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  • Matthew R. Ellis

Warning Signs: Is my Start-up Going to Come to a Sudden Stop?

Updated: Sep 29, 2018


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In the last few years, it seems that an ever-growing number of my friends and associates are either starting their own consulting and contracting firms or going to work for small start-ups. I guess I shouldn't be surprised, technological advances in applications and communication have leveled the playing field and small boutique firms cannot only survive, but thrive in this new economy, holding their own against legacy firms.

Being at the ground floor of a start-up cannot only be financially rewarding, but also provide a higher sense of accomplishment. Often becoming part of the team could cost nothing more than the investment of time - "sweat equity". A new venture can also allow participants to broaden their experience in different areas of a new field or business, since members of small teams must wear many professional hats. In my case, I wanted to branch out into a completely new field and felt that joining with a start-up would be a great way to learn a new industry and make connection; experience being more valuable to me than any monetary rewards.


Whatever the reason for taking the leap of faith, one must regularly put on the mantle of the pragmatist and take deep honest and candid assessments of the new endeavor. The brutal truth is that 90% of start-ups fail. Although Murphy's Law can play a factor, often times there are clear signs that things aren't going so well and one must set aside emotional bias and find the strength to face a harsh reality and the courage to act accordingly.

In my most recent endeavor, I began to have dilemmas between loyalty to the team and problems I had with key business practices. Not wanting to lose my only toehold in a difficult industry, I began to research common symptoms shared by the ninety percenters that couldn't quite make it and built a list of institutional and personal criteria to help my decision making. After some educated soul-searching I was well prepared for a conversation with the founders and, although I decided to pursue my dream job elsewhere, I was able to do so with little regret and worry that I was missing out on the next big thing.


I Meant What I Said and I Said What I Meant, A Business is a Business - One Hundred Percent: Venturing into a new industry can complicate the necessary assessment of a start-up's long-term viability. Even for a person who brings a wealth of experience from another field, it is easy to overlook something in a new field that would normally raise huge alarms. While it is true that each industry varies to some degree in the way they raise capital or make money, it is often the practices common to all businesses that can show the true health of a company. When starting in the media industry, my questions about business practices that struck me as odd were met with - "That's the way it's done in Hollywood." As an outsider, that statement was almost intimidating and I felt I had to take that claimed truism from an long-time industry insider to heart, but after more than a year it began to seem fatalistic. There had to be parallels


-WARNING SIGN - MARKETING STRATEGY - A product requires a deliberate and specific marketing strategy, no matter the unique characteristics of an industry. I don't care if you're selling Cars, Stocks, Televisions, Television Shows, or Crack; if you have a product to push you have to have a plan to push that product. Many factors go into whether a product sells, but you'll never be able to assess those factors and adjust unless you have a plan to get that product out to the consumers.


-WARNING SIGN - STRATEGIC GOALS - Every company has to know where they are and where they want to be in with clear short, mid, and long term goals. Although this may be more fluid in some industries than others, especially when reacting to emerging opportunities, a business cannot hope to reach goals without goals. If your company doesn't have them, then your goal should be to find a company that does.


-WARNING SIGN - INFORMATION FLOW - Part of the problem could be that you don't know what you don't know. If you play a critical role in the business, you should be informed of all critical decisions. There are many unavoidable factors that complicate information flow, including distance, time-difference, and high paced activities. While all valid, the inability to create and maintain a productive flow of information can stifle creativity, cause perception issues, kill morale, and result in important tasks being overlooked. If the company's main concern with keeping everyone in the loop is being too busy, then unfortunately the problem may resolve itself with the loss of business.


-WARNING SIGN - KNOW THY SELF - A start-up cannot hope to survive the competition if they can't define how they are better or even different from the competition. This must not only be understood internally, but projected to potential consumers. Defining unique skills or products in a market are critical and must be projected through focused branding and goes hand in hand with marketing. Branding is not a consideration unique to those who use traditional advertising to get new business. Consider what you do when you get a business card, you check that person out. The Internet is a powerful tool that lets you link emails and phones easily to social media, such as LinkedIn, Facebook, Instagram or Twitter, and even your company website. One problem is presence, but the other is differentiation. If you don't know what sets you apart, you are likely missing the boat on free and user friendly tools that can focus your core marketable strengths through article sharing, blogging, feeds, and posted updates. Projected company image is especially important in fields where the external appearance may be a clear indication of the company's capability - You probably wouldn't choose a sloppily dressed image consultant, so don't skimp on your social media aesthetics if your product is visual or audio.


If You Can't Get the Small Repetitive Tasks Right, What's Going On With the Rest?: A Flag Officer once shared that if a unit can't get the small repetitive tasks right, how can they possibly be relied upon to perform their more difficult higher core mission tasks. Much earlier in my military career, a Drill Sergeant provided the sage advice - If you don't want the white gloves inspection, make sure your bathroom doesn't smell like ass. Although completely different approaches in delivery, both were painfully clear statements about how the small tasks can impact the overall product and consumer confidence. These most often lie in mundane daily actions like time-management, payroll, record keeping, and other administrivia. Even putting too little effort into the clarity, grammar and punctuation of less formal communications like email can erode at perceptions of an individual's abilities.


Busy Could be a Sign of Success...But Also Inefficiency: An increase in business activity is a wonderful problem to have, unless it is due to inefficient practices. In the case of inefficiency, poorly managed success can be the start-up's ultimate downfall. It does not necessarily take an industry expert to analyze business practices to determine how long key activities take to accomplish and assess methods and tools available improve efficiency. If inefficiency is a problem, then keeping your clientele happy may quickly become a greater problem than drumming up more business.


MYTH - Too Talented to Fail: It should be painfully obvious by now that best in the business does not mean best at business. It is easy to get distracted by the qualifications, accomplishments, and connections of members of a start-up, but there are reasons that top experts and innovators don't all strike it out on their own. Make sure you use a wholistic approach when assessing the start-up, just like it is an investment - because it is.

Family Matters - This may be a sensitive topic, but the first years of a start-up are labor and time intensive, competing with many personal and professional priorities. Unfortunately, every business problem, large or small, is the entrepreneurs problem and requires constant care and attention. For that reason, the level of familial support of key members of the start-up could be an important indicator of future commitment. If your key market is overseas and a business partner is getting grief from family about late night conference calls during core business hours in another time-zone, you may have a problem.


Are You Gonna Go My Way? - Start-ups can seem highly adventagous, especially when the gains are more than just monetary. Be honest with yourself and assess your professional and development goals, then reassess periodically. If your ultimate satisfaction and goals are not being met, it may be time to get off the bus.


Are We Dating or Are We Just Friends? - A common sitcom cliche is the episode where cast members face relationship conundrums. As strange as it may seem, this could happen with your role at a start-up, especially if you are working to help friends. It is tough to talk business details with friends, especially if your friends have made sacrifices to launch their dream and higher levels of trust are assumed. As difficult as it may be, all parties should discuss expectations and roles if certain benchmarks are made. Without clearly defining the relationship early on, you may find yourself in the friend zone - a devoted company groupie rather than a dedicated employee.


CONCLUSION: I valued my time working at my first start-up and learned a great deal along the way. However, if the opportunity ever presents itself again, I would likely approach it in a more practical way. I hope these suggestions help others and starts a dialogue. Please feel free to lend your own insights and lessons learned in the comments section to keep the dialogue moving forward.

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