For most of my professional career, from 1999-2007 I worked at large corporations (Conde Nast, John Wiley & Sons) and had almost no experience with either startups or small companies. There are huge differences in these work environments and for me, the most troubling was not knowing which problems were normal and which were signs of systemic problems that could kill the company.
While working at one small startup I reached out to a VC friend with the following question:
I realize that financial problems go hand in hand with a startup, but what are the symptoms that something is seriously wrong?
And his response:
Running low on cash with no prospects of funding is definitely a bad sign. Also lack of customer traction, no revenues and executive team turnover. If I had to name the “top three” this would be it.
Having worked at two startups, including one in Iceland during the financial collapse (kreppa) I would agree with his statement. I would add that these are not necessarily fatal but do signal that something is seriously wrong with the business. If the CEO/founder is aware of these issues and proceeds along the same path, you could be looking at a failed business.
The above quote also demonstrates the importance of having mentors/advisors outside of your startup bubble. Once you take the leap to start/work at a new company you often find yourself both hearing what you want to hear and surrounding yourself with people that tell you what you want to hear.
A healthy dose of skepticism from an outside source (outside of the board of directors) is invaluable.