustain the attention of investor after investor while making pitches then the long term viability or growth potential of your business might be questionable. So maybe it’s better to stop milking beloved ones if there is no sign of success coming any time soon?
When your growth starts stagnating, everyone on the team starts to worry about losing their job. “Closing sales” by any and all means takes precedence over the grand team vision of changing the world. “When a startup team is in survival mode, they need straight talk from leaders they respect and trust. Founders are often tempted so sugarcoat information”, - Martin Zwilling, investor and author says.
Your startup is built around very unique features aiming to solve a genuine problem, but target customers seem to be completely satisfied with another product or services. They are buzzing about it so much that you’re seek of hearing the brand name and yet fail to offer something that could win over the market. Alright, maybe one day the audience grows tired of your competitor, but pushing it further until the hardly predictable glory hour can be too exhausting and unworthy of your effort.
Growth, or growth potential is what new businesses are started for. Paul Graham, Y Combinator co-founder claims that during YC, good growth rate starts with 5-7% a week. “If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing”, - Paul says.
Startups are bombarded by numerous problems daily. They multiply quickly if they’re not treated effectively and promptly, and repeat themselves. If this is your case then most likely you’re failing at both operating and learning. You must ask yourself: am I capable of changing the situation?