1. One or more of the founders is a control freak. Didn’t start a company to build a great product and great team, did it primarily to be in charge. May not even be self-aware enough to realize that this is what is motivating them. They struggle to delegate and build relationships with people that want to stick around for the long haul. They may have many other talents, but as a founder these guys are typically the ones that VC’s would seek to replace or reposition. Hard to detect without spending some time working with them, but solo founder is a red flag. Can be “put in their right place” if an active board or savvy investor is involved, and if the founder is lucid and introspective enough to sublimate his ego and grasp how his weak spots can jeopardize the company.
2. Founder(s)/key team members are “fireworks factories”. These types can’t focus on one thing; you may get endless creative output from them but they tend to steer the ship in the direction of distractions that dilute the vision and eat up precious time and energy. If you can manage their creative output and get them to focus when necessary, they can be great, but more likely they will push the chaos factor in a startup into the red zone. Symptoms include chronic re-evaluation of key initiatives, frequently de-railed meetings (“This marketing tactics meeting turned into a product meeting then a fundraising meeting AGAIN”), and general rancor amidst the core team. I’ve found it remarkable how really brilliant people can succumb to this behavior.
3. Overly aggressive bet hedging. Also hard to detect without spending some time working with them, but they tend to overemphasize the health of the balance sheet and/or protect their own personal exit opportunities and upside over and above the general good of the team. Try to get “disposable” consultants to contribute critical sales, IP, etc. and build the whole company for them without distributing equity and putting the appropriate long term relationships in place.
4. Inexperienced founder is CEO by default. This is more common with tech founders IMO, who may be brilliant at what they do so they think managing a team and running a company is a piece of cake compared to what they build. A company is an organization; a team of people with many different traits and skills, and if the founder is poor at motivating/managing/cultivating talent, people won’t stick around for long. Bad behaviors include micromanaging, decision making that reflects poor “emotional quotient”, and insane expectations (“You’re going to have to increase your output by 10,000% because revenues weren’t as strong as I had hoped this quarter”, etc.)
5. The non-technical mystic genius founder. Founder may have 99.9th percentile IQ and a dazzling personality, but if they can’t build more than a powerpoint deck and/or are lacking a loyal technical co-founder who complements his skills, the brilliant vision is going to be corrupted by narcissism and delusions of grandeur.
6. A high Dunning-Kruger quotient.The heart of the Dunning–Kruger effectis that clueless people can’t tell that they’re clueless. Teams that know that they don’t know much: generally awesome. Teams that think they know it all? Very dangerous.
7a. Monday blues – If you don’t want to be in your company, nobody else does: This is very personal – the fuel that startups run on is passion and the founder has to contribute more than most. If you as the founder find yourself dreading Monday morning and the return to the grind then it’s a message from your subconscious – you’re probably not enjoying it as much as you should. A drop in your personal motivation will communicate itself to the rest of the outfit soon enough and this is a downward spiral that can be hard to bail out from.
7b. Lack of passion. If you try to build a business without really being passionate about it, you are much less likely to be successful, like the 9 percent of companies that claimed lack of passion as the main reason for their failure.
8. Being in it for the wrong reasons.Is the company being built to flip? Are the people in it to get rich? Is the fun part showboating for the press and the digerati? Are they doing it just to build something they think people shouldwant? Are they high on a Big Idea? God help them.
9. Caring too much about what other people think. Some people are really worried about what the competition thinks. Or what their friends will think. Or what’s cool in Silicon Valley. Or even what their investors think. When instead they should be caring about what their usersthink, and whether they’re staying true to their own vision.
10. No love for the team.Hostility between roles? Hostility between founders? Management that doesn’t really care for the employees? Employees that don’t care about one another? That company is probably doomed. Post-Mortem suggests about 13 percent of failed companies cited fighting management as a reason of failure.
11. Loss of focus. Strong starts and passionate leaders aren’t always sustainble for the long term. When you lose your focus halfway through a development cycle, your team can crumble; 13 percent of companies cited a lack of focus.
12. Not thinking about revenue.A lot of people want to make a product, not a business. What’s the difference? The latter makes enough money to pay the bills. I get it: products are exciting; commerce is banal and a little grubby. But until it’s a solid business, it’s not sustainable. Building shit without thinking about money? Really fun. But startups like that are just playing dress-up at $1m a year.
13. Burnout. I’ve written about the dangers of entrepreneurial burnout before. The data indicates that 8 percent of startups get closer to failure when their entrepreneurs burn out.
Culture / Team Issues
14. Inappropriate team. Your team is the driving force to make your vision a reality. If these employees don’t have the experience, the passion or the problem-solving skills to execute and improve on your idea, you’re dead in the water, like the 23 percent of startups that referenced team issues as an ingredient in their failure.
15. Yaysayers and Happy Go Lucky Renegades : too much hope / cool-aid. Even when things are not working. Hope is not always a good thing. Hope can make you hold onto ideas and beliefs that are not realistic.
16. Can’t hire, can’t keep – your gusto, culture, vibe is creepy and nobody wants to work for you any more: If you are unable to convince potential new hires of the viability of your vision and at the same time are also losing those who bought into that vision early in the piece then something has gone seriously wrong either with the vision or with your execution. Soon enough all manners of unsavoury things are likely to follow – like Joe Krauss of Google Ventures said, “The cost of hiring someone bad is so much greater than missing out on someone good.”
17. No love for the domain.I would never work at a sports startup, because I don’t care much about sports, and never will. If I’m going to do my best work, I really need to love what I’m going to spend all day thinking about.
Lack Market Understanding and Customer-Centric Product Development
18. Don’t know your customers : Mystery shopper
Arthur Schopenhauer said, “Genius hits a target no one else can see,” but he probably did not intend for the easily influenced startup to lose sight of their target customer. It’s hard to see this as a problem sometimes – the revenue is coming in isn’t it? The issue is if you don’t know why customers are buying what you have to offer or worse if you don’t even know exactly who your customers are, it’s a fair assumption you won’t know what to do when they stop buying.
19. No love for the audience.If you are going to spend years studying and serving people, I think you have to love them. YouTube’s first designer, who happens to be an old friend, would grab a video camera, hop on his motorcycle, and go to users’ houses to see them in their natural element. He’s a natural democratizer of technology, and wants people to get really involved in what he’s making.
20. Fear of testing hypotheses. As a founder, I can say it: most startups launch in a cloud of hype and bullshit. That hype is really useful: Startups are difficult and painful; you haveto be really excited to do it. But the hype is also dangerous: It lets people assume they just can’t fail. If a startup team doesn’t seek contact with reality early and often, they will have a bunch of surprises in store. It hurts to find out your ideas are dumb, so you have to really want to know the truth more than you want to feel comfortable.
21. No demonstrated user need.For example, consider 3D movies and TV. If you ask people why they sometimes prefer stage to screen, nobody ever says, “Oh, movies are only 2D.” 3D tech has novelty value, but even a little user testing would show its pushers that most people are perfectly happy to go back to 2D movies after experiencing 3D, and that many actively avoid 3D. That wasn’t the case when sound or color or fancier special effects were added.
22. Bad marketing. “Bad marketing” here refers to one of a few different possible causes, including too much money spent on marketing, ineffective marketing or a single bad campaign that trashed the startup’s reputation. Some 14 percent of companies cited this reason.
23. Zombie Deal Fomo – Wasting all you got on dead deals. Not being able to kill a deal that will not ever happen early on is another trap that can land a huge hit on any organization.
If your prospective customer is a big organisation and they say that they want to first see your company profile (or other documentation) before they do business with you, they are just f##king with you. They are not going to buy so don’t waste any time on that company profile.
24. Overpromise and underdeliver – Quality control in the Sales Force. Does it seem like you’re spending more and more time dealing with irate customers upset at not getting what they expected from you? A steadily increasing rate of customer reported issues or an un-arrested downward trend in customer satisfaction is a sure sign that your startup is unable to walk the talk. It’s probably time for a long hard look at whether you are doing all you can to meet the expectations of your customers – if you’re doing all you can and still falling short then it may be time for some hard decisions.
25. Customer ignorance – Failing to listen to existing customer feedback. eCrowds is one of the 14 percent of companies that cited customer neglect as a main reason for failure; eCrowds ignored or de-prioritized customer feedback and couldn’t improve its product as a result.
26. Customer Neglect – Not focusing on the customer success. Getting new customers is one thing. But keeping them is far more important. And all too often, startups lose customers too quickly because they don’t put enough effort into helping their customers succeed.
You need to create an outstanding customer service experience to keep clients happy from the start. A product like Intercom(CHAT) will help you engage with customers, by providing live chat for your website, and the ability to email, send push notifications, and send in-app messages. Chameleon(TOURS) will help you to create a better onboarding experience for customers, by enabling you to build product tours for your website or app. You should also think of hosting regular training webinars, which is easy to do through Google’s Hangouts on Air (WEBINARS), or even a simple Facebook Live video.
And finally, make it easy for customers to ask for help. Just check out Slack’s Twitter account and you’ll see how the company’s customer support team is not only human and funny, but also quick to respond to any troubleshooting questions.
Building a startup is hard. And there are a number of reasons why businesses fail. But if you’re proactive by spending enough time with customers, tracking the right metrics, and triggering where red flags might arise, it’s definitely possible to address the issues before your business goes down hill. You just have to be open to looking for ways your company can improve, and be flexible in your approach.
Product Design Gaps
About 17 percent of companies admitted their product wasn’t good enough to make the company succeed. Without a strong product, it’s virtually impossible to grow.
27. You solve mediocre problems in a mediocre way – Good to Great. “It’s much better to first make a product a small number of users love, than a product that a large number of people like,” writes Y Combinator president Sam Altman in his Startup Playbook.
If your product just does its job, your customers won’t recommend it to others. But if you build a product that solves a pain really well, your customers will rave about it to their friends – an important factor considering that at the early stages of a startup, you want each new customer to acquire another.
So, how do you make sure your product is something exciting? You need to simplify it. Don’t build a product with 10 mediocre features. Build one that does a great job at fulfilling one task.
28. Feature Machines – Trying to win customer by adding more irrelevant features.
When you’re struggling to acquire customers, it can be easy to assume it’s because your product lacks features. Having a great product is important, but a product alone won’t get you customers. In this case, the saying ‘build it and they will come’ only applies to baseball fields– because when it comes to business, it rarely turns out to be true.
You need to stop assuming that just adding new product features will help you grow. Instead, speak to existing customers and get their feedback, to make your existing features even better.
And in parallel to this, you need to focus on sales and marketing efforts. Discover who your potential customers are by talking to existing ones, doing online research via forums and social media, and looking for what your competitor’s customers complain about online.
29. Pricing and Positioning issues. If you are offering a better quality product, you’re better off, trying to disrupt the market by offering the better quality product at a lower cost than by offering our at a higher cost
30. No Product Market Fit. Some startup products don’t address meaningful problems. Or, customers don’t care about the issues the products are trying to solve. Unfortunately, many companies don’t really have a market for their product.
And according to serial entrepreneur Marc Andreessen, lack of market is the number one company-killer. “You’ll break your pick for years trying to find customers who don’t exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die,”
But while market is arguably the most important factor in a startup’s success, many entrepreneurs tend to not consider it a priority. They spend lots of time focusing inward on their products, but not enough time trying to uncover their customers’ pains – exactly what you need to do to match a product to their needs. Or, discover a better market altogether.
You need to speak with potential customers about the problem you’re trying to solve. Would they use your solution? How are they solving the problems on their own? How much is it costing them?
Once you understand your market and adjust your product to suit it, customers will be lining up at your doorstep. Because according to Andreessen, a great market, “pulls a product out of the startup.”Disclaimer: A whopping 42 percent of post-mortem letters admitted that a lack of market need in some way contributed to those businesses’ demise. For example, Patient Communicator wrote that the majority of doctors simply wanted more patients, not a more efficient office.
31. Stuck on the sales plateau: The initial wins came easily enough – your immediate network and references liked what they heard from you and signed up but over the last few quarters it seems like new customers are getting harder and harder to find. Another version of this malaise is the loss of older customers through the revolving door at the same rate as the entry of new customers. The net impact is a monthly billing figure that refuses to shift into higher gear.
32. At someone else’s party – other technology company disrupted you already: Your startup seeks to address a genuine enough customer pain point but it seems like everyone else is talking about another, cooler way to address the problem. This is probably what podcasting startup Odeo went through when most potential customers warmed to newly launched iTunes for their podcast needs. It may be time to move on or like Odeo reincarnate as Twitter!
Disclaimer: Sometimes, the competition is just too fierce to take on. For example, upon Wesabe’s demise, its founder revealed that the company just couldn’t compete with Mint. It’s one of the 19 percent of companies that referenced competition.
Strategy and Operational Core issues
33. Legal hurdles. Whether it was getting sued, navigating legal disputes or trying to establish a legal operation, 8 percent of startups succumbed to challenging legal hurdles.
34. Lack of financing or investor activity. Like a lack of cash, a lack of initial investor interest caused 8 percent of startups in the study to fail prematurely.
35. No Growth Markets. Robert A Rice Jr. Says, “An entrepreneur without funding is like a musician without an instrument.” While not all startups will agree, most will concede that at some time or the other they have made the pitch to potential investors – money in the bank never hurt anybody. While making those pitches if you are unable to capture or sustain the attention of investor after investor then it may be a hint worth taking about the long term viability or growth potential of your business.
Disclaimer: Even if your business is profitable on paper, if you don’t have enough cash to pay your employees or vendors, you could go under. About 29 percent of post-mortems listed running out of cash.
36. Bad location. Meetro is one of the 9 percent of companies that cited a bad location as a reason for their failure; the startup worked perfectly well in Chicago, but could not expand to other urban areas because it failed to adequately grab the attention of those residents.
37. Lack of a business model. A surprising 17 percent of startups admitted not having a business model to drive their efforts. They came to market with a product, or an idea, but no infrastructure to back it.
38. Pricing and cost issues/Unit Economics. Profitability is a simple equation of your costs against your pricing. If you set the prices too high, you won’t be able to compete, but if you set them too low, or your costs are too high, you won’t be profitable, like the 18 percent of companies that mentioned it.
39. Bad timing. When good ideas come too early, the market may not yet be ready to buy. When they come too late, the market is saturated. Roughly 13 percent of companies claimed this as a primary reason for failure.
Interested in how your company scores? Put it in a survey and run a campaign in your organization.