

Decoding the Deadpool: How to Tell When a Startup Has Failed - phprida
http://johnnystartup.com/decoding-the-deadpool-how-to-tell-when-a-star

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StavrosK
Warning: Does not actually mention how to tell when a startup has failed.

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robertlaing
Right: title is nice, article is a bit lacking.

I was imagining a combination of metrics (and a heavy use of the Crunchbase
API) that would allow you to guess their burn rate and cash remaining. Could
be pretty cool. Maybe someone wants to build it?

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StavrosK
I went even further, and imagined general advice about how to tell when it's
time to abandon your startup vs sticking with it.

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dguaraglia
Well, aren't we all disappointed, lol.

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StavrosK
I upvoted it purely for the crushing sense of bitter disappointment.

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ElissaShevinsky
What are the implications of Techstars under-reporting the deaths of their
startups? Not to knock 100K in notes (and the other benefits of being in a
reputable accelerator) but these statistics vastly overstate the positive
impact of Techstars.

As for Crunchbase, they could do a reasonably good job of catching the death
of startups by running a check every six months for basic social media
updates. While it might be premature to call a quiet startup dead, they could
include a line to call a startup "inactive."

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adventured
I think the issue is that the cheap cost of operating infrastructure for most
small tech startups means a lot of deadpool candidates continue to live on
longer than they should. The duration of existence might expand courtesy of
how far $100k (etc) goes, but the number of failures will trend toward the
average given enough startups.

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rdl
IMO it's pretty easy to keep most startups going in a low-burn mode. The hard
part is scaling back from high-burn to low burn, but assuming you can do that,
you can _probably_ find a way to keep the domain registered, minimal service
operating, etc. -- assuming whatever you're selling is at marginal profit
instead of a loss.

Worst case, do consulting or get a day job.

It gets complicated when you've taken outside investment, but I suspect any
rational investor will convert to equity rather than liquidate. The real cost
is opportunity cost for the people who remain involved (usually founders,
although sometimes employees switch from salary with small equity to a much
larger equity stake).

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jacques_chester
This is what I like about old-fashioned business. You can tell when the
business is a failure: you are no longer able to meet your obligations to
creditors.

Usually this happens when you run out of cash. It's one thing to have a
solvent balance sheet where assets handily outweigh liabilities. It's another
entirely when bills fall due and you have no cash to pay them.

The classic example, to me, was SiCortex. They had a fantastic future A/R on
sales pipeline in a growing segment. But they were also slowly moving from
cashflow negative to cashflow positive, which meant they needed regular
injections of cash to execute their plan. The GFC struck and cash stopped
being invested; and that was that.

This particular example sticks in my mind for two reasons. The first was
because it was such a vivid illustration of income vs cashflow. The second
because of the amount of beard-stroking BS about how they were a victim of x86
blah blah blah. Seriously, no. They ran out of cash.

And generally that's what happens. The difference now is that lots of startups
have short cashflow cycles. If they bill, they bill monthly. If they're on
advertising, it's probably paid monthly. They frequently use Pay-As-You-Go
services to run their business, and most PAYG providers bill ... monthly.

So when the cash runs down to zero, there's really only a month of obligations
to meet. In fact you can bail out a month earlier and never have to go through
the very unpleasant and often _very public_ insolvency dance.

Meanwhile, most conventional businesses have lots of long term A/R and long
term A/P. Cashflow is locked in months in advance, so if and when a crunch
arrives there's very little to be done about it except to go to a bank or
investor with a cap in hand. Sometimes they say "no", or worse, "we've already
given you $X, and now we want it back no matter what". Boom, you're insolvent
and people can see it because your creditors took you to court.

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deevus
fts;dr - font too small; didn't read.

Seems to be becoming a trend in technical blogs.

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smsm42
You know changing font size in the browser is still legal, right? :)

