Five measures against the insolvency of start-ups

There has been a lot of news about start-ups going bankrupt lately. All of this news is unfortunate, since the founders usually put a lot of energy and time into their company. This raises the question of what they can do in terms of measures and processes to identify impending problems in their start-ups and at least to be able to initiate countermeasures.

The news has been sounding a bit similar lately. The Berlin unpackaged delivery service Alpacas, for example, was started about a year ago and was initially able to collect several million euros in investments.

Now, however, the company is at an end, has filed for bankruptcy and is looking for a buyer. As reasons the reluctance of customers to place orders and the hesitation of investors with regard to further financing were mentioned as reasons for the bankruptcy.

Insolvency of start-ups: difficulties in identifying problems

As depressing as the news is: founders would of course like to prevent such a bankruptcy. It must be said at this point that this does not always succeed because the reasons for bankruptcy are beyond the control of those affected.

However, I experience again and again that they have problems even recognizing difficulties in their company. If that is the case, measures to react to the difficulties usually come too late – if the necessary knowledge was available at all.

Therefore, I want to show you a few measures and processes that founders can implement in their start-up in order to identify difficulties at various points. The options mentioned are certainly not exhaustive and more sophisticated initiatives may be required on a case-by-case basis. However, it is important that entrepreneurs start preparing for difficulties in the first place.

Measures against insolvency of start-ups

1 Realistic planning

First, the founders must have a solid business plan and a clear vision of their target market. They should also conduct extensive market research to determine if there is actual demand for their product or service. It is also advisable to investigate whether interested parties would pay money for your offer.

Finally, entrepreneurs must also draw up a realistic financial plan and regularly adapt it to developments in their start-up. This plan must take into account their expenses and the projected verifiable income. The emphasis is on a “realistic financial plan”, because this is the only way you can see whether your business model is viable at all or whether it is developing negatively.

2 diverse teams

Second, startups should have a strong and diversified team with different knowledge, skills and characters. In addition, they need to know which of them can and cannot do what.

The team not only includes the founders themselves, but also the employees, consultants and mentors. Overall, founders need a diverse and sufficiently qualified team that can work together at different levels to overcome challenges and make sound business decisions.

A lack of diversification can quickly lead to tunnel vision, which limits the ability to perceive difficulties in and around the company.

3 Open communication

Thirdly, start-ups should also promote open communication between employees and management. In this way, they can ensure that problems are addressed at an early stage and thus recognized and tackled.

If you promote an open discussion culture, you create the feeling in the founding team that they can speak openly to each other. As a result, they are more willing to share their concerns, ideas, and feedback.

4 Meaningful Customers

Fourth, startups should focus on building a loyal customer base. This is not about occasional buyers or users, but about clients who keep coming back to the company and its offer.

However, this means that a start-up has to ask itself what value it generates for customers. How does the company stand out from the crowd and the market? This can be special customer service, offering products or services with unique benefits.

This also includes a strong brand that is particularly popular with a certain target group based on certain criteria. The better and more distinctive the offer, the stronger customer loyalty develops.

5 Development of contingency plans

Finally, start-ups should have a contingency plan ready for unexpected events such as a global pandemic or an economic recession. As I experience again and again, such plans usually do not exist.

Even more: Founders cannot imagine that their company could be hit by a serious stroke of fate. Thinking about such events and how one “actually” should ideally react to them not only helps to create awareness of the vulnerability of one’s own company, but also to recognize how vulnerable one’s own business might be.

Insolvency of start-ups: the conclusion

Not every bankruptcy can be prevented. However, a lot is often gained when founders sensitize themselves to the topic of “existential threats” so that they are not completely surprised by such events.

In the second step, founding teams can then start making provisions for certain events. That will still not be enough to be prepared for everything that could theoretically happen. But just dealing with possible problems already means that founders develop the necessary flexibility to react to concrete challenges.

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