Being an entrepreneur is no simple task, given the fact that 90% of startups collapse. But based on the learnings from past flame-outs, there are some leading indicators that can identify whether your startup is headed for failure.
1. Lost Focus on Primary Goal
For some startups, their focus can divert to unimportant factors than the primary goal at hand. A successful startup learns to prioritize its efforts, and stay religiously focused on that end goal. Keeping the team firmly focused on the end goal can also be beneficial for the work environment as it will keep the team all rowing in the same desired direction. If you see a startup flailing in the wind of change, going in multiple directions based on the “flavor of the month,” you know that business is in trouble.
2. Poor or Slow Execution
There are startups that begin with innovative concepts but cannot execute them properly. This is due to a number of reasons—lack of relevant resources, lack of motivation or poor working habits for starters. Firms that are properly tracking their progress with regard to a particular project will quickly see if they are falling behind and come up with ways to correct the problem before it becomes a material one. Those that are not executing well will suffer deficits in capital or timelines. There is also a problem with the speed in execution, with many startups not being able to push out products or services as fast as their competitors. Speed is critical, to staying ahead of your competitors as the first mover, and not being forced to play catch up.
3. Lack of Customer Engagement
A lack of customer engagement is something many early-stage startups face. There are a many possible scenarios in which customers might lose interest in a product or service. Maybe the startup didn’t properly research the market to ensure meaningful demand? Maybe sales and marketing efforts are not the best strategy for that business? If you don’t truly understand your customers pain points, they will never have a serious interest in your product or service. It is best to figure out why customers are not engaging, sooner than later, to try and resolve those product or marketing related issues to see if they are fixable, before deciding to cut your losses and close shop.
4. Poor Teamwork
Sometimes, perfectly capable and promising startups begin descending into failure because of differences among team members or lack of effective teamwork. This does not necessarily have anything to do with how well a person or a group of people can perform in the workplace. It just means, at times, some people cannot work well together. It is a startup CEO’s responsibility to know what is required to keep the team gelling and how to improve the team’s performance in thinking and acting like one well-oiled machine. If ineffective teamwork goes undetected or unresolved for an extended period of time, the startup will struggle to recover.
5. High Employee Turnover Rate
If the employee turnover rate is high and recurring, it could be an indicator of a failing startup. There could be a number of reasons why the turnover rate is high. For one, a startup’s culture plays a strong role. If employees are unsatisfied with the work environment, don’t like the people they are working with or don’t have confidence with their management, they will most likely be looking to leave. So if you have a revolving door with your staff, something is wrong and needs to be fixed, as you can’t scale a business on a wobbly foundation of talent.
6. Lack of Adaptability
Any startup that says it is immune to changes in the market is setting itself up for failure. External market forces ultimately dictate how your startup will fare against changing trends and competitors in the industry. If a startup doesn’t truly understand or disregards what is happening outside of its own office, it is doomed to fail. For a startup to truly reach success, it may have to pivot several times until it finds the right mix of product-market fit. If a startup does not pivot fast enough, that is usually a sign the end is near.
7. No New Product Development
For a startup to stay relevant, it needs to constantly be reinventing itself. Your product development efforts are never done, as you should always be striving to improve from version 1, to version 2 to version 3 over time. Because if you don’t, you can rest assured your competitors will clearly copy whatever you are doing successfully today, and will be improving their business at your expense.
8. Unaware of Finances
Every good startup should always be aware of its financial situation. But you would be surprised how many entrepreneurs have no clue about their finances, and hence cannot easily predict they are about ready to slam into a brick wall. There needs to be financial reports, dashboards and KPI’s that a startup studies closely each week to understand how much it is spending, earning and retaining vs. its goals. You can’t manage what you are not measuring, so make sure you get your key reporting metrics identified and tracked.
9. Creative Block or Stubbornness
Oftentimes, a startup’s team gets hung up on a particular perspective or approach to an issue. When things are not going well, it is important to push the team to change their perspective and try something new and creative to solve the problem. Startups that are heading towards failure are often unsure of where they should be heading as a company, and lack the creative thinking skills that are required to ideate potential solutions. Or, they are simply inflexible and not willing to entertain a different approach.
The team getting bored with what they are working on can surely be a startup killer. Early in the startup’s life, the team is motivated, as the venture is exciting to work on, and the team enjoys working towards the success of a startup. Hence, everyone works with dedication and puts in long hours. But the reality is, after the euphoria wears off, it is easy for the team to get bored with their work. It could be due to their attention diverting elsewhere, lack of motivation, or monotony in the day-to-day grind of the workplace, especially if the business is not succeeding as planned. A good entrepreneur will figure out ways to keep its employees engaged and motivated at all times.
So, do a critical assessment of your business to make sure you are not about ready to drive off the cliff. If any of the above resonates as happening with your business, it is time to put an immediate fix in place.
George Deeb is a Partner at Red Rocket Ventures and author of 101 Startup Lessons-An Entrepreneur’s Handbook. For future posts from George, please follow him here or on Twitter at @georgedeeb or @redrocketvc.