Beware of the Zombie Startup

January 9, 2023

While every startup founder’s dream is to find their elusive unicorn, that’s hardly the case for many. Dashed dreams make up the bulk of startup journeys. After all, it’s commonly known that nine out of ten startups fail. Like everything in life, things aren’t as clear cut as they seem to be. While mega successes and disastrous endings make headlines, a breed of startups can be found lingering in the landscape. These are the zombie startups.

What is a Zombie Startup?

Zombie startups are companies backed by venture capitalists that managed to secure a large chunk of investment early on their startup journey. Like zombies, they were once alive and well. At the start, everything appears to be well and fine. Rapid growth through the pandemic means that they looked unstoppable, having valuations shooting to the moon. 

Many are already financially secure; some are even turning a profit. These startups are currently flushed with funds with enough money in the bank to prepare a runway to hide their losses.

Nevertheless, these startup companies are reaching a growth plateau. After the initial fanfare, their revenue are at a standstill that barely enough to warrant the bloated valuations.

Now that we're back in reality and life is pretty much back to normal, these founders now find themselves in a landscape that is prioritizing profits. The numbers are adding up and can potentially be due to a flawed business model. The startup could have a relatively small target market, or too few buying customers to generate enough money off them. It could also be the lack in value provided with the introduction of more competitors or alternative options at a better price. The must-haves are now nice-to-haves.

Many startups are now unable to reach their potential and come up with an adequate exit strategy. These zombie startups exist in an oversaturated ecosystem beating them down but keeping them afloat and clinging on to dear life.

Once a startup loses momentum, it’s almost impossible to gain it back. That’s how zombie startups fade into oblivion.

Should I Avoid Joining a Zombie Startup?

Unless you enjoy the stress of whether your job will be there for you tomorrow, the answer is yes. You should avoid joining them at all cost. At least when you find that it’s going nowhere and the holes on the ship is apparent and it’s taking in water.

How to Identify a Zombie Startup?

1. Funding Sources is a Good Indicator

Find out who their latest backers are. If the startup’s investors are actors, inexperienced VC funds or private investors, this could be a red flag.

2. Media Coverage isn’t a Good Indicator

Just because a startup is always appearing in the news doesn’t make it good. It just means they have a good PR team. Building a good startup isn’t just about how well the founders pitch the idea or sell the dream. It’s about sustainable and reliable growth.

3. Find Out About Team Culture

Figure out how the team works and what incentives they get for being there. Find out what the founding team’s management style is like, is it going to be toxic? Is it conducive? Do you get to see growth? Are they expecting you to work over weekends and overtime every day?

4. Transparency is Everything

Startups should be scrappy and everybody should be involved in decision making for the ultimate goal of the company. If the founders choose to be secretive, your work security might be at stake. We’ve spoken extensively about how good leadership comes with transparency and it applies to startups too.

Help! I’m Running A Zombie Startup

You’ll need to start figuring out where you were led astray from your goals and how you can get back on track. These small course-corrections can help you steer away from your eventually demise. Use your data to your advantage. Are you targeting the wrong customers? Are your prices too low? Is there a lack of demand? What does the existing market look like? What are your competitors doing differently? By looking at your data, you’ll be able to make the changes you need to your strategy.

There’s Too Much Wrong with My Startup

Now’s the time to pivot. A hard pivot away from what you’re doing into something with higher potential could save your startup and have been done successfully in the past. This requires a level-headed leadership team that knows where the trendlines are leading and work towards better opportunities. This is a good time to revisit the Lean Startup Canvas and work through your problem and solution once again.

Creating positive buzz at the initial stages of your startup isn’t always a red flag but like every bubble, the accelerated growth is bound to slow down and the bubble will deflate eventually. Once you’re back down on earth, it’s not all doom and gloom just yet.

Being a savvy startup founder is about knowing what to do next. With a good instinct that’s driven by data, even newbie founders can navigate the choppy waters of zombie land. Where are you as a startup founder and how do you chart your course? If you need access to free templates for business planning, Mad Creative Beanstalk’s got a couple of them for you.

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