Five Startup Red Flags
Here in no particular order is a list of some red flags to look out for in your current or future startup that I wish I knew before starting my startup journey! This guide is mainly intended for potential startup employees but should provide some useful guidance for potential founders and investors also. Of course, having one or more of these flags does not guarantee failure, but it can greatly increase the chances of failure or possibly just mean that you have a much less enjoyable experience than you might otherwise.
Non-Technical Founders
Possibly a controversial one but I would consider not having a single technical founder to be a potential red flag. First of all, why should we want technical founders? Well, a vital part of business planning is to understand what is and isn’t possible and to have an intuitive grasp of what technical challenges your team will have to overcome to arrive at a working product. Founders naturally have the biggest impact on the path taken by a business, so having a technically proficient voice among them will hugely help to steer in a sensible direction. Ideally, a technical founder should be willing and able to get their hands dirty with the actual code in the earliest days — a big part of working for a startup is leaving your ego and job title at the door and getting stuck in where you are most needed! Engineers are an expensive and difficult to acquire commodity for any startup so the less delegation and more leading by example you can do in the earliest stages, the better!
Now, there are of course many successful startups with non-technical founders so it’s not a death kiss on its own. Indeed, it may be the case that the founders both come with a deep business understanding of the problem they are trying to solve and weren’t able to find a technical co-founder to begin with — and that might be fine! The important caveat in this situation is to ensure that there is a highly competent CTO, who is respected and listened to by the founders. A shy or inexperienced CTO paired with non-technical founders is likely a recipe for failure.
Singular Founder
Continuing on the topic of founders — having just one founder is a commonly cited red flag. Starting a company from scratch is hard and most people need co-founders alongside them to bounce ideas off and support each other through the hardest times. Not to mention that having complementary skill sets helps hugely as well. In relation to the previous point around non-technical founders, it is very common and useful for a non-technical founder to pair up with a technical co-founder.
Of course, there are many successful companies with a single founder — but that doesn’t make it advantageous. If I had to choose, having a single technical founder would be preferable to a non-technical one. Also, having a singular founder who has a track record of successful exits would concern me less than a first-time founder on their own.
Not Committing to a Shared Way of Working
It’s important that both founders and employees are on the same page about how you will be working. This can cover a lot of areas but the two main ones to come to consensus on are where and when you will be working.
Where you will be working mainly comes down to in-person vs remote. The benefits of both have been discussed to death online so I’m not going to go into huge details here! My personal opinion is that at least some in-person time is essential for an early stage business. In my last gig we were mainly remote but managed to communicate more useful off-the-record chat in the bimonthly meetups than we would over slack or teams the rest of the time. But if you’re convinced that technology can replace face-to-face conversations then that’s fine — just make sure that the whole team is on board with this approach! The worst but sadly common outcome is for there to be a split in the team between in-person and remote workers. This will likely lead to fractured communications and resentment — either from the in-office workers who hate coming into a half-empty office or from the remote workers who hate being forced in with a lengthy commute. It is essential for founders to lead by example here as well — you can’t expect your employees to commute 3–5 days a week if you’re running the business from overseas!
The second point to discuss is when you will be working — be realistic and up-front about the expected hours! Unlike the where, when you will be working is not something you need founders and employees to match on, though there needs to be alignment of mutual expectations. Founders will have many multiples of the equity upside of most early employees, so this should be reflected in their working hours — working evenings and weekends is a normal expected part of being a founder. Where we can run into trouble is when the founder’s expectations of employees are not communicated or aligned properly. Many startups expect their early employees to be as “all-in” as the founders themselves — this can be fine, but always remember that hardcore work demands hardcore compensation! If you’re working evenings and weekends for a below-average salary and 0.1% equity then you should check if you have a handle attached to the side of your head, since you are probably a mug. Always negotiate up-front and avoid ambiguity!
In summary, it is important for founders to decide on how they want themselves and their employees to work early on, to commit to their decision and to lead by example. For early hires, not being aligned on the working ways of the company should be a deal-breaker in most situations. Failure to plan and align will only lead to frustrations and fractured communication later on!
No Understanding of Who the Customer Is
You should always have an understanding of who your customer is. For a B2B company this should hopefully be straightforward and obvious, but for a consumer facing business you generally want to have a better idea than just “the general public”. It is vital to have an understanding of who is going to use your product and what problem it is solving for them. Knowing your customer should influence every stage of your design, implementation and marketing strategy. Otherwise, you run the risk of launching a product that no customers want to use!
It may be the case that there are multiple possible demographics you could target. For an early stage business with limited resources, you are better off choosing just one demographic and committing to making your product excellent for them, rather than hedging your bets and making a product that pleases nobody. If your business finds product-market fit and grows, then is the time to expand your potential customer base — but in the early stages, you will almost certainly not have the resources to target multiple distinct customer bases successfully whilst maintaining a coherent brand identity and user experience.
Lack of Vision or Credible Business Plan
Even if you know who your customer is, it is surprisingly common for startups not to have a credible plan for how to monetise their product — or at least it was during the 0% interest rate fueled VC madness of the recent past. Unless you are starting a non-profit, the aim of most startups is to make money and that requires a realistic business plan from the start. There are startup graveyards filled to the brim with “tar-pit” ideas — products or services that sound useful on paper but are difficult or impossible to monetise with the resources available to most startups.
You should be extra critical around consumer-facing apps and services. Even if the product serves a useful purpose or solves a real life problem, you need to ask who is going to pay for it? Especially if the app is mostly solving problems that only exist for wealthy startup founders or venture capitalists, that’s a big red flag for myopic thinking.
Of course, there are examples of famous websites and services which started with no monetisation plan — most notably Facebook, which only settled on selling user data to its real customers as a business plan many years after it was launched. However, the thing with Facebook is that it was bootstrapped by a young Zuck from his college dorm and achieved considerable product-market fit before they received any significant investment. If a startup is raising venture capital with zero product market and zero realistic business plan, then you would be wise to stay away.
