If predicting which startups would succeed were easy, we would all be millionaires. Many successful startups have experienced every last one of these trouble signs yet still made it to the finish line with a successful exit. Many more don’t.
Good communication is especially important with a small group of people who are spending someone else’s money. Everyone owes it to investors to be both productive and polite at the same time.
Most startups have weekly meetings. Everyone should speak for 3-5 minutes offering a summary of activities. Unless there is a major project, no topic should be discussed for more than 15 minutes. Know when a department specific topic should be “taken offline” and dealt with later.
Long meetings that end up in shouting matches are a bad sign. Let others do the screaming. Company meetings are a way to gauge your CEO, who is ultimately responsible for shaping your startup’s culture.
Processes Never End
The never ending process. It goes on within corporations all the time. Startups can’t afford never ending processes. From the minute that the first seed money is deposited into a bank account, the clock is ticking. Everyone owes it to investors to be agile.
Be on the lookout for unnecessary projects as well as critical projects that are never completed. Remember the basic startup cycle – R&D -> Product -> Marketing -> Sales -> Money.
R&D develops a technology. Product turns the technology into a product. Marketing markets the products. Sales sells the product.
Every department needs to hand-off their completed part to the next department on time. Group projects should be well defined. Sometimes projects take longer than expected.
When every project takes longer than expected, you have a problem.
Mediocre R&D Team
R&D should be held up to the highest standards. Without the R&D team, there is no startup. A mediocre R&D team leads to a mediocre or failed startup. For startups without a product team, R&D is fully responsible for turning the technology into a finished product.
If after three years, R&D hasn’t built a solid product, it is a sign your startup is in trouble.
Enjoy the steak lunches and Nespresso machines while they last! Every CEO knows how to spend other people’s money. The best CEO’s know how to balance spending other people’s money while delivering a high return on investment.
You can’t always control overspending in other departments. Ordering a hamburger when everyone else is ordering prime rib won’t stave off future budget cuts. Be aware of the spending culture at your startup.
Overspending at a startup – especially after a period of a few years without a solid product – is a very bad sign.
On paper, the technology looks great. When you test it yourself, it is cool. But something in your head tells you that the product is awkward. Hopefully it is just you. There are two other options – the product needs fine-tuning, or the project is so awkward that it will never be used.
I’ve seen startups fall in love with their prototype like children at a candy store. They brush aside legitimate critiques and tough questions are never asked at product meetings (when they even occur). Everyone just knows they are sitting on the holy grail.
If you can, show your startup product to a friend or colleague at another startup. Do they confirm your fears?
Some startups begin with a product that doesn’t quite do it and take a few years to get it right. These startups have two players who turn the vision into reality – CEO and VP Product.
When your product is awkward and no one is doing anything to improve it, you are looking at a bad sign of things to come.
Customers Are Never Onboarded
Marketing delivers leads to sales. Sales identifies the best leads and the first purchase orders arrive. What’s next? Most startups don’t have a customer success team or even manager at this early stage. Who does sales hand off the baton to?
Sales can’t onboard a startup’s first customers (or 100th). When the first purchase order arrives, the CEO should work with the COO, VP Product and VP R&D and form an onboarding team. The attitude should be “all hands on deck” – there is nothing more important to the startup than successfully onboarding the first customers.
I was shocked beyond belief when I once saw a CEO and COO display a laid back attitude towards onboarding their first potential customers. As the onboarding process involved complex hardware systems, I knew they needed to fly out to the newly signed customers and spend a week or more learning the ropes of product implementation.
They thought they could implement the first customers remotely and I knew it was a bad sign.
Of course phone calls are enough for implementing most SaaS solutions. The more complex the hardware, the more the possible need for managing initial implementations in person. R&D and Product can learn a lot from being there. A good startup CEO knows how to bring the initial customer onboarding process to a successful end.
Too Many Years In The Desert
Some startups spend years at the seed level. This buys time when dealing with a new and complicated technology. R&D may require a few years to flesh things out and extract something that a product team can sculpt into a product.
There is a risk in staying too long at the seed level, or “friends and family” stage. Friends and family investors don’t have the same standards as a venture capital firm or investment group putting down a Series A investment. It is a lot easier for the CEO to answer to a few angels as opposed to venture capital. The Series A contract itself is full of goals, partnerships and results monitoring that seed level startups never experience.
Furthermore, there is a tendency for seed stage startups to “walk the desert” without a finished product. When venture capital comes in, they set a deadline for the product and are more interested in the marketing and sales rollout.
Startups that run from angel to angel without a firm backer face long odds of success.
A Narrow Niche
Some startups solve problems that we don’t even consider to be problems. Many internet platforms excel at enabling us to skip steps and publish content quickly. Some tools are redundant or only needed by a narrow group of professionals.
As an investor, I have set of rules that I use when deciding whether or not to invest in a company. One of them is, “Is the product line an ecosystem?” Disney is a huge ecosystem. They own content, the pipes that the content is broadcast on and a lot of places that people visit. A camera or translating tool isn’t an ecosystem.
Ask yourself – how wide is my startup’s dream? When a real person uses your product, which of the following is their reaction?
• Not useful
• Could be nice
• Will help sometimes
• Often helpful but only in specific circumstances
• Very useful
• Useful to the masses
Where is your startup? Is your startup forming an ecosystem or adding an essential part to a major ecosystem?
A narrow niche startup can become the next unicorn (a privately help startup valued at over $1 billion). It can also be a bad sign.
This article is an excerpt from The Startup Marketing Bible – A Practical Guide To Startup Marketing.