You won’t learn any of them in business school.
Lately, the startup world — and my personal entrepreneurial circle — has seen and felt a disproportionate amount of failure. You can chalk it up to the economy, post-pandemic volatility, or a cyclical correction, but from what I’ve seen, the red flags leading up to these failures were there all along.
As a founder who’s personally failed before (multiple times), I can pinpoint exactly which of my failures stemmed from these little-known red flags. I can also see when an aspiring or novice founder is falling victim to a similar fate. So you can avoid taking an unfavorable hard money loan simply to avoid bankruptcy or watching your startup idea shrivel alongside your dwindling bank account, here are 8 red flags to address before you start your own business.
Sometimes the characteristics you consider your strengths are actually the very mistakes sabotaging your success, while other times you simply forgot to ask yourself the most important questions, which led to your demise…
In my opinion, most aspiring founders don’t have a business problem; they have a life problem: They know they want to start a business, but they have no clue why, what that means, or how it will impact the future they do or don’t desire.
While I don’t mean to point fingers, I do believe this issue harkens all the way back to the early education system and incomplete parenting, as well. I don’t know about you, but I was seldom tasked with answering the question:
What do I want my life to look like?
These days, so many people — high achievers included — are so busy running on the treadmill towards the next class, degree, job, raise, or accolade that they’ve neglected to consider or craft a life by design. It’s oftentimes these people who find themselves burnt out, ready for a change or a risk, looking to entrepreneurship as their exciting way out.
The problem here is simple and obvious: They know they want a way out, but they still don’t know where to.
- Do they want to sip mimosas on a beach while delegating their virtual team for a few hours a day? There’s a business model for that, but it isn’t every startup.
- Do they want to bring a new invention to life that solves a global problem to finally feel fulfilled by a truly meaningful impact? If so, years of research and capital raising may precede the revenue-generating phase of their journey, which is fine, but important to know.
- Do they love people and want to build a business with a huge social component, or are they extreme introverts who’d rather operate from behind a screen? I never knew how much of an introvert I was until I ran businesses that required ten too many social interactions for my liking…
Simply put, it’s unwise to impulsively start a business before you know what you actually want your life to look like both day-to-day, in the short-term, and in the long-term. Before planning how to source your product or get your first sale, try planning for the future you desire, as it’s your future that will be most impacted by the company you build.
I’ll be honest: When I quit my finance job to start my first solo-founded company, I felt kind of rich. I had six figures of savings in my account in my early twenties, and I figured that would surely be the silver-bullet solution to any entrepreneurial obstacle or hiccup I encountered along the way.
Spoiler alert: Shortly after I pulled the plug on that venture (due to a very real fear we’d run out of funds before making material headway), our VC-backed competitor went bankrupt, losing tens of millions of their investors’ dollars. Point being, if their tens of millions of dollars couldn’t solve the problems required to attain success, my six figures surely wouldn’t make a dent.
The red flag here is that I — like many well-funded entrepreneurs — believed that money solves all business problems. In truth, it definitely can solve some, such as getting manufacturing off the ground, funding a patent, or paying for media space. However, many of the biggest make-or-break-it problems in building a business are more strategic and rely on the founder’s (or founding team’s) resourcefulness, rather than simply more capital to solve.
If you thought money was the solution to avoid white-knuckling your way through the figure-it-out phase of building your business, you may be in for a rude awakening. Plus, for the problems money can solve, it often takes far more funds than we bootstrapped founders initially expect.
Some people say you should only pursue a business around a product, service, or industry you absolutely love; I disagree. You don’t have to love your product or even be a member of the target market to build a successful company around it. You do, however, have to have a strong enough why to pull you through the hardships, the rejection, and the unbearably boring phases that will undoubtedly riddle the path to success.
If your why is “because you watched a YouTube tutorial” or “because that guru has a course on how to do it”, I’d urge you to proceed with extreme caution — or not at all. A meaningful “why” will offer a no-brainer reason that affirms why this venture is a worthwhile use of your time, even if it doesn’t pan out as you hope. Moreover, a meaningful “why” will give you the conviction to effortlessly sell and promote your product or service to customers, prospective partners, and investors, simply because you believe in it that strongly and genuinely.
Coming from a Wall Street background, I know finance — at least, spreadsheets and projections — like the back of my hand. In other words, I can do financial acrobatics and Excel gymnastics all day long and paint a pretty picture of my next venture going from zero to 60 (or $1M+) like it’s no big deal. While those skills may be useful in some cases, they can also come back to bite me — or you — if you start to believe what you see on the screen.
Projections and reality are two very different things, and while I can make a spreadsheet say whatever I want in terms of revenue, growth rates, and profit margins, actually achieving those numbers in tangible real life is a much more arduous effort. Sadly, the divergence between projections and reality is something I somehow forgot about in my earliest startups, as I drank my own financial Kool-Aid.
I crafted the most beautiful waterfall model that demonstrated my company’s growth as we onboarded more partners and effortlessly watched our sales multiply. That was before I’d onboarded a single partner, made a single B2C sale, or had a clue where the customer acquisition cost in that industry would shake out. Long story short, reality did not quite catch up to my projections, and in retrospect, it was all my fault for believing a spreadsheet could govern my startup’s results.
No matter how conservative you think your projections are, realize that projections are just that, and they’re based on assumptions that may not pan out. If I could tell my younger self — or any aspiring entrepreneurs who’ve been crunching the numbers pre-launch — anything, I’d say to spend more time on the customer acquisition strategy and less time on the theoretical financial forecasts. At the end of the day, your projections will always be wrong in comparison to actuals, which are the only numbers that actually matter anyway.
Speaking of being way off in my projections, the financials weren’t the only thing I got wrong. A similar dilemma in which entrepreneurs are tripped up by the misalignment of their expectations and reality pertains to their timeline to launch, profitability, or success.
If you’re a hyper-conservative person, take your timeline and multiply it by three. If you’re hyper-aggressive with your assumptions, take your timeline and multiply it by 20x. If you’re expecting success in weeks or months, know that you’re off by a significant magnitude. The real progress and wins come over years and decades. If that feels too long, then I’d argue you’re in the wrong business; entrepreneurship is rarely about a quick win, and the most successful and serial entrepreneurs I know know better than to rush a marathon that has no end.
Sure, you want to move quickly, be flexible, and pivot or iterate in response to feedback, but you shouldn’t be looking for the quickest escape plan. Building a business often means building for the long-term, and if that doesn’t excite you, you may be in it for the wrong reasons.
To give you some context, I spent over a year and a half on my first business (that failed). Towards the tail end of that, I spent about six months on a couple other simultaneous ventures that eventually came to fruition, but it wasn’t until about three years into my journey that I saw any real traction. Since then, it was another two to three years before the big wins started coming, all of which were predicated on ventures that had been years in the making.
One of the biggest misconceptions about entrepreneurship that often lures in eager entrepreneurial hopefuls, only to be swiftly shocked and disappointed by reality, is the idea that building a business is exciting. Sure, there are definitely exciting components, like the prospect of bringing an idea to life, getting your first sale, and bringing in enough money to replace your 9 to 5 if that’s what you’re after.
That said, there are many crucial points along the entrepreneurial journey that are just plain boring, tedious, and that will test your patience in the face of minimal momentum and delayed results or gratification. If you can’t handle the doldrums along the startup grind, you’re either going to find it very expensive to outsource every non-sexy task, or call it quits too early, all because the boredom and uncertainty were too much to bare.
Here are a couple examples of boring you should put up with, depending on your type of business:
- Making 300+ cold calls or emails (per week)
- Spending 60+ hours building, testing, or QA-ing your app or site (per week)
If you can’t invest the hours early on to build the product, service, app, website, partnerships, or customer base, you’re unlikely to ever see the business to its real potential. And yes, these boring stages may be further dampened by their repetitive, frustrating, and demoralizing nature, but so long as you keep your eye on the long-term prize, you’ll have a reason to persist.
Along the lines of persistence, let’s also unpack when you actually should take the “L” or call it quits — because this one might surprise you. If you’re anything like me and many of the driven, high-achieving entrepreneurs I know, you may be a little bit stubborn when it comes to seeing things through. Let’s face it: We didn’t come here to quit, and it takes a level of bold ambition to strike out as an entrepreneur, anyway.
Unfortunately, that stubborn stick-to-itiveness and unwillingness to give up can actually backfire in costly ways. Simply put, persistence is valuable up until it clouds our objectivity and prevents us from being open-minded enough to honestly assess what the market, partners, or investors are telling us. Sometimes forcing an idea to catch on, a partnership to click, or an investor to buy in is like fitting a square peg into a round hole and will only end in disaster.
There’s a saying that “life’s rejection is God’s protection”, and while I can’t 100% attest to that, I think there is some wisdom in critically assessing when rejection may be worth listening to. I can’t tell you how many times enough “no’s” that I tried to push through shielded me from digging myself deeper, more expensive holes.
For example, one of my earlier ventures relied on revenue-sharing partnerships with micro-celebrities. While we’d onboarded a handful of talent at reasonable rates, there were some agents pushing for vastly unbalanced financial arrangements. I was one signature away from wiring hundreds of thousands of dollars to talent that, in retrospect I know wouldn’t have driven a fraction of the necessary purchases for profit. It was only their rejections (and ongoing requests for more money) that ultimately led me to accept the “no”, and it’s a good thing I did.
As great as it might feel to win every battle, it feels even better to dodge a deadly bullet, and that’s exactly what rejection forced me to do. Sometimes taking “no” for an answer is actually in your best interest, as counterintuitive as it might seem.
Among the worst pieces of advice I’ve ever heard is the idea that you should burn the ships or create a situation in which your survival requires quick-thinking success in order to light the entrepreneurial fire under you. In reality, if you need some crisis situation to incite your entrepreneurial drive, I’d surmise that you probably won’t make it in this industry in the long-term anyway…
In my experience, entrepreneurship is more often built from intrinsic motivation, and hardwired entrepreneurs don’t need to burn the ships or create their own chaos just to kick them into action. That said, some eager entrepreneurs do buy into the idea that the best way to jump out of a plane is sans parachute, so they can learn to fly on the way down. The problem here is that few — if any — of us make the best decisions when in a heightened state of fear, scarcity, anxiety, and desperation. Conversely, I’d argue this is often when we make our worst, most under-baked decisions.
This is exactly why I rarely tell entrepreneurs to abruptly quit a job with a minimal safety net and go all-in on their startup to ensure they sink or swim. If you’ve created a situation in which you desperately need a quick win, you’ve already likely undermined your strategic long-term decision-making, and I’d worry this toxicity will seep into every aspect of your business.
- You’ll cut corners
- You’ll think short-term
- You’ll reek of panic and haste and repel prospective partners, investors, and customers who sense your unsettling desperation
Secure entrepreneurs make healthy-minded, sound entrepreneurial decisions, and I’d urge you to create an environment in which you’re most likely to build a business well, not just fast.