What is one sign that can help a founder know if their startup is failing?
To help founders acknowledge the warning signs of a failing startup, we asked startup investors and experienced entrepreneurs this question for their best insights. From long-term negative operational cash flow to employee burnout, there are several signs that may indicate it’s time to revisit your core strategy and shift priorities to save your startup from failure.
Here are 12 signs to indicate your startup may be failing:
- Long-term Negative Operational Cash Flow
- No Customer Traction
- Infighting Amongst the Leadership
- Poor Money Management
- Built Relationships Show Signs of Failing
- Poor Results from Marketing Initiatives
- Negative Attribution and Turnover Rate
- Loss of Focus
- Delayed Launch
- Pay Attention to Project Tempo
- Employee Burnout
Long-term Negative Operational Cash Flow
Most startups that need to subsidize their operations for many years are unlikely to make it. Although subsidizing growth is common among the largest players in the markets where economies of scale and network effects matter, it shouldn’t be a constant matter. It also indicates a lack of efficiency and the potential threat of competition providing better value for money.
Michael Sena, SENACEA
No Customer Traction
I feel like this is an obvious answer, but one sure sign that a startup is failing is a lack of customer traction. Put another way, if no one is visiting the company website or buying the company’s wares, it’s time to take a step back and ask why. The reality is that a startup with strong product market fit will find customers even while they are still figuring things out, but a startup with poor market fit will struggle even if they have a perfect website and marketing strategy.
know it’s not fun to hear, but no customer traction means the startup is failing because they haven’t connected with an audience yet. A founder in this situation needs to go back to the research stage and spend some time figuring out how they can deliver a product/service that better aligns with people’s needs and wants.
Amy Zwagerman, The Launch Box
Notice if You Think Fundraising Will Save You
A sure sign that your startup is failing to thrive is if you find yourself thinking, “if I can just raise more money now my company will not die,” instead of, “if I fundraise now it’s the ideal moment to power my sales and scale up – the market is ready now!”
If you find yourself fundraising to keep staff on payroll, take a breath, and think about what’s truly happening. If you are not selling, and haven’t figured out how… quiet your thoughts of survival. Now may be the perfect moment to assess your business model and product market fit. Pivot while you can!
Cheryl Edison, Edison International
Infighting Amongst the Leadership
If your startup is arriving at a key decision that will shape the direction of the company, it’s important that everyone can come to a consensus. If those playing a part in creating that decision drag their feet and can’t come to an agreement after an extended period of time, it’s a sign that things may quickly go south for the startup. It’s important to mediate any disputes that come up as effectively as possible to ensure that you don’t miss a golden opportunity to take your startup to the next level, but if your efforts are failing then you might be shuttering the doors soon enough.
Matt Gehring, Dutch
Poor Money Management
One sign a startup is failing is if the company is not keeping track of its expenses. Often times when a startup is failing, the founder will start to spend more money on unnecessary things or expenses will be unaccounted for. If you’re not keeping track of where your money is going, that’s a dangerous sign that your startup might not make it very far.
Rick Elmore, Simply Noted
Built Relationships Show Signs of Failing
The most noteworthy sign for a founder to be alarmed that their business is failing is when the built relationships have signs of failing. On your journey as a startup, you will contact many different people from different areas (e.g. PR, media, finance, etc.). For the purpose of spreading your brand image and developing as a competitor in your industry of expertise, it is necessary to reach out to the public. And the media is what makes that possible. If the journalists and outlets you have already been in contact with are reluctant to publish your future work or achievements, or they do not feel secure in cooperating with you and your business, this is a sign that something is wrong. Make sure to pay attention to the relationships you build, and if you are unable to secure long-lasting ones, then by all means be alarmed.
Marco Genaro Palma, PRLab
Poor Results from Marketing Initiatives
Founders can take a look at the results of their marketing initiatives. If there has been little to no ROI on the startup’s marketing campaigns, this is not a good sign. This could be indicative of the fact that even well-thought-out marketing initiatives cannot always help the fact that perhaps a product or service is not engaging or useful enough.
Drew Sherman, Carvaygo
Negative Attribution and Turnover Rate
Revenue metrics are critically important, but they’re often a lagging indicator of what’s not working. Employees who are unsatisfied with their roles—due to toxic culture, lack of growth opportunity, inability to make an impact, poor compensation—are all signs that something is not right. A startup can’t succeed without an empowered, motivated team.
Lauren Lang, Constructor
Loss of Focus
Focus is very important for startups which typically offer a product/service based on a solution to a customer/market problem. Along the way, there may be many opportunities where the startup can morph its solution by either expanding the product/service or introducing new products & services. However, this expansion can lead to a loss of focus as the focus shifts away from the original problem that the startup was trying to solve. When founders are faced with growing their business, focusing on a small set of problems becomes very important and if they ever find themselves in a spot where they are trying to be all things to all people, it is time to reevaluate.
Narasimha Krishnakumar, Startup & Board Advisor
While working on your idea, it’s easy to find millions of excuses for delaying your launch. You can plan and research forever, but nothing is really finished until your startup is released. Excessive perfectionism may lead to wasted time creating a product that your customers don’t really need.
Often, many entrepreneurs worry that if their product is not perfect, then their audience won’t come back. Let’s be honest, there’s no brand until you build it, and there are billions of people out there.
In your startup’s early days, it won’t matter much if a few people don’t like your MVP. It is better to share your product with your customers; this allows your customers to provide feedback that will shape your final product.
Tatsiana Kerimova, ODG
Pay Attention to Project Tempo
The most important metric for start-ups is project tempo: that is the volume of deals in a specific period. You might be very early and may predominantly be doing Proof of Concepts (without any real revenue) or you could be a scale-up. Either way, you need to be winning projects and deals on a regular, predictable basis. If you’re a scale-up, then your funders will expect you to have a hypothesis where your sales are going to come from, which you then validate and, once you know how that works, then you scale it up.
John Stoddart, ChannelCreator
One of the biggest killers of startups simply comes when you or the rest of your executive team are no longer motivated to keep working on your concept. Even if you’re in a good financial position and know where to go in the market, if you’re running up against a wall when you try to make progress then it might mean your startup is on its way out. Without passion backing you up, the rest of the startup will ultimately suffer.
Adrien Dissous, Babo Botanicals