From bleeding cash to ignoring customers: An employee shares four red flags he missed as a startup imploded

There are a range of telltale signs that a startup may not be heading in its intended direction, however when immersed in the day-to-day grind of building a business these red flags can be easily missed or even dismissed.

At Noteworthy – The Journal Blog, software architect and UCLA technical collaboration leader Jonathan Solórzano-Hamilton has shared his experience of what happened when a startup imploded around him and the red flags he missed.

“The red flags are all obvious to me in hindsight,” he writes. “You may not have seen them if you had lived the situation yourself – I certainly didn’t at the time.”

Bleeding cash

Solórzano-Hamilton writes that he was initially told that the startup was operating out of a garage, which was not in itself unusual, however that he was required to bring his own chair – and, as it turned out, it was not so much a garage as a small shed.

Meanwhile, the founder, who drove a customised imported sports coupe, told him that he was in the process of refinishing the space.

“Every expenditure in the early days of your startup should be absolutely essential to your survival,” Solórzano-Hamilton advises. “Each investment should build toward your enterprise’s permanent future. Just because you are your own boss doesn’t mean the boss should be out to lunch.”

Prospects placed before product

Solórzano-Hamilton writes that the startup’s customers gradually became less consequential, with the founder spending “more time chasing bigger fish and less time improving the product”, prioritising landing new customers over product development.

He stresses the importance of listening to customers already on board in developing an improved product.

“It’s hard to admit to yourself that your efforts are futile when you’re always working harder and longer hours, but that’s exactly the situation you create when you’re blindly scaling out instead of building up,” he writes.

Contingency plans are a must

As time went on, Solórzano-Hamilton recalls that he had found himself in increasingly improbable situations, and points to the potential to push “yourself and your team into increasingly ridiculous territory because you’re running in ‘survival mode’”.

“This can be hard to spot if you’re treading water every minute of every day in order to stay afloat,” he writes. “You need to have contingency plans. If losing one particular customer will kill your business, sit down right now and workshop a solution.”

Are you getting paid?

Despite working “tremendous overtime”, Solórzano-Hamilton details how money for his work was not forthcoming, and observes that when it comes to this point entrepreneurs “have to make some really tough choices”.

“More than likely you’re going to have to let your whole team go,” he writes. “You may have to scale your dream business all the way back to side hustle. It’s all fine and good to hope for that medevac, but don’t count on it. Don’t risk the eviction of everyone who’s helped you so far – for the sake of your conscience, if nothing else.

“And don’t keep them in the dark, stringing them along, hoping that you’ll be able to make it up to them later.”

NOW READ: Richard Branson’s three key lessons from his own startup failures


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