Early Warning Signs of Startup Trouble

In a post a few weeks back Steve Blank recounted a set of interactions with a founder who’s company was in trouble. Despite some things going very right , Steve highlights an early warning sign he spotted that suggested there was trouble brewing:

The first thing that I noticed was that Bob couldn’t seem to find a co-founder. I wasn’t close enough to know if he wasn’t really looking for one, but given the early success he was having, it seemed a bit odd. But the next thing really got me concerned. Bob started hiring second rate developers. At best they were B- players.

This is a small snippet in a post making a different point, but it got me thinking about some of the early warning signs I’ve seen in starups who’ve failed. 

Trouble Hiring: Hiring is hard. Period. But, Steve touched on a few aspects of hiring difficulty that suggest there’s trouble afoot.

The first is difficulty with the initial 5 hires.

All of our companies have struggled with hiring, but the ones who’ve ended up in trouble really struggled with it from the outset. If a company struggles to make those first 5 hires, it’s generally a sign that there is trouble brewing.

Usually the root cause of this early recruiting challenges is either a lack of depth in founders personal networks or their inability to sell their idea/product/company to potential hires. Both are resolvable problems if spotted and addressed early on.

Steve also notes the second trouble in hiring. As a founder struggles with their small social network or sales pitch they begin to panic. They quickly switch from being picky to being desperate and the bar gets lowered- usually by a lot. This is real trouble as the culture that’s established in the earliest days of a company are extremely challenging to reset later on down the road. bad hires have a compounding effect-  strong recruits can sniff out weak people and weak ideas. 

It’s OK to be picky, but if hiring is a persistent struggle early on due to lack of candidates or weak hires, there is usually irreparable trouble coming down the road.

Trouble Shipping: Shipping is oxygen to an early stage startup. If you’re not shipping you’re not learning. If you’re not shipping you’re not validating. If you’re not shipping the founder, the team and the investors aren’t happy.

Trouble shipping can stem from a number of different sources- indecision around product features, lack of direction in company vision, interpersonal issues among employees unwilling to collaborate with others. Each of these problems in and of themselves is a warning sign, but an inability to ship is the measurable manifestation of them. 

Developing a culture of shipping is one of the single largest predicators of success or failure in a startup. 

Trouble Communicating: Once the honeymoon is over and the reality of startup life begins to set in there’s a tendency for founders and early employees to go heads down on whatever it is they’re working on. In general, that’s an important transition, but it often surfaces a warning sign as well as individuals real personalities and styles begin to surface.

The trouble usually arises when, under the guise of efficiency, people stop talking and just start doing. Small cliques within teams begin to form. Passive aggressive tendencies surface as work is withheld from judgement until it is totally finished. Information is hoarded or controlled. The frequent talks, IMs or status updates begin to trail off.

Establishing the communication culture of a company is every bit as impactful as a shipping or hiring culture. Creating an environment where people can be recognized, challenged and valued is key in the earliest days of startup. When that communication breaks down early on, it’s a warning sign of trouble not to be overlooked.

Note, none of these threats are external. We don’t generally see companies struggle or run into trouble because a big company enters their category or a small startup launches with their same value proposition.

A startups biggest threat is between it’s own four walls.

Spotting and addressing these early warning signs won’t guarantee success, but removing them will greatly improve your chances.