Entrepreneurs and people who eat and breathe ‘startups’ have slowly started following the mantra of beginning something of their own, innovate, and solve problems of customers or create something that makes a difference in the socio-economic set up we reside in.
This mindset has led to the formation of a great number of startups that have actually made it big with their unique thinking and product conception. However, the picture is not at all rosy with a majority of startups, which start facing hiccups a little ways down the road.Sooner or later, you will be able to notice some sure shot warning signs that point clearly to the fact that your startup is in deep trouble. It is during these times that you have to keep your head unruffled and work through the mess.
In the blog, I will talk about some of the inescapable signs that your startup is in a mess, for you to develop a good understanding on these signs and curb them as soon as you spot them.
- No or Negligible Buzz about your Startup
Yes, you have created a product that is genuine and offers considerable benefits to the present day consumer. In addition, you have also built multiple marketing campaigns around your brand or offerings. Nevertheless, your startup hasn’t been able to gain traction or has failed to produce almost no buzz among consumers. This is the first warning sign indicating that you are doing something wrong, or you should be approaching things in a different manner. Customers have become increasingly engaging with brands in present times. Therefore, the way your target customers choose to interact with your startup will give you a detailed idea on what you need to do to get more people talk about your brand. Keep a keen eye on social media mentions, product reviews, and demographics of purchases made.
- High Level of Attrition
To expect that you will end up with the same team after a few years, as you did when you initiated – is grossly erroneous. As your startup grows, the line-up and key founding members might change too. And, that is completely fine. That said – you must spot a key warning sign of trouble if your employees are regularly leaving after being associated with the firm only for a limited time. This could easily mean that your startup is already in a mess. More often than not, employees leave a business because of low pay package, erratic work hours, and no job satisfaction. While the first two reasons can be easily addressed, the problem occurs with the last one. No or little job satisfaction signifies that your employees don’t have conviction in your brand or the offerings. Thereby, substantial development must be required to sort out these issues.
- Declining Gross Profit Margin, Falling Liquidity Ratio, and Low Free Cash Flow
Yes, all the aforementioned factors play a colossal role in determining the financial health your startup. Moreover, your investors and people who have chosen to fund the brand will without doubt maintain a clear understanding of these numbers. Gross Profit Margin is the difference between the sales your startup has made minus the cost of goods sold. Every rupee lost in gross profit affects the bottom line for your brand. This is precisely why you should keep a check on the amount of discounts and sops that are being provided to customers.
On the other hand, Liquidity Ratio is calculated by dividing Current Assets with Current Liabilities. A ratio of less than 1 points out to the fact that the short-term assets are not enough to meet current debt obligations. Lastly, Low Free Cash Flow is the money left with the firm after subtracting the Capital Expenditure from Operating Cash Flow. Thus, a negative Free Cash Flow in any year indicates that the startup was unable to generate sufficient cash to support the business. If a majority or all these factors are downbeat, you can be certain that the startup is in deep mess.
- Nil Improvisation
Complacency is the root cause of a lot of troubles in the world, and if you can spot it in startups, it can surely mean that it is heading towards downfall. Completely negating the importance of reinventing things, or coming up with something new, every now and then, should be the cornerstone of all startups. Any business should keep trying out with its offerings, a concept that has been mastered by tech giants Google and Facebook. This helps keep customers as well as investors enthusiastic. A linear approach towards products and offerings won’t do any good. Naturally, if startups don’t evolve with the changing dynamics of the world, they are surely going to perish.
- No Focus on Mobile-First Customer Experience
There is no two way of saying this but if your startup is not present on mobile, it is pretty much a dead end within a very short span of time, because mobile is where all your customers are. All brands have to treat mobile as the primary mode for customer engagement – now and in the times to come. This has been emphasized by Google in their report – State of Mobile Internet in India (Sep, 2016), which states that there are 245 million mobile data subscribers in India, out of which 145 million are on 3G, while 5 million are using 4G. Furthermore, there have been 106 million new smartphone shipments last year, while the penetration still stands at 20%.