Startup Red Flags: An Engineer's Perspective

  • by Amando Abreu
  • on 10 September 2023

The startup world is an exhilarating place filled with innovation, opportunities, and challenges. It’s not a path for everyone, and even the most promising ventures can hit roadblocks. What are some of the signs that hint at a startup’s impending failure? We asked 14 engineers, and here are their insightful responses.

1. Assess like an Investor

“Whatever the founders SAY about their business is far less important than how the business is actually performing and whether it has legs long term. Do your homework. Like many others in this industry, I have been badly burned by well-meaning founders who TRULY BELIEVED they were going to make us all billionaires, only to fail to make payroll and end up insolvent. Do your homework.”

Startups should be evaluated based on their metrics such as revenue, growth projections, monthly active users, customer acquisition costs, and product/market fit, among others.

You need to assess like an investor.

Words and hype are necessary to a degree, but without something solid behind them, it’s a one way ticket to insolvency city.

2. Dysfunctional Leadership

“Leadership consists of no leaders… engineers/engineering leaders chasing the next shiny thing… sustained only by raising funds.”

A startup driven by inconsistent leadership or solely by sales teams without a broader vision might be headed for trouble.

3. Misguided Decision Making

“Owners with no technical background somehow think they are qualified to influence technical decisions.”

Decisions should be made by those qualified in the area, especially technical decisions.

4. Sales Hype without Reality

“Only having one customer and sales team unable to get any more despite constantly making noise about big opportunities.”

A startup’s longevity is jeopardized when the sales team over-promises but under-delivers.

5. Misleading Promises

“Bait and switch…market and promise their clients the world, but the final product is a piece of crap that got stitched up together. A good sign the owners just want a quick cash grab and bail”

If a startup promises a groundbreaking product but delivers subpar results, it could be an indication of misplaced priorities.

6. Underpaying Talent

“They were willing to hire me straight out of a boot camp but paid ~$40k below market.”

Investing in talent is essential. Startups that undervalue their engineers might face long-term consequences.

7. No Universal Warning Signs

“Every industry and business is a bit different, there aren’t really any hard set flags that ‘always’ mean success or failure. (If there were, working at or investing in a startup would be easy :) ).”

Different sectors come with their unique challenges; it’s crucial to recognize industry-specific red flags.

8. Ignoring Customers

“The major indicators to watch are the customers and the customer interactions. If customers are being regularly ignored, it’s a bad sign.”

Customer feedback is invaluable. If a startup disregards its customers, it’s a concerning signal.

9. Common Red Flags

“No cash flow; no product/service market validation/fit; emotionally unstable founders; bad company culture.”

Any combination of these could spell trouble for a startup.

10. Flawed Recruitment Process

“How they interview. I’ve turned down a role because their interview process was so terrible they would have no way of differentiating good vs bad potential engineers. Doomed to fail I’ve also worked at a place where a single person made most of the decisions. They flopped so hard. Turns out 1 person is not smarter than a team of experts they hired - run far away from uncollaborative leadership”

The way a startup hires reflects its values and future prospects. Hire the best people for the job.

11. Internal Strife

“High rate of team turnover… If remote, video calls with cameras off/lack of banter (reflects low morale/team enthusiasm).”

A startup’s internal dynamics can provide critical insights into its health.

12. Founder’s Intentions

“Try to get an honest answer from founders as to what their goals and motivations are, this tells a lot.”

Understanding a founder’s motivation can be a window into the startup’s potential trajectory.

13. Excessive Bureaucracy

“But my top answer is: bureaucracy… They said it wasn’t fully thought out enough. Company crumbled 6 months later.”

When creativity is stifled by excessive bureaucracy, a startup’s innovation and agility are compromised.

14. No planning, terminology or context about value creation.

“All the tickets, stories, plans, specs are about “feature completeness” and “cost reduction”.”

Denis Čahuk

In Conclusion

Startups face numerous challenges on their path to success. Recognizing the signs of potential failure can help stakeholders make informed decisions. These insights from engineers, who are often at the heart of these ventures, offer a valuable perspective on navigating the unpredictable startup landscape.

I offer fractional CTO services for businesses like yours. If you have hard problems you want to tackle but feel your organization lacks the perspective to tackle fully, get in touch! I guarantee to ask very hard questions that lead to solving hard problems.

About the author

Amando Abreu is a serial entrepreneur, Fractional CTO, and engineer who has been involved in several startups and launched dozens of products. He has worked with companies such as trivago, Portugal Telecom, and Vizrt. He has experience in several industries, most notably e-commerce, SaaS, media, travel, insurance, property development, and construction.
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