5 Warning Signs that a Startup will Fail
A couple of years ago, I worked for a startup in Melbourne, Australia. As a fresh graduate, I really appreciated this opportunity to build up my skill set in marketing and get valuable experience in the real estate industry.
Initially, I thought this business was doing really well. The founder used to work at a big IT corporation, the team had a good vibe, we were even nominated in some “Best Small&Medium Company” awards and everything seemed on the right track. However, it only lasted 2 years, then the company couldn’t source more investment to cover its loss, and had to go through liquidation.
Apparently, I lost my job due to this startup's failure. It was my first formal full-time job in Australia, thanks to these experiences and the lessons I learned, I was able to find other jobs and pursue my career in different sectors. Now when I look back, I would like to share the 5 warning signs that a startup is likely to fail.
#1. An Unrealistic Vision
Every company has a vision or mission statement, it works like a compass to direct the way for the company. A common mistake that startups always make is that they don’t have a feasible and realistic vision.
The startup I worked for was quite successful in building a bilingual real estate listing portal to connect Asian property investors with the Australian property market. It started to earn cash flows from advertising and listing fees from Australian real estate agencies. Then the owner wanted to go further and launch an IT platform to digitalize the sale process of the property.
It sounded like a cool idea. In the marketing brochure it even ambitiously said “we will reshape the property exchange process and system.” While as a start-up with limited IT capability, it is technically very difficult to achieve this goal.
On the other hand, as we all know property buying and selling involved a lot of paperwork and on-site inspections. Until today it seems still no major player in the industry has completely digitalized everything in the transition process.
Can you imagine an investor buy a house purely based on online inspection and sign all documents online? From a property professionals’ perspective, different agencies, developers, brokers all have their own IT system, a start-up barely has the chance to incorporate all their work into one platform. Therefore, this fancy but unachievable idea failed so quickly.
#2.You Don’t Know What is Your Strength
As I mentioned this startup was quite successful in building the bilingual listing platform. We used to have a bilingual sales team and earned quite a lot of profit in selling off-plan projects to overseas buyers. When I look back I found these definitely should be our strengths:
- Understand Australian Property Market
- Bilingual language skills
- Business connection to overseas investors
- Business development capability to Asian buyers
- Great sales training provided by industry leaders
However, the owner thought this look like an agency, and he didn’t want the company to become an agency. Then he dissolved the sales team, recruited more young IT graduates, and then burnt all the funds in building the unrealistic IT platform, then failed.
I was thinking if we could focus on the things we did well, we wouldn’t end like this. We might become an agency in the end, or become a Chinese version of real estate.com.au. Who cares what we are going to be, just stick to our strength, build up our capabilities, and the startup will automatically evolve in the right way.
#3. A Bad Business Angel
A key turning point of this startup is the owner found a bad business angel in China. The investor, Mr. Tian, was an old-fashioned Chinese business man, who had years of experience in running real estate in China. And of course, he was very wealthy. Since his money got into our company’s account, he started to control this startup by doing a series of silly things:
- Set up a head office in China, recruit local staff including IT, sales marketing, finance etc
- Cut headcount in Australia office
- Transform the business from an open, equal and innovative culture to a hierarchical, detailed management and rigid company
- Using the old fashioned Chinese style to manage an local Australian business
I remember as employees, we really hated those lengthy but pointless meetings, endless detail reporting and complicated admin systems. What was even worse, the Chinese team didn’t know the Australian market, which wasted lots of time for us explaining the concepts and terminology of the Australian property industry. In the end, both of the teams complained to each other and the whole management was in a mess....
#4. No Respect for Employees’ Efforts
When I worked there, the salary was pretty low for everyone. Most of us were international graduates and we were all in the process of getting Australian permanent residency. So we all knew this job with such a skimpy pay, was just an opportunity to get some local work experience. We all had a plan, which was if we get PR, we definitely would find a better company, especially a local company to earn a salary that we totally deserved.
If a startup makes the employee think in this way, it is absolutely going to fail. It is not just about money, it is more important that if we don’t feel the respect for our time, our energy and our efforts that we put into the work, we wouldn’t bring the best of ourselves to the job. We understood the startup wouldn’t pay as high as a big corporation, but no matter what, a startup should provide a reasonable salary structure (such as salary base + bonus ) to win the trust of the employees. All in all, employees are the most valuable asset to a startup.
#5. The Founder is Lacking in Life Experience
Until today, I still remember how my manager commented about the boss when she heard his unrealistic ideas again and again:
“ His life is so easy, so he wouldn’t know how difficult it is to achieve these things.”
I totally agreed with her. Our boss was born in a wealthy family, moved to Australia with his mum. He seemed never to have experienced tough things in life. So he wouldn’t understand what it takes to achieve things such as getting permanent residency, get fundings for startup, get offers from university. As he got PR with her family, he went to the best high school and best uni as his family could support his education. He then easily found a good job in a big company. He worked hard undoubtedly, but if he had experienced more in life, he would be more down to earth.
Unlike some successful businessmen, who built their way up or have years of professional experience in different areas, he only worked for a big company for around two years. Then he spent his parents’ fortune to start this company. Please be careful with this sort of entrepreneur who has a rich dad. He took and thought everything for granted and never knew how much effort was behind it. That’s probably why he had those unrealistic ideas.
All in all, it was a valuable life lesson that I learned during my time at this startup. I wish all entrepreneurs would not make the same mistakes. All the best and thanks for reading!
