Business Failure

Do You Recognize the 8 Early Warning Signs of a Failed Startup?

Do You Recognize the 8 Early Warning Signs of a Failed Startup?
Image credit: Tom Woodward | Flickr
  • ---Shares

Startups fail at the rate of 90 percent. That’s kind of scary, if you ask me.

Related: 3 Mental Strategies That Can Get You Past a Business Failure Fast

I count myself fortunate to be a survivor of startup failure, but my survival was touch-and-go the first few times. And my startup adventures were turbulent -- a series of starts, failures and mistakes.

Today, I have several multi-million dollar businesses in my trophy case, yet I still make my share of mistakes.

Yet I also view startups in a totally different way. Through angel investing, consulting and plain determination to know as much as I can, I've learned the early warning signs of startup failure. If you too are working for a startup, getting one off the ground or investing in one, these eight steps are for you. They're the main indicators of startup failure.

1. You don’t know your customers.

I know this sounds old hat, but I have to say it. Everyone repeats hackneyed phrases like “knowing your target audience” and “developing a persona,” but few businesses actually get it right.

It’s crucial to get inside your audience’s head and really figure out what makes them tick. What problems are they facing? What fears are they experiencing? What goals are they pursuing?

Know these people! Love 'em! Your business does not exist without them. Entrepreneurs fail because they live in a hyped-up, adrenaline-fueled, fast-paced startup environment that’s a complete dream. They’re not on the streets connecting with real people. They have a startup dream, but it’s not rooted in the reality of their day-to-day customers. Those customers are the people who will hopefully buy your product.

Know your customers, and you’re less likely to fail.

2. You’re stuck in a mental trap.

We all have patterns of thinking that we follow. Maybe it’s our cultural background. Maybe it’s the “best practices” that we picked up at a former job. Maybe it’s something we read online.

Whatever it is, we need to be flexible enough to change our mindset about things. What do I mean? Just because you think something is “the best way” does not mean that it is the best way.

Challenge your thinking by taking risks, trying new things and experimenting with differing viewpoints. Your goal is success, not “being right.”

Related: Is Declining Business Failure Holding Back Entrepreneurship?

3. You’re oblivious to market forces.

The market is unpredictable, indomitable and sometimes annoying, frankly. But you’ve got to deal with it. 

If you pretend that market forces won’t affect you or your industry, you’re setting yourself up for major failure. Look, the “market” is impersonal. It doesn’t care about your feelings or your plans. You’ve got to adjust to it, because it’s not going to make room for you.

4. You don’t pivot fast enough.

I know that “pivot” is an overused term. Nevertheless, it is an important concept. If you’re not ready to pivot, you’re going to fail. It’s just that simple.

The faster you pivot, the more likely you are to stay alive longer. Pivots are what keep startups alive. Don’t be surprised if you have to pivot five, 10 or 15 times during the first couple of years of your company's existence. 

5. You don’t execute fast enough.

Execution is where it’s at, folks. You can dream up amazing business plans, but unless you’re executing, nothing happens.

Success entails executing faster than the other guy. The best entrepreneurs aren’t the so-called “dreamers” and “visionaries.” Nope. The best entrepreneurs are the people who hustle.

6. You’re busy doing the wrong stuff.

Being busy is not a sign of success. It’s not even a mark of productivity. Busy is good only if you’re doing the right things. Too often entrepreneurs get really busy, and this blinds them to the fact that they’re busy doing the wrong stuff!

First, get clear on what you’re doing and why you’re doing it. After that, you have permission to be busy.

7. You’re not focusing on revenue.

This is a big one. Revenue. I get it. There are a lot of moving parts in a startup environment, and you have to keep tabs on everything. But if you lose sight of revenue, you’re done. It’s a major warning sign.

Revenue is the goal. It’s the end game. This is why you’re doing what you’re doing. Keep your eye on the goal -- focus on revenue -- and it will keep you from going down in flames.

8. You don’t know your runway.

Cash is what keeps a startup alive. Once the cash is gone, so is your business. Simple takeaway? Keep an eye on that piggy bank! Don’t let your money run out.

There's even a term for it -- runway -- meaning the time you have until your startup runs out of cash. So, go rustle up some funding. Beg from a rich uncle if you have to. Even go as far as pawning your stamp collection. Just get some money. The best position to be in is a position of knowledge and control.

You know how much money you have left. Only you know how much longer your business can exist and only you can control the flow of cash.

Conclusion

Entrepreneurship is tough. Really tough. Starting a business is a gamble in failure. It can result in a loss of money or in a crushed self-esteem. You sense of self-worth can dwindle rapidly.

In other words, if you want to feel like crap day after day and year after year, go try to start up a business.

Related: 5 Signs Your Startup Is Destined to Fail

But at the same time, there’s something irresistible about it. Yes, startups fail. And yet, that means that some are going to succeed! If you can spot your warning signs, you’ll be in a much safer position for ultimate success.

What startup failure warning signs have you seen?