A good definition for a startup is an organization seeking a business model that is both repetitive and scalable. So, it is understandable that even a failing startup must have had to provide products or services under conditions of extreme uncertainties about the market, customers, resources, channels, pricing, and strategy.
With companies like Yahoo, Myspace, and Dell, who seemed to have been doing everything right failing, it’s imperative for startups to validate their business models. They must keep iterating and adapting to industry trends, if they must stay afloat.
Though, it is unfair to judge a startup based on symptoms, but the 5 signs below are strong indications of an impending failure:
1. Inexperienced Founder(s)
It is more common to find brilliant tech founders who think managing a team and running a company is a piece of cake, compared to what they actually build. A dazzling personality is of no use if it can’t build more than a PowerPoint deck. Also, a co-founder who is lacking in complementary skills will kill a brilliant vision, sooner or later.
Issues like poor decisions, poor emotional quotient, and unrealistic expectations are bad for business. Therefore, a founder(s) who is/are poor at motivating, managing, or cultivating talent would keep attracting people who won’t stick around for long. What more, startups run by these kinds of founders are bound to fail.
2. Poor team dynamics
When a tech entrepreneur decides to employ people who only know a thing or two about computers, there is definitely danger looming.
Conflicts may also arise when running a business. It’s quite common for co-founders and team members to disagree over strategies to save the company. However, allowing personal disputes to get in the way of more important things, gets in the way of what’s best for customers. If you can no longer agree on the company’s vision or make day-to-day decisions together, it’s advisable to resolve these issues before the business falls apart entirely.
3. Loss of passion
Experiencing boredom or a loss of passion in the early stages may be a strong indication that your startup is headed for failure. The right questions should be: Are you in it to get wealthy? Is the fun part shadowing your business goals? Is your product or service solving any human problem? Are you still high on the Big Idea?
Most founders of successful companies were passionate enough to quit their day jobs to give the startup their full attention. As a budding entrepreneur, especially in tech, it’s really not about what’s cool in Silicon Valley, it’s about being focused on what your users want, and staying true to your own vision. If you lose your passion for the business or no longer believe in the product, your declining interest will show in how you run the company and can eventually lead to its demise.
4. The numbers don’t add up
A lot of people want to make a product, but give little attention to the business. What’s the difference? Business means you make enough money to pay the bills. Making your own products can be exciting but until it’s a solid business to yield substantial money, it’s not sustainable. Building a beautiful product without thinking about money? Really fun. But startups like that are simply playing dress-up.
This is very forgivable at the initial stage – there is too much uncertainty at this stage anyway. But startups need to take a long hard look at their cash flow to see how long they can realistically ‘hang on’. There may be many business ideas out there where it’s not about how much you make, but how the money side looks will determine how long you’d exist.
5. No market need
Successful companies are those that offer users a sound reason to patronise their product or service, and add value to customers’ lives. Studies have proven this —the major reason for startup failure is a lack of product need.
Initially, some companies may struggle with the execution of their product, and may need to make a few modifications before finding the right market fit. Sometimes, the product may even need a complete re-design. Whatever the case, having a product that doesn’t solve a large enough market problem could be a wasted effort.
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