How to know if your Startup Employer is in Trouble
How to know if your Startup Employer is in Trouble
It can be hard to really understand what is going on at the startup you work at. Here are some tips on how to figure out what is going on.
Thousands of startups raised hundreds of billions collectively from 2020-2022. Most of these rounds were at extremely high valuations, with an expectation to raise another round quickly at an even higher valuation.
That’s all out the window today, and most startups need to find a path to profitability, or else they risk a down round or even death.
As an employee at a startup, it can be hard to figure out what is really going on.
Here are some tips to figure out if your startup employer is in trouble:
Executive Turnover
Some executive turnover is normal, but if the company is constantly turning over high-quality executives, there is a problem. Usually, this is an indication that the founder has behavior problems, impossible expectations, or frankly isn’t suited to be a CEO.
Town Hall Problems
There are a few key signs but the most important is whether the KPIs are constantly changing. It signals that the company doe have product-market fit and is pivoting. This is totally fine if the founder is upfront and honest with the team about it.
Another key tell is when town halls are constantly delayed or cancelled. Generally, this means the founder learned that targets weren’t met and needs time to spin up a new narrative.
Budget Cuts & Layoffs
Many startups raised too much money and hired far too many people. Layoffs and budget cuts do not mean your startup employer is in trouble, it means they are adjusting to the new funding environment. This is a really good thing.
If you are not growing like crazy (3-4x year over year), your 50-person startup doesn’t need a product management team of 4 people and a marketing team of 5 people.
Instead, ask yourself — were the budget cuts deep enough? Is the runway long enough with a believable, conservative sales forecast?
Many startups have not cut enough and are slowly dying. By the time they realize this, it will be too late. For the vast majority of startups, a 10% RIF (reduction in force) was not enough.
This is called a death spiral — Sequoia talked about it in the deck they circulated to their founders.
If your startup cut 10% but isn’t growing fast, it’s in trouble.
New Product Updates are Slow
There are many reasons why product development slows to a crawl, and none of them are good. It can be because there are too many product people - the Founder/CEO, a CPO, and Product Managers all participating in long meetings formulating product strategy. Notice that sales, marketing, and customer success are often excluded.
This costs time, and in startups, time is everything.
If a startup isn’t rapidly growing, and doesn’t have clear and obvious product-market fit, then the founder must be the CPO and there should be at best one (1) product manager to help execute. Only the founder can be the connective tissue between product and sales/marketing.
There should be weekly sprints, with experimentation and KPIs attached. Ship, learn, iterate.
The Obvious Stuff
There are many obvious tells that your startup employer is in trouble.
The founder is MIA (yes, this happens!)
Customers are cancelling/leaving
Revenue is declining
Sudden lack of transparency
Non performers are still around
Lack of obsession to grow customers
What Should You Do?
First, ask questions in town halls. Don’t be a jerk, frame your question in a positive way.
Bad Question: “We never hit our sales forecasts, why should we believe this one?”
Good Question: “As we learn more about our customers, how is this evolving our confidence in our sales forecasting?”
Second, step up. How can you help? What can you do to help grow revenue, increase retention, ship more product, create efficiency, reduce cost, and so on.
What Shouldn’t You Do?
When times are tough, sometimes people revert to poor behavior. They gossip in private slack channels and they mail it in.
If you aren’t all-in at a startup, you should quit. It’s not good for your mental health, and you are only increasing the chances of the startup failing. You’ll drag others down. You don’t want to be that person!
Take a break if you need to. Come back and see if you can flip your mindset.
If not, you should move on. If so, awesome!
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