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Signs that a Startup has failed
3 min read

Signs that a Startup has failed

Signs that a Startup has failed

People often say that 9 out of 10 startups will fail. And that success is one in a million. But while it is easy to tell what a startup is, and when it is succeeding, it is difficult to define its failure. That's part of what makes this process so complicated.

See, Startups are not small versions of big companies - nor are they scalable versions of small businesses.

If you want a big tree, right from the seed itself scale is baked in. And a big tree sapling, that just doesn't have everything it needs to grow, becomes stunted.

The analogy to a startup is like building a rocket. On Earth, Gravity exerts itself on everything that has a mass. Startups are built with the imagination of a zero gravity environment and to achieve that they first must achieve escape velocity and away from the field of gravitational force.

The place where this analogy doesn't hold anymore is that, when you launch a rocket and something goes wrong - it either crashes or burns in the air or doesn't take off at all. Startups on the other hand, "pivot".

You can keep pivoting yourself, and with each move scaling down ambitions that at some point a startup becomes indistinguishable from a small business. You learn to live with gravity.
Credit : Aswath Damodaran

In my opinion there are five scenarios where you potentially are running a failed startup (and aren't aware of it yet).

  1. You are burning cash like a startup, but aren't anywhere close to growing revenues and there is no steam (hype) in the market about what you do.
  2. Every company has stages. A 12 year old in diapers is not a pretty sight at all. Similarly, companies have to evolve as they grow. If it has been a while and it is still founders running things in an ad hoc manner (and calling it startupy), you might be in a rut. Nishant Chandran, the founder of Tendercuts (who previously built and sold a payment gateway company for close to $400mn) once mentioned that he gives every venture 1000 days (3 years) till it finds stability that can lead to processes, that can lead to scale. If a founder is still punting everyday operations after 3 years, it is flailing.
  3. You are starting to lose some of your key hires, who joined the company in the early days.
  4. You know it. The first thought on your mind when you wake up isn't one of excitement, but concern about managing cashflows.
  5. There is no clear path to orbit, where you unlock a whole new paradigm of value.

The default state of a startup is failure. It takes an enormous amount of courage, perfection in execution, calibre of talent, perseverance and bucket loads of luck to make a startup succeed.

What is more precious than a startup is the mind of an entrepreneur. The more you live inside the shell of a failed startup, the mind clouds and you aren't imagining anymore.

The only difference between all the species of organisms in the world and us humans is the ability to imagine - for better or worse.

If you have lost romance and imagination (tied to passion), then life becomes a bit pale.  Sameer Mehta calls it the two qualities that you shouldn't lose in life.

As a Startup Founder, knowing when the startup has failed - the engines are out and you are free falling - is perhaps the greatest gift. It is easier to preach fail fast, than it is to practise it. But that's the insight that can save an entrepreneur.

If you have clarity as an entrepreneur that you have failed, it is only a matter of time before you succeed.

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