Cheryl Conner | Forbes

As the head of a communications company in Salt Lake City, we’ve seen hundreds of growth companies and thousands of startups. In fact, thanks to the Grow America Springboard™ $1M competition in Utah right now, we’ve seen and reviewed nearly a thousand startups already this year.

Many articles talk about the signs a startup firm will go under. So with props to Martin Zwilling for his recent piece 5 Sure Signs That a Good Startup is Going Bad.

Here goes:

1. Has Validated Customers. This is one of the core rules of consummate entrepreneur and fellow Forbes Contributor Alan Hall. Do you know in advance that you have customers who are willing to pay the price you are asking for the product or service you have? Too many good startups fail to sufficiently validate their customer assumptions—or, in the case of internet firms, scale too quickly before validating the initial marketplace and streamlining their costs. A successful startup scales its growth on the basis of proven, steady and paying customers (especially where residual/subscription income is involved). Steady acquisition is also a very good sign, as opposed to high and low fits and starts.

2. Shows a Strategic Perspective. This is the direct opposite of a company that is operating in panic mode, or exhibiting survival thinking. A startup actively planning and moving towards national and global expansion; that has a solid one- and five-year agenda and is making steady and measurable strides to meet the critical milestones is poised to succeed.

3. Is Cash Conservative. There’s never been a better time to start a business in many respects, but there’s perhaps never been a more challenging time to obtain early stage credit or funding. Today’s successful startups are a stark contrast to the high-flying internet firms who bragged about their rabid “burn rates” in 2000-2002. Lean operations are the name of the game, and the ability to stretch and conserve early stage funds, even if greater funds are available, is a significant sign that points to future success. One of my favorite agency clients, Dan Dyer (CEO of NASCAR Car Wash) notes that none of his high-flying executive contemporaries have ever proven to him yet the genuine economic need for a private jet. “Do you know what I call a company jet?” he said recently. “Transportation to bankruptcy.”  Good one, Dan. A funny statement, but he’s pretty much right.

4. Operates with Transparency. Commitment, integrity and transparency are closely related. A successful organization has little or nothing (other than its proprietary IP) to hide. Life is simpler with fewer secrets about billing methods, pricing and customer acquisition strategies. It’s also easier to keep employees committed and fully engaged. Transparency is key to my favorite topic, public relations, as well. Deep in the midst of a discussion on corporate spokesperson training (Watch the whiteboards. Know who you’re speaking to. Be aware who’s in earshot) one of our astute clients made a profound statement: The easiest way to avoid bad press is to live and operate each day as if everyone’s watching. He was right. Rarely does bad or embarrassing exposure occur when a company operates in a fashion that leaves nothing to be secretive or embarrassed about. Transparency of operation is a very positive sign.

5. Communication. Yes, my favorite topic is the element of strength that I’m saving for last. Again, a word of wisdom from Alan Hall: Every great leader and every great company communicates well.They communicate good news. They communicate bad news, with candor and straightforward language, as well. They communicate with skill—imagine the frustration of the investor who knows he or she has invested in a great company, but due to lack of communication, the world may never know. No great company was ever conceived and grown in a vacuum. Every successful company recognizes the vital need and the tremendous opportunity they afford themselves when they communicate well. More on that topic in columns to come.

But in summary – has any startup that met these five criteria ever failed? Surely, there are some examples—organizations who met with tragic occurrences such as 9/11, Katrina, or unforeseeable and sudden shifts in market conditions. But short of cataclysmic occurrence, I would maintain that any company that meets these conditions is highly unlikely to fail.


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