Rise and Shine

5 Signs Your Startup is Heading for Disaster

Photo of Jessica AnnWorking for a start up seems like the new “get rich quick” scheme for 2012. With Instagram being bought by Facebook for $1 billion, many entrepreneurs are hoping and praying for the day they can dominate their industry.

 

The reality is that only one out of every ten start ups make it past a 2nd round of funding. If you decide to take a job working for free at the “great opportunity to be the next big thing company”, make sure to go in with eyes wide open. Here are some pitfalls that should make you run in the opposite direction:

 

1. The Founder is a Terrible Listener

For many start ups the founder is the sales person who is constantly pitching the business. To get others to adopt your enthusiasm, the conversation can’t be all about you. An inability to listen is typically coupled with the inability to read social cues (also signs of ADD) – which means they likely don’t not know when to shut up. More importantly, he/she doesn’t understand why there’s a need to listen.

 

If the person in charge doesn’t get this basic concept, hoist a red flag. Good salespeople know how to listen – it helps mitigate risk. Plus listening generally means that the person is open to constructive criticism and feedback – which is important for beating the competition and staying ahead. Finally, the various people a startup needs to succeed would rather not be affiliated with someone who doesn’t have the required interpersonal skills to make a positive impression. If the founder continues to run his mouth, run the other way.

 

2. It smells like “Bait and Switch”

Is your company over promising and under delivering? Saying one thing to potential customers but then doing another? How about agreeing to a certain amount on the phone or in-person and then backtracking when pen goes to paper? These are all signs of chum in the water. If you find that you’re in business with people who don’t follow through on their word, find the nearest exit. Even used car salesman know better than to pull this trick. Business should be about building relationships, not burning bridges.

 

Bait and Switch

When expectations are not met, nothing can come of it. When expectations are utterly disregarded, nothing good can come of it.

 

 

3. There’s no product

Is there are a handful of people on the team yet no product? Really? This is the same as inviting all of your buddies over to watch the big game without a television. Not a smart move. In fact, hiring too many people too soon is one example of premature scaling or dysfunctional scaling – one of the most common reasons for failure. While it’s great to build culture and camaraderie early, it’ll all implode if there’s no product. It MUST come first.

 

Even with a product, it’s a good idea to take a step back and consider just how scaleable the new startup is. A business in the service industry can grow to fantastic proportions over time, but only a truly scaleable business will ever make you “Facebook Rich”.

 

4. The founder acts like this guy:

 

Hilarious yet sadly true. Even worse if he has no prior experience in the space. Anyone can read articles, pick up the startup lingo, and play pretend. If the same cliched lines are on repeat, consider whether he really knows what he’s doing.

 

5. No money in the door – but everything is going on the “company card”

Say what? Not a good sign. Getting an expensive car in the company’s name to exude celebrity status only makes you look like a wannabe. Before the company starts racking up expenses, find out who’s paying first. It’s only smart.

 

There is so much investment capital floating around right now that even mediocre startups are able to secure funding. If the person in charge hasn’t lined up some investment capital, it’s probably because their product is no good or the founder doesn’t know how to get funded. Neither one of these situations is ideal.

 

How have you read the signs in your business to predict negative outcomes? Please leave your thoughts in the comments.

 

Jessica Ann

Jessica Ann is a small media consult, drawing on nearly a decade of communications experience. Her company, Jessica Ann Media, helps small- to mid-size businesses and nonprofits integrate traditional PR with online strategies.

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7 comments

  1. A superbly written article, and a very funny video to lighten the mood. I think point one is a very important one, we were born with 2 ears and one mouth and they should be used in that proportion. Over offering and under delivering is a massive problem with startups who try and do to much to soon, as you have said scalable development is the key to success, take on what you can handle. Thanks for sharing your thoughts.

  2. bizTag /

    The first bullet point is very accurate…

    • itsjessicaann /

      it’s amazing how many folks seem to forget how important it is to listen. thanks for reading!

  3. Wonderful points. I agree with every one. Thanks for sharing your insights. 

  4. Whereskarlo /

    #1: Google is a really bad example when it comes to listening since – they’re not a startup!

    Additionally, many founders of successful businesses have ADD which lets them plow forward better than most.

    And not knowing when to shut up? It might make you feel uncomfy but that is a way of taking charge of a conversation. Depending on your industry it can make or break you. Poorly researched overall.

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