Startup warning signs

When I went to work for a startup accelerator in 2017 I thought of myself as new to the startup scene. But I quickly realized that wasn’t true.

My work history included several companies that didn’t always call themselves startups, but were. Growth-oriented ventures. Publishing. Education. E-commerce.

By and large those were really positive experiences — exciting growth opportunities, camaraderie, lots to learn, and the thrill of building the Next Big Thing.

But naturally, it’s not all smooth sailing; my experiences have also left me with a mental list of warning signs — just in case you or somebody you know is in need of a reality check on a too-good-to-be-true opportunity. So, here are a few red (or yellow) flags that could have clued me in earlier to the likely fate of a startup I worked for that surprised me by crashing and burning.

  • The principals don’t know what they don’t know. If they’re getting into a market they don’t have experience in, you need to see signs that they are aware of their blind spots - and are hiring smart people to compensate.

  • It’s hard to find out what the principals did before, or you feel ambivalent about it. Do they avoid giving names of former ventures? Do you get the sense they made their money in a way that was, well, sketchy?

  • Promised rewards are vague. Many don’t believe that stock options are worth a reduced salary, but at least they are concrete and binding. On the other hand, mere verbal suggestions that there will be great reward for hard work and/or success should not figure into your assessment of the compensation.

  • Talent is leaving. The caliber of talent should be rising as the venture progresses. If people you respect are disappearing, it may be because 1) they smell something you don’t, or 2) purse strings are tightening and they were too expensive to keep.

Downward graph