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How to Know when you have Failed

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How to know when your startup is failing: indicators you should stop working on you startup.

Over the past few weeks we’ve analyzed multiple examples of startups that have failed. We’ve seen examples of how to fail poorly and we’ve discussed how to fail well. Throughout all this, I’ve been wondering: how do we know when we’ve failed?

Here are a few indicators that your startup may be failing:

Loss of Passion:

Without motivation, conviction that fuels progress, your startup is absent of purpose or direction and ultimately likely destined for failure. Throughout the cases we’ve read in this course, a clear, almost all-consuming passion for the startup is a necessary prerequisite to founding; one that in no way guarantees success, but merely allows for the pursuit of the venture. And a founder who has lost belief in his/her vision has lost his/her company. While I’m not sure whether this means your startup has failed, at the very least, the founder should pause, take a step back, and ask him/herself why the change of heart? And whether the loss of morale is temporary or permanent.

Lack of Resources:

Without cash or the means to continue running the company, sustaining a startup becomes nearly impossible. If a founder is unable to raise funds, runs out of money, can’t compensate his/her employees, or no longer has the technological or employee resources to sustain his/her company, failure is likely. While planning for the future (especially in the fast-paced, uncertain environment of a startup) is difficult, through diligently and consistently evaluating and tracking the level of resources and the ability to raise more, if required, the founder can try to diminish the sudden loss of resources. Setting clear metrics and trigger points can help a startup monitor its access to resources.

Lack of customer desire for your product?

While the Startup Team and investors may be fired up over the startup, if customers are not buying the product or churn rate is high, your startup is failing. At the end of the day, without customers, your company is unsustainable. In order to combat a founder’s almost overwhelming conviction of his/her company’s mission with actual feasibility of the product and customer needs, the startup should consistently ask its customers and potential customers what they need and want and whether the company’s product fulfilled these needs. Additionally, by constantly being aware of a startup’s biases to its own product, the team can guardrail against being blind to customer needs.

When team members begin leaving (especially in large numbers), this is a potential sign of failure. Whether caused by disgruntled employees, a poor company culture, a lack of belief in the startup, and/or employees recognizing impending failure, the loss of large numbers of the team is problematic. Such a loss results in lack of manpower, inability to work at the current pace leading to product delays and larger culture issues. By creating a culture of open, honest, feedback, and by taking the time to check the pulse and morale of employees and act proactively and efficiently to address issues, a founder can mitigate against the loss of team members.

These are just a few of many potential indicators that you have failed. While I included a few tips for how to react to such indicators, even by proactively identifying these signs of failure, a founder may likely be unable to address the problems with enough impact to save the company for failure. The questions arise: if your startup encounters one of these signs of failure, is it possible to sustain the venture by focusing diligently on the issue? Or is one sign of failure enough to merit turning off the engines? Alternatively, is there a tipping point where if enough of these and/or other signs of failure occur, your startup is doomed? And how can you know before it is too late and you have caused irreparable pain to the employees, investors, partners, and yourself? Additionally, if you’ve been able to identify the moment of failure,  is the failure permanent, or can you revisit the venture? I don’t have the answers to any of these questions. What I hope to be able to do as a founder, is to constantly be asking these questions and be aware that failure is not only possible, but likely probable. And failure is not “not an option” it is not necessarily even bad, but rather, it is an opportunity for learning and for gaining experience. For me, the most significant calculus at play is not “not failing” it is when to know I have failed to mitigate harm to those around me. Through consistent communication with stakeholders and through confronting and accepting harsh reality and truth (even when undesirable), I will seek to recognize when I have failed in order to fail well.

1 thought on “How to Know when you have Failed

  1. Loss of passion for a project is probably the most obvious indicator that it is time to stop. The problem with the other indicators you suggest is that they are more difficult to notice, as they appear in different forms and originate from different sources. What makes it even harder is our inclination to “edit reality. Our brain’s natural tendency is to suppress unwanted indicators and revert to whatever we have pre-programmed in our minds. This denial of failure is often what makes founders continue with a project that should be shelved long ago.

    The checklist that you propose is a good way to manage this denial process. I would also suggest using data to inform decision making during the life of a startup. There are numerous companies that provide data analytics both free of charge and paid for premium subscribers. Data analysis tools offer valuable insights into progress of social media campaigns, customer satisfaction, resource usage, and many more. Declining trends or skyrocketing customer churn rates are good indicators that the business is not gaining customer traction. After all, it is harder to argue with tangible metrics.

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