Posted in Business Development

How To Spot A Start Up Business That Will Fail - By L. Burke Files

President of Financial Examinations & Evaluations, Inc.


In my experience, there are five factors that clearly demonstrate future underperformance even if teams seem competent and a company looks good on paper.


All "Start-up Guys".  This one may seem counterintuitive, but especially in business applications, it's not.  You need start-up guys to do a start-up.  But people that only want to do early stage stuff don't scale up at all. Heck, they don't even manage all that well.  On the other hand, you do want people who will take an idea and run with it.  However a business will need a few people at the top to be able to scale, two at a bare minimum. When your work force starts to quit (as soon as everything gets past 20-50 employees) and discipline becomes part of the picture, it isn't going to work out well. 


Lack of Trust Across Team. Start-ups need to make no-look passes all day long.  If the team is strong as individuals, but lacks  relationships, the trust to operate as a single entity, will fail.  You must watch the body language when everyone is present and ask questions of individuals independently.  Then you will see if there is trust or not.  Nothing is more poisonous than employees trying to figure out what other employees are doing -  the rumor mill.


Lack of Learning.  Hubris is required to start a start up.  However, some mega minds take this the wrong way. If  they learn something new that can help improve the company and the team -- they are able to evolve, change, and incorporate those learning’s.  If not, and you see the attitude of "it’s my way or the highway" and all new ideas not emanating from the owners are chucked out the window, run.  Ignorance in full force is astounding.


Insufficient Expertise.  Smart guys can talk themselves into attacking any problem even if it is not there field of expertise.  But if you are entering a space without sufficient hard-won experience, you are going to miss the point and make all of the mistakes all of the other pioneers in that field have made. Yes, I know Reed Hastings started Netfllix because he hated late fees. But just because you don't like something does not mean it is wise or profitable to change it. This is a solvable problem in staffing up or in recruiting outside experts. If all problem solving is focused on reinventing the wheel, progress will not be made.


Short Termers With No Patience.  Founders are always impatient to get going, to scale quickly, to build a great team and a great company, but it's going to take time.  A bunch of guys who've never worked more than 24 months at any company won’t make it.  These guys do not see the future clearly. They cannot see the $100M+ business 7+ years down the road or all of the trials and tribulations it will take to reach that summit.  Further, they’ll quit when it gets tough as they have done time and time again.


Start Ups are hard work with hard choices.  Vision, leaning, teambuilding and dogged persistence are the keys to retain any hope of success. Without these, even the best ideas will fail - as the team will fail.


Mr. Files is a published author of five books, in particular "Due Diligence for the Financial Professional, 2nd edition 2010" and "Money and Budgets." Other writing and material can be found at  Mr. Files is an international speaker on these topics. 


FE&E, Inc. is an international investigative firm specializing in fraud prevention, asset recovery, due diligence, anti-money laundering and intellectual property. 


As a financial industry insider for over 30 years, he is keenly aware of the type, and accuracy of the information required to make decisions. Mr. Files has been the case manager on fraud investigations ranging from tens of thousands of dollars to over $3 billion.   As an international expert on due diligence and Intellectual Property and Critical Information (IPCI), he is regularly sought for those cases that bedevil the desktop practitioners. 


This article is courtesy of the Top 1% Club and the Top 1% Club Mentor Gail Kasper. For additional information on Gail Kasper, her television appearances and speaking engagements, please visit