4 Red Flags That Your Startup Is A Sinking Ship

Product Market Fit is fundamental for any businesses. There needs to be a customer need or problem to solve so that your business exists to provide a solution that people will buy. There must also be sufficient market demand (total addressable market) to monetize your business. After all businesses need to be profitable to fuel further growth or in the case of a startup, a potential buy out.

However, even with a product market fit businesses may still fail. Just like many traditional organisations which fail to reinvent themselves. In the case of the startups, the signs of failures are more evident.

Over the past 3 years, I have been talking to startup founders, thought leaders, reading case studies, working for and advising startups. There are some common theme on startup failures. Here’s the 4 clear red flags that the startup is a sinking ship.

(1) Vision

A company vision statement reveals, at the highest levels, what an organization most hopes to be and achieve in the long term. Vision is important to keep everyone across different functions on the same path and help prioritise resources. If the company vision is not clear, people on the ground cannot connect the dots. Everyone will have their own interpretations. The product roadmap will keep changing, developers will be confused, marketers do not have a good story to tell. This will have a far bigger impact on the business downstream.

(2) Leadership

Leaders, in the case of a startup – the founders, set the tone and pace. To encourage innovation and growth, the leaders need to provide the psychological safety for the team to experiment, fail and speak up. Transparency is important, to take away any anxiety and stress that the team’s job is at risk when they fail.

When there are two people working together, there will always be conflicts and disagreements. In the new world of work, effective leaders need to embrace conflict, ambiguity and diversity. Hence mutual respect and inclusiveness are cornerstone of good culture. More importantly, the courage to push the boundaries, drive change, set high bar for the team, having tough & empathetic conversations with each other and the wider teams. A sign that things are not going well is when the leaders are not displaying these traits, they are not setting the tone and pace. Momentum is important to keep staff engaged and motivated. Leaders also need to demonstrate that bootstrapping until the business start monetizing.

(3) Cadence

Startups have limited funding especially when they do not yet have a paying customer. Hence the speed to market and cadence in delivery is important. I don’t mean launching products fast. But there is a need for rigour and cadence in experimentations, product validations and iterations so that the product keeps improving. Every delay has impact of funding and burn rate is high. Any smart investors reduce or cut off the funding tap when there is no progress.

Even CNN has pulled its plug on CNN+, it’s streaming entertaining business after investing US$300m in developing the business. Although they have deep pockets, they decided to cut loss after one month of launch. An expensive lesson though.

(4) Talent

One of the most overlooked aspect of startups is talent. The talent strategy needs to align with the business strategy. Different talents are required at different phases of growth. For example, you don’t ramp up the marketing team, when there is no ready product. Nor is it wise to ramp up product team when there are insufficient developers or the right engineering talent to develop the product. Even within a function, the right hire has to be aligned with business and product phase of the startup. I would have a performance marketer as a first hire in a startup marketing team. This is because when the product is still being developed, the key priority is in validating hypothesis, experimentations to uncover effective channels of acquisitions to reduce customer acquisition cost (CAC) and optimise conversion rate (CRO). Hiring the right talent who is ready to roll up the sleeves is important too.

The right talent is also important to manage the burn rate. But most importantly the right talent will be motivated as he or she feels the value of contribution. The right talent at the wrong time or place will not shine. And when you have a demotivated and disengaged talent, morale will be affected. Poor morale is infectious, especially in a startup. Once you lose the talent, it’s not possible to deliver anything. Therefore it is important to define the talent competency for the stage of the startup when you hire. It’s not haphazard hiring and see which one sticks.