120 Warning Signs Your Startup Might Fail

Recently, a young aspiring entrepreneur asked me for a list of signs that a startup is failing.  I thought you might be interested in the list I gave him as well.   This took about fifteen minutes to write down. 

Warning Signs

 A business that risks closure or is about to close will often have warning signs.  A warning sign, in my view, is an indicator the business is foundation is weak and could fail, or outside business conditions are not favorable.   Failure might occur years from now or tomorrow if these are not corrected. What’s important is that you act quickly when you see one or more.

Below, in no certain order, or 120 warning signs that a business is either at risk or is about to close.  These all come from my experiences over the years. This is not a complete list, but one I came up with considering the topic. I have separated them into functional categories to make it a little easier to scan.

120 Warning Signs Your Startup Might Fail

Strategic/Management

  1. No vision
  2. No mission
  3. No goals
  4. No progress measurement towards goal
  5. Lack of ongoing planning
  6. No business plan
  7. Poor leadership
  8. No defined customer
  9. No business model
  10. Poor understanding of the market
  11. No identified competitive advantage
  12. Poor partnerships
  13. No outside business advisors
  14. No changes in strategy (when there are clear signs it is failing)
  15. No Unique Selling Proposition (USP)
  16. Reliance on one big customer
  17. Constantly changing strategy
  18. Management complacency
  19. Poor internal communications
  20. No exit plan

Operations

  1. Employees start leaving
  2. Low employee morale
  3. Operational complacency
  4. Making processes too complex
  5. Poor training
  6. Poor employee onboarding
  7. Poor customer service
  8. Loss of a key employee
  9. Work piles up (no systems)
  10. Failure to delegate
  11. Systems break down
  12. Quality of products or services decline
  13. Cannot recover from a setback (fraud, theft, accident, etc.)
  14. Poor location
  15. Poor record keeping
  16. No planned employee trainings planned
  17. Poor supervisory skills
  18. Employees lack key skill sets
  19. Failure to resolve employee issues
  20. Poor performance reviews

Legal

  1. Lawsuits
  2. Contract disputes
  3. Entering into an oral contract
  4. Cannot meet terms of agreement
  5. No written agreement with co-founders
  6. Incorrect legal structure
  7. Not understanding of contracts or tax obligations
  8. Not filing IRS reports on time
  9. Poor legal counsel
  10. Unwavering belief an idea is patentable (in the face of objective evidence to the contrary)
  11. Pursuing a patent without a patent search
  12. Lack of employment documentation
  13. No insurance or not enough insurance
  14. No job descriptions
  15. Breach of contract
  16. Not understanding copyright laws
  17. Lack of HR policies
  18. Not understanding “at will.”
  19. No employees manual
  20. Not updating bylaws, policies and procedures

Marketing

  1. No marketing strategy
  2. No marketing plan
  3. No product differentiation
  4. Poor marketing execution
  5. Competing on price
  6. Selling to any warm body
  7. Not understanding or using social media
  8. Low sales
  9. Few customers
  10. Competing on price
  11. Scaling back marketing tactics
  12. Not talking to customers
  13. No customer word of mouth
  14. No knowledge of competitors
  15. Market decline
  16. Being cheap on marketing tactics
  17. Reliance on “free” marketing tactics
  18. No website or not updating the business website
  19. No marketing metrics
  20. Hiring sales people without understanding the market

Financial

  1. Going into the grace period on bills
  2. Cannot secure outside capital
  3. Purchasing junk assets
  4. Poor accounting
  5. Poor pricing
  6. Poor bookkeeping or bookkeeper
  7. Undercapitalization
  8. Too high of owner’s draw or salary (early months)
  9. Not rebuilding inventories
  10. IRS issues
  11. Can’t pay payroll or payroll taxes
  12. No revenue growth
  13. Rapidly falling profits
  14. Increasing debt
  15. You start borrowing to meet operational expenses
  16. Accounts payable grows
  17. Personal credit scores declines
  18. No money in the bank
  19. Lenders start asking for payments in advance
  20. Creditors begin calling

Personal

  1. Unclear purpose in business
  2. Poor networking
  3. Unrealistic income expectations
  4. Always making things perfect
  5. Avoiding technology
  6. Hustling all the time (and little money to show for it)
  7. Lack of focus
  8. Constant firefighting
  9. Not taking time for learning, problem-solving or reflection
  10. Stress and anxiety increase
  11. Feeling like you have to do it all
  12. Feeling like you can’t do it all
  13. It’s just not fun
  14. You’re disconnected from family and friends
  15. You don’t know what to do next
  16. Motivation methods don’t work
  17. You don’t take criticism
  18. You’re not paying attention
  19. You’re rarely at work
  20. You’re rarely at home

 The thing about warning signs is that you have to know what they mean and what to do about it.   Most of the time entrepreneurs need some critical resource.   It’s because of this missing resource that the entrepreneur sees a warning sign.   

Quickly identifying and accessing the right resource is key

First-time entrepreneurs have a very difficult time spotting these for they don’t know what warning signs look like.   They will need help from another entrepreneur who has been there or a business development expert.

Understanding Failing Speeds

 In my experience, “failing” occurs over time and at varying speeds.  

  • Stuck Business (months)-  A gradual decline happens to the startup that usually got some things right, but is still missing pieces of the business.   The business launched, customers showed up, sales were made and so forth.   Growth never followed.   Deterioration is business functions is subtle. With each passing day, the business gets weaker and weaker.
  • Crashing Business  (months, weeks or days) – The signs of crashing quickly put stress on the entrepreneur.   There is little doubting the signs.   Still, the entrepreneur may not know what to do about them.   The entrepreneur must quickly analyze and evaluate their current situation, stabilize it if possible, and make a plan to either revive the business or exit.
  • Burning Business (days or hours) –  The business of that is about to burn is hard to save.  In fact, it may not be worth saving!   Here too, the entrepreneur must quickly analyze the situation and determine a course of action.   Often the choices boil down to a voluntary or involuntary closure of the business.  

When to Pull the Rip Chord

 Three words of caution when considering closing your business. 

 Your worst enemy will be denial.   When an entrepreneur perceives that their business is not doing well, they will be tempted to bury their head in the sand.   The emotions become hard to deal with and thinking clearly feels more like a luxury.   This must be resisted at all costs. You must decide and act, no matter how you feel! 

 Second,  an entrepreneur can never afford to give up his intellectual honesty.   Entrepreneurs in this situation have put a lot of hard work into their startup.  Fear of failure and strong emotions take over. The ability to be objective about the situation and make decisions is the hallmark of a true entrepreneur. 

Finally, hope is not a strategy.  Either you have an angle to pursue or your don’t.  You have a way out, or you don’t.  Analyze and evaluate the situation, but don’t spend a lot of time trying to be 100% certain.  

 If you cannot see a clear path out of the situation, pull the rip chord.   Make a plan to get out and execute it.  Don’t delay. 

Remember, a business is a vehicle to the life you want. If this one isn’t your ticket, move on to the next. 

Learn from it all and put it behind you. 

Start something new. 

Find happiness again. 

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