Ask HN: Early signs that a company is failing? - _1tan
======
waffleau
Coming from a startup background:

1\. Senior people leaving (as has been said by pretty much everyone else in
this thread).

2\. Not having a clearly defined problem to solve, or a well understood target
audience.

3\. Not knowing who the competition are, or just dismissing them as "not being
as amazing as us."

4\. Little or no customer research - if you hear the phrase "customers don't
know what they want" and it's not immediately followed by "so we need to do
research and find out" \- run.

5\. Building solutions that don't really map back to problems. This can
manifest in a lot of ways, but the most common ones I've seen: projects
constantly changing in priority (entire projects materialise and become urgent
overnight), features that are arbitrarily demanded, or in an over-emphasis on
polish and minutia.

6\. Departments not collaborating, things getting thrown over the fence.
Workflows that move in the wrong direction.

7\. Lack of autonomy - a handful of people make all of the decisions.

8\. Micromanagement. People tend to micromanage when things aren't going well,
which tends to make them worse. It's a downward spiral.

9\. Being afraid to talk to management about problems; being chastised for
suggesting ways to improve things.

10\. When mistakes are made, focusing on blame rather than resolution and
prevention.

~~~
danudey
I'm very familiar with #8. I worked for a company that was being super picky
with its term sheets when looking for investment, but then suddenly the credit
crunch happened and all our term sheets were withdrawn. Problem was, we were
spending as if we'd already had an extra $15m in the bank, so we had to start
cutting back.

I'd had a habit of coming in around 10 AM and staying most of the day and part
of the late afternoon/evening; typical startup kind of 'go get lunch then come
back and crank out some code' behaviour, while most of the rest of the dev
team came in between 11 and 1. This includes one of our best developers, who,
without downtime, ported an entire product from PHP to Rails on his own time
over the weekend because the code was unmanageable and he wanted to be able to
iterate faster.

Suddenly, after most of the most senior (and most expensive) people have left,
the CEO decides that everyone needs to be in the office at 9 AM, you know, so
we can communicate. Sure, okay. So people start coming in at 9 AM. They're
tired, they haven't had breakfast, they only got 5 hours of sleep, but boss
wants people filling seats so we fill them. I start getting phone calls at
9:03 if my bus is running late, because my buffer time was usually taken up by
being in such a rush that I forgot my wallet.

So every day, everyone's tired, everyone's frustrated, and everyone's leaving
after they've put their 8 hours in. My start date, when my options were
priced, was the highest price the shares had ever traded at. But I was still
one of the most well-paid engineers so I stayed until I got 'downsized' and
took a month off.

Last I heard, the CEO was getting sued by the board for treating that company
as a source of resources for his other company (like flights back to his other
company's office, or my tech support to get his people up and running).

------
gl338
I'm the CEO of a 20-person startup and we've been on the brink of failure
twice. Both times, our employees were never aware of it from the symptoms
other people might expect (e.g., late payroll, some senior folks leaving); in
fact, during such times we paid everyone ON TIME so that we wouldn't be on the
hook later if things went to hell.

I would flip the question back to you: (1) Do you trust your CEO? (2) If you
DO trust the CEO, then the only time your startup is failing is when the CEO
tells you they're close to failure, running out of money.

If you DON'T trust your CEO, then your startup is also failing and #2 doesn't
apply.

That's how I would think about it.

I think every startup employee has the right to ask me about runway, cash on
hand, etc. I would be open with that info and have shared these metrics in the
past with them.

I say this because we (a) hire MBAs, (b) hire less qualified developers for
roles that do not require deep technical knowledge, (c) have motivational
posters, etc... And as we grow, become profitable, and scale to 50+ people, we
require these things simply to survive and thrive.

How could someone mistake that for a startup on the brink of failure is beyond
me, but that's what some people seem to be writing in these comments.

~~~
danielhooper
> (b) hire less qualified developers for roles that do not require deep
> technical knowledge

Therefore making them perfectly qualified for the job you are giving them?

~~~
HiroshiSan
Which is also one of the ways paul graham according to his faq, suggests one
learn to program. Win win.

~~~
wyclif
Yes. I find it amazing that people running startups apparently have a problem
with this concept. How else are junior developers supposed to gain experience
and be exposed to hard technical problems, get the benefit of mentorship, etc?

There is nothing wrong at all with less experienced devs working for a
startup. It is one of the components for building a successful company. As
your junior employees grow, they move into roles of greater responsibility.

~~~
WWLink
I always see startups looking for experienced people as a company started by a
couple of non-programmers, desperately seeking someone to make their products
for them. It sounds like they'll be worked to death and expected to work long
hours while the founder makes fluffy posts on hackernews :P

------
rdtsc
* Gut feel. This doesn't say much, but sometimes that is a good heuristic. It isn't one thing, but you'll just get a feeling.

* Custemers are not signing up and not paying. The most obvious one. But this can be hard to find. But say if you are used to add features or fix bugs customers find, and then all of the sudden nothing. It could mean product is in good shape, or nobody is using it.

* Senior people leaving. Especially developers whose judgement you trust.

* Drastic changes to the product. "Wait, why are we pivoting?" Corrolary: quite often the pivot fails. It is always in the news if it succeeds. but that is only because it is exceptional.

* No bonuses, and salaries have not been going up. If you somehow find out that nobody's salary went up and nobody got a bonus (this is hard often, companies don't want you to discuss those things).

* Maybe a sharp increase in team-building activities. Taking everyone for lazer tag is cheaper than increasing salaries. But it presents this image of "everything is fine". I have seen that -- a few senior people left. All of the sudden a sudden surge of minigolf, bbq, ski trips and other to mask away the issues. But then again, this can be a sign that the team is doing so well and are being rewarded. I guess this is more of a gut feel and depends on the large context (so it is a secondary sign).

* Owners start avoiding meetings and questions. Because they know they might have to lie. It is up to you, but you can try to ask directly. Then you sort of force their hand. That could backfire. You are now "not a team player" and not a "culture fit" so beware.

~~~
privateersman
> Maybe a sharp increase in team-building activities. Taking everyone for
> lazer tag is cheaper than increasing salaries.

That can also be a sign that the founders hate each other and are about to
split the operation - one of them is treating the employees as children in the
hope that they go with a favourite parent's splinter company. They are
probably doing it subconsciously.

~~~
WWLink
LOL this reminds me of the place I interned at. After my internship ended they
seemed to have a huge split. Except the only company event we did was go to
see a movie. It was still cool.

------
malux85
The skilled, senior developers leave.

Money problems (Travel cancelled, Free food/drinks stopped)

Drastically shorter deadlines.

They start hiring programmers who cannot code (Literally cannot fizzbuzz)

Rapid flip-flopping on projects couples with constant firefighting.

Starting to Micromanage developer time in intervals less than 1 day - (exactly
3 hours on X, exactly 2 hours on Y, exactly 3.5 hours on Z)

~~~
throwaway129384
Nailed it. This is exactly what happened at the startup I was working for. I
saw the writing on the wall and left, along with 2 other senior developers.
Replaced by a set of fast-hire "interns"* that couldn't code. Then management
started flip-flopping between a bunch of different projects with severe
micromanaging: standups twice a day, constant focus on Jira metrics. Deadlines
became very tight under monetization pressure from investors. Ultimately, the
grand "2.0" version of the app that was going to save the company never
launched, the series B was not raised, and the company fell apart.

*I say "interns" because they were actually full-time hires at 1/4 the price of developers.

~~~
rdtsc
> Replaced by a set of fast-hire "interns"*

Yes! Saw that happen. Senior people leave, management thinks, no worries, with
their salary we can pay for 6 interns. We don't need those traitors / haters
anyway. Next thing there are 6 interns there.

Not that interns are bad, they are great, I enjoyed mentoring and getting help
from many during the years. It is when they are brought in to replace a senior
devs that things might be getting a little weird.

~~~
lugg
One caveat is where I work we found the hiring pool to be an issue.

Senior Devs were usually only by title, and graduate Devs are much more
plentiful, we slowly chopped out three seniors and replaced each with
competent grad hires.

Turned out to be a much improved situation for everyone.

I can see how replaced ng good senior Devs with inadequate interns would be a
bad sign though.

------
hoodoof
Lots of secret meetings, CEO more stressed and distracted than usual,
strangers visiting the office and looking around, hasty writing of documents.

The dead giveaway - salary paid late or not at all.

If your salary is ever paid late then check to see if you are being paid all
of your statutory entitlements such as pension plan and government insurances.
If the company is not paying these things, go to the CEO and tell no one else
except them that you know they are not paying your legal entitlements and you
want it paid now. If you have lots of leave accumulated then that is cash
value to you and is at risk when the company goes bust. Resign as soon as you
can because companies typically need to pay out all your entitlements and
unused leave when you resign - and you definitely want to do that before
everyone else rushes to do the same, and before the company goes pop leaving
you with nothing. Somehow you need to navigate in a non illegal/ non
extortionate way letting them know that you'll go quietly if they paid you
everything you are owed - careful on this one, you are breaking the law if you
say "pay my entitlements or I'll.... " You are of course entitled to explain
that you have spoken to your lawyer and accountant to understand exactly what
they owe you, and also explain that they have advised you to contact the tax
office if you are not being paid what you are meant to be paid, presuming that
is the case, which it should be. The CEO won't be enthused about anyone asking
the tax office why the company is behind on its payments and this will give
incentive to the CEO to pay you fully out. Make sure you and your accountant
calculate exactly what you are owed and have it in writing - don't let the
CEO/company calculate that because it is likely to be wrong.

------
ChuckMcM
Sometimes I think this is the "Does she/he really love me?" question. Because
it says a lot about the person asking and about their world view.

I'm pretty sure that every company I've worked in had a success rate that was
inverse to the belief that it was failing. That is to say assume that the
company is failing, always. That makes two things true, first when you get
"bad news" that something hasn't gone right it doesn't suddenly throw you for
a loop, after all the company is failing. The second is that you are more
carefully looking for things that are helping, and putting energy into them so
that you can extend the life of the company just that much more.

You are most at risk when you think you are _not_ failing, then you take your
eye off the ball and start coasting a bit. Taking some "me" time as it were.
That is when a glitch or misstep will feel like a huge betrayal from "we're
doing well" to "we're dooooomed!" And everyone will stop and reassess just
when you need them to be taking action and responding.

Often the root of this question is, "Should I stay or should I leave?" After
all if you conclude the company is failing you can give yourself "permission"
to leave. And since that is the root question, I have found a better way to
ask it is, "Is working to make this company a success helping me achieve what
I want to in the next 5 years?"

Whether or not the company is failing is irrelevant as input to the question,
"Is this the best way to be spending my time?" That question can only be
answered by thinking about what you want to do, or be doing, or not be doing,
in the future and evaluating if what your are doing right now is getting you
closer to or further away from that future.

------
HelloNurse
Saving money in new ways, with adverse consequences on work and employees that
prove it isn't a benign optimization. Variant: ending or selling off
"unnecessary" luxuries. For example, the newest computers are cheaper than old
ones, free food is replaced by a vending machine, art on display disappears.

The slightest hint of late payments. For example, salary one day late "because
the bank made a mistake": in reality, the company was waiting for cash but
negotiations with banks or other lenders were difficult enough to miss the
deadline.

~~~
gl338
I'll be writing a longer response in a few minutes. I am the CEO of a
20-person startup and there were a few scenarios we've had where payroll was
_truly_ late because of bank issues.

Just want to bring this up so people aren't paranoid when such things happens.
They DO happen, especially now that so many startups use "cool" and "hip"
startup payroll providers that also make mistakes.

~~~
protomyth
I've seen both. The most truly pathetic thing I have seen was the rush to the
bank to cash the payroll checks because certain employees knew that the
account only had enough to pay a certain number of employees. Have also seen
an innocent bank failure that screwed a payroll cycle. Luckily the bank
covered overdrafts for the day it hosed everyone[1].

When the company is innocent, its best if the employer shows the employees the
cause of the failure and be really, really oversharing so us very angry
workers aren't inclined to riot.

1) at this late date, I get the feeling because the town was small enough to
call around and make sure people banking at other banks didn't overdraft
either instead of covering them money-wise after the fact.

~~~
gl338
Oh boy, that sprint to the bank sounds absolutely devastating. :(

~~~
protomyth
When the business office people leave work 15 minutes early, then the rumor
spreads and you have a parking lot of people driving like Mad Max to the bank
the company uses[1], it does get pretty bad. I was an observer since I worked
for someone else.

It was in the 90's and there were "personal adjustments" that occurred later
on.

1) cannot drive to your bank because then the check would bounce and really do
some extra fun damage - plus this was before direct deposit was available at
that company

------
WillPostForFood
Some warning signs I have seen:

* conflict between founders

* investors start "suggesting" changes to strategy or stack

* hiring someone external to take over tech team

* instituting some new "system" to improve productivity

* appearance of consultants

~~~
wyclif
To your last point: when Bob Slydell appears, it's never a good sign.

------
dreamcompiler
My guide for a company in decline--and more pointedly for when it's time to
leave--is the bullshit/productivity ratio. How much time are you being asked
to spend on bullshit that doesn't get product out the door vs. real work on
product? If b/p is high, that's a red flag. Now look at the first time
derivative of b/p. Is b/p increasing or decreasing with time? If it's
increasing, that's a bigger red flag. If it's decreasing, maybe the problems
are getting fixed and you should consider sticking around. Finally, if b/p' is
positive look at the _second_ derivative. Is b/p accelerating or decelerating?
If the former, LEAVE NOW. If the latter, maybe b/p is approaching an
asymptotic level you an live with. Or not.

~~~
ramtatatam
Hahahaha, good one :-)

------
phasetransition
If every sale remains an exercise in business development and requires the
driving force of a founder or similar key person, then the company is closer
to failure than success.

While this type of biz dev feels like forward action in the trenches, in
reality it means that you are only a few key deals or people from an empty
accounts receivable.

Companies that bring process to the prospecting and sales cycle, and develop a
path to closing business that is not highly dependent on a small pool of
stakeholders have a clear path to growth.

~~~
edoceo
Specifics to very early stage start-up following the methods currently
labelled as "Lean":

In this case the exercise in BD is relabelled "Customer Development" and the
founder is there directly to learn from and build relationships with the early
(<100?) customers. The "Way of Lean" says to do these things that "don't
scale" to help create a better refined, higher quality product that customers
really do want.

By deal #101 some processes should be in place, because now the customer is
clearly defined an there is good market fit.

Statistically, every early stage business is closer to failure than
success...until they're not.

~~~
phasetransition
I probably should have added the caveat of speaking about working in an
environment that is not purely software.

Here a few dozen clients/deals per year (or less) can keep a company moving
and even feeling like it is progressing. Meanwhile the underlying fragility in
the sales process is obscured.

------
tlogan
This is very interesting question and answer is not so simple.

First, if a company is a startup which is not yet profitable and burning
investors money you should assume that the company is failing. Yes - you might
be wrong (i.e., the company is AirBnB, Dropbox, etc.) not but in 95% of cases
the company will eventually fail. In this case, just ask CEO/CFO/your manager
about what is runaway, cash on hand, etc.

Second, if a company is already established (out of startup mode) then you can
see signs:

\- senior management leave (they have access to more informations than you)

\- rapid flip-flopping on features and priorities (maybe caused by above)

\- TPS reports become a norm

~~~
derefr
> a startup which is not yet profitable and burning investors money you should
> assume that the company is failing

If a startup doesn't have a period where it is "not yet profitable and burning
investors money", then it didn't need investors in the first place. The whole
point of venture capital is to enable the existence of "convex" business
models that require a period of revenue-less work before anything happens.

~~~
tlogan
Yes.

You have to understand that startups "by default" are failing. They are
searching for and developing repeatable and scalable business model.

If they found that "repeatable and scalable business model" they are not
startup and they are called established business.

If they do not find "repeatable and scalable business model" they fail.

I was in 3 startups so I would say 100% fail but that is my luck.

------
ChemicalWarfare
If you have any exposure to the business side of things (which in a small[ish]
company just about everyone does no matter the role unless the management is
proactively hiding these things which then is a pretty clear symptom in and of
itself), the impending doom is typically pretty evident.

Things like not being close to breaking even in the foreseable future,
investors getting cold feet, having to pivot to appease the VCs etc etc.

On this last point - you really see the true colors of upper management when
pivoting kicks in. If there are concrete actions taking place aimed at getting
shit done to keep the company afloat - there might be a chance there. If,
however, it's just posturing and paper-ware BS to fool the investors into
thinking there's a fundamental change of direction - that would be a major
sign of things being REALLY bad.

------
p333347
To me, the number one sign is the deterioration of HR policies. Beyond late
salaries, when they begin doing away with flexible work environment, like
variable hours, and try imposing things and micromanaging, effectively
treating knowledge workers like shop floor laborers (there isn't anything
wrong being a shop floor laborer, I am just providing a reference), it is a
sign of what is imminent.

I used to work at a place, a 10 year old established medium sized company,
that was hit so hard by recession of 2009 that it disintegrated. The HR thing
I mentioned is the period I can trace back to to say when it was the beginning
of the end.

------
jwatte
In some sense, every company is always at risk of failure. Fortunes can turn
quickly. Also, every success story has a few tense nail biters on the way. If
you are an employee (not a founder,) then keep a rainy day fund on hand, and
leave if the work is no longer what you want to do. Also, make sure expense
reports and paychecks are paid on time, even for successful companies!

------
slater
When they start hiring MBAs, who then turn everything into a "profit center".

------
mkov
Watch out for any change of habits, especially regarding what employees spend
on food at lunch time.

------
slackoverflower
The rate of industry change is greater than your product development.

~~~
nerdponx
If you can actually pick up on this, it's a good early warning sign. If you
don't already have your two weeks in by the time they take away the coffee
maker, you've probably already stayed too long.

------
pasbesoin
People stop telling you the "why" of things, and/or you stop believing them.

------
vellum
[http://c2.com/cgi/wiki?WarningSignsOfCorporateDoom](http://c2.com/cgi/wiki?WarningSignsOfCorporateDoom)

* No more free soda or coffee.

* Toilet paper quality suddenly drops.

* Someone comes by to measure your desk and cubicle, but refuses to tell you why.

~~~
trimbo
* Rental plants in the office are reclaimed

------
nil_is_me
Cutting costs by turning off the QA servers.

~~~
lightbendover
If you turn off the QA servers, then production is your QA server. This may be
the surest sign in the entire comment section.

------
Mz
I will suggest that you fail when you give up and no company is ever
completely free of the threat of failing, no matter how long they have been
around. If you hit challenges that the C level staff cannot overcome, then you
are likely to die. But C level staff are often able to do "the impossible."

It is going to be nigh impossible to determine that something is certain to
fail. Paul Graham suggests that startups need to just "not die" to eventually
make it. I will suggest that this continues to be true, even after they are
worth billions of dollars.

------
antoniuschan99
There was a post on Reddit a few days back that I thought had some great
answers:

[https://m.reddit.com/r/startups/comments/4zkka8/what_are_the...](https://m.reddit.com/r/startups/comments/4zkka8/what_are_the_early_symptoms_that_a_startup_is/)

------
jmspring
Ticky-Tack book keeping around things like vacation and sick leave. Anything
that implies a liability on the books.

------
alexcason
Motivational posters

~~~
Mz
I upvoted you, but I would say Dilbert Calendars and the like are a better
indicator.

~~~
seanmcdirmid
Dilbert calendars are healthily cynical, not elements of denial like non
sarcastic motivational posters.

~~~
Mz
I don't think I have ever before heard the expression _healthily cynical._ I
have heard of _healthy skepticism,_ but not of _healthy cynicism._

~~~
derefr
Military generals and ops people can have _healthy cynicism_ about the
probability of any new technology being bug-free.

------
BurningFrog
There is always news. If you don't hear any for a while, it means the news is
bad.

That's all I have.

------
mildbow
No growth and/or no progress on getting traction.

Without this, it's only a matter of time.

------
hacknat
As someone who has worked at quite a few startups this is the wrong question
to ask. Out right failure is pretty easy to detect, and it kind of doesn't
matter. A startup failing _fast_ is the second best outcome (after a nice
exit) for everyone involved, including the investors.

Startups that fail slowly are the worst, because there is an illusion of
success that can drag everyone along for years.

Always keep in mind that the odds will always be astronomically high that you
are working for a startup that will fail. You're probably working for a
startup that's going to fail. Most startups fail fast (but never employ many
people), but the startups that hire the most people fail slowly, so the odds
are very high that you are working for a startup that will fail slowly.

So what should your question be then?

It should be: Am I enjoying my job and/or does this job contribute to meeting
my career goals? If the answer is no for too many months in a row and you are
relatively sure the answer won't change and that you have no power over making
it change then it is time to move on, with _one_ highly unlikely exception:
Your startup is succeeding and your equity stake is enough that riding the
wave of a bad job for a year or two will result in a good chunk of money for
you.

So what are the signs of a company that is succeeding? There really easy to
spot actually, even though you've never seen them:

1\. Everyone's hair is on fire. Micromanagement is not a thing at your company
because everyone is desperate to meet the insane demand and growth that your
product has.

2\. The technical work is very enjoyable, because the growth is insane. When
you achieve incredible growth it actually stops managers from making decisions
that don't scale, because the technical team will have numbers on their side
of the argument. Your company can no longer afford to hack things together,
because it has to scale _tomorrow_.

3\. Talented people are banging down the door to work for your company.

4\. Founders aren't talking about exits in terms of goals, but in terms of
certitude. They've already received offers and they now have strategies in
place to get the kind of exit _they_ want.

5\. BS of all forms is not experienced, because no one has time for it, even
the people who normally spew it.

6\. Hockey stick growth in either user growth or profit growth is trivial for
you to see in your position. The founders don't have to convince anyone that
your company is doing well, it's just plainly evident.

If you are not experiencing these signs and you hate your job than it's time
to move on. Founders hate to hear this, but if they haven't gotten traction in
the first year-and-a-half they probably will never get it. There are notable
exceptions, but it's important to remember that you are not the exception
(does your founding team seem exceptional to you?).

------
kevindeasis
If you know the numbers

[http://paulgraham.com/aord.html](http://paulgraham.com/aord.html)

------
chrisked
Founders starting to tap into the employee option pool for themselves.
Difficult to hire or retain talent after that.

------
auganov
Still believing a transformative event is coming after a couple failed
prophecies.

------
danso
Firing of social media folks, or at least a downturn in social media activity

------
homoSapiens
Is slashing salaries by 50% also a sign?

------
samblr
Competitor pivoted and got funding

------
pbreit
Lack of users and usage.

------
smacktoward
I wrote a blog post describing my personal test for this sort of thing:
[http://jasonlefkowitz.net/2013/05/introducing-lefkowitzs-
law...](http://jasonlefkowitz.net/2013/05/introducing-lefkowitzs-law-of-
corporate-financial-health/)

~~~
Mz
I had experience with a similar work environment, though I drew a different
conclusion:

[http://micheleincalifornia.blogspot.com/2016/08/business-
til...](http://micheleincalifornia.blogspot.com/2016/08/business-til-death-do-
you-part.html)

