Occasionally, I am asked if there is an indicator of startup success, something that can be spotted early in a company’s existence. My answer is simple: “Had I such a gauge of future corporate success I would be a very rich man.” That remark satisfies most inquirers. Few care to learn if there are visible portents of failure; too bad, because there are many of those.
Consider these distressed canaries the next time you venture into the startup mine-works; they spell potential trouble long before the office air goes bad and the bank balance goes red:
No Plan B
OK, so Founder X has an aggressive sales projection. According to him, his company will generate over $3 million in revenues during its first 12 months of operations. Great. So, what does he propose to do if sales fall short of those projections? Significantly short? If the answers to questions like these amount to nothing more than doubling-down on the present sales approach, there is no Plan B. Little or no thought has been given to possible negative outcomes and how to deal with them.
Passive/Weak Board of Directors
An active, qualified Board of Directors can be invaluable in times of trouble. Their contacts and/or direct interventions can help solve pressing issues. Founders who dismiss the importance of their Boards, or who populate their Boards with friends and/or famous-but-passive celebrities, may be placing their own interests above those of the other shareholders.
One Man Shows
One man shows do not scale well. With practice, one can spot Founders who cannot seem to delegate. Did they invent the company’s product, create its website, and personally design the logo? Do they monopolize all investor, team, or other meetings? Must they approve even the most insignificant decisions? Are they at every trade show, handing out their cards and promising to follow-up themselves? Are they copied on all emails, texts and correspondence? You get the drift.
Inadequate Marketing Budgets
I often work with startups that have unique products or services. Their offerings never previously existed or were not used in the manner now indicated. That’s exciting, but how do potential customers learn that these products exist, let alone how to use them? There is a significant cost to raising consumer awareness, something that many entrepreneurs underestimate. Digital marketing alone is not always the answer.
View from the Engineering Bunker
It’s remarkable how many startups design their products and services with limited market input. One would think that seeking feedback from potential customers would be one of many design prerequisites. Often, this step takes place much later in the product development process, when design changes are costlier, both in time and money.
Peter has spent the past twenty-plus years as an acting/consulting CFO for a number of small businesses in a wide range of industries. Peter’s prior experience is that of a serial entrepreneur, managing various start-up and turnaround projects. He is a co-founder of Keurig.