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Wednesday, October 23, 2013

Knowing when to jump ship: Is your company failing?

Business failure red flags include working harder to achieve the same results
Bankruptcy provides failing businesses an exit strategy
By Lindsey Mcmahon

Your company’s success ebbs and flows in cycles along with most types of market-based economic processes. 

Sometimes, the negative periods during these cycles can be too much to overcome, and the company fails. Company failure, for better or worse, is not as rare as one might think.

Shikhar Ghosh, a Senior Lecturer at Harvard Business School that has recently published a book on the topic of startup failure, found that about 75% of American startups actually fail within the first few years of business, never returning the capital investment made by venture funds and investors. 

More shocking still is that the international average for startup failure is much lower, around 35%. Ghosh hypothesizes that this notable discrepancy between American entrepreneurial culture and that found in other markets might be due to a lack of hard research into the causes of such failures. So, as an entrepreneur in the startup world, what are some signs that can help you identify when your company is part of the majority and about to go under? What can you do about it? What about when it is too late?         

• Your team has lost its passion    

A startup's ultimate success is inexorably tied to the love its founders and employees have for its goals. Without this passion, the company will eventually come up against obstacles that will bring down its resolve, impact on the market, and resultant level of  success. Keeping a team motivated and excited about working at for an innovative startup can be the difference between a stagnant, failing company and an adaptive, prosperous business that can easily weather small storms. If your business has lost its 'umph', you are in danger of failure.

• You work twice as hard for the same results as before

Increasing effort to profit ratio is a dangerous sign of startup failure. This often happens when a company has become more regulated through bureaucratic management, suffers from a lack of coordination of obligations and needs due to mismanaged new clients or processes, or has lost the support of its staff. Being efficient and transparent in your work process instills faith in both your investors and customers, ultimately affecting your employees as well. If you realize that you must work harder today to earn the same profit as yesterday, something needs to change or your company is in danger for failure.

• Your clients need convincing

Although it is a good sign if you have a strong client base, the nature of your relationship with your customers can be a telltale sign of the future success or failure of your company. If your  clients must be heavily 'sold' to remain in business with you, something is wrong. Ideally, your clients should be gushing about your company's products or services to their friends and colleagues in excitement, not grudgingly giving your business a second shot. If your customers are not your biggest fans, your company is in danger.              

• Your employees need convincing          

The only thing that might be worse than having to continually convince your clients to stay faithful to you is having to beg your staff not to jump ship. If your staff is leaving en masse, it is probably not due to a surge in available higher paid positions but a reflection on the problems in your organization. Take note and talk to your employees. If no one wants to stay on your team, odds are your business is on the road to failure.

What can you do about it?

If these telltale signs indicate that your business is doing badly, you should attempt to reverse their effects by renewing the passion of your staff for your cause and goals. Making sure your employees are happy is the first step towards a successful business. Then, understanding why your clients are not fully satisfied and what you can do to make them value your services should identify where you are going wrong and what areas need improvement. There is nothing wrong with pivoting – using the value and skills you have brought together in your company to take on a new focus or goal to succeed in the market. Try another angle. For more suggestions, see Forbes and Business Line.

What if it is too late?

If your company is past the point of no return, filing bankruptcy may be your best option. Filing for bankruptcy is not the same as simply raising a white flag of defeat and walking away from the battle. Many extremely successful business people have filed for bankruptcy, even Bill Gates, only to spring back and found another incredibly successful company. Filing for bankruptcy allows you to square your debts before legally closing a company, allowing you to begin fresh on your next endeavor. Because filing for bankruptcy can be a trying and complicated process, when in need do not hesitate to contact a bankruptcy attorney that can help you navigate the legal and financial red tape involved in the process. 

Bankruptcy lawyers can help negotiate a better deal for you and your investors while ensuring that you are adherent to the law. Thanks to the statistics reported at the beginning of this article, the hub of startups – Silicon Valley – has also become a hotspot for bankruptcy attorneys along with nearby areas such as Los Angeles and San Francisco, making finding a quality, experienced bankruptcy lawyer easier than ever. Remember - seeking the help of a bankruptcy lawyer is not a sign of failure in itself, but the best way to deal with a situation gone wrong.

Startups are exciting endeavors with incredible potential for growth and change. Carefully watch your startup to avoid any signs of its failure, such as employee ambivalence, decreased efficiency, lack of client loyalty, or mass exodus of your staff. If you see some of these danger signs, attempt to pivot your company's organization and goals to find a more profitable and functional profile. When all else fails, prepare yourself for the smoothest exit strategy possible by hiring a bankruptcy lawyer and preparing for the next try!

About the author:   This is a guest post by Lindsey Mcmahon. Her interests are Entertainment, Tech and SEO but she is constantly extending her field of view to incorporate interesting news suggested to her by her readers.  If you like her writing, please follow her on Twitter.

* Image: Author owned and licensed