Key Factors Behind Startup Failures
This article is a bit like a flamboyant startup suicide manifesto.
The first way people die: by focusing only on the glossy vision while ignoring real financial and operational metrics. Normally, the goal is just to raise money. Don’t borrow heavily for a half-baked idea—use shareholders’ capital to experiment instead. There are all sorts of ways to siphon that money into your own pockets (salary, advertising fees… the players from the past decade were quite creative about this). When it all falls apart, it doesn’t matter: the cash is in your pocket, the debt stays on the company’s books, and you declare bankruptcy. The more brazen approach? Falsify financials to attract the next round of investment, enabling the first round of shareholders to exit. And of course, those early investors will gladly applaud you… much like the old days of ofo. Every member of the management team drove a Tesla, but no one ever publicly sold off their property to refund depositors. Even right up until bankruptcy, investors kept praising the company’s management and performance…
Alright, let’s get serious:
Cash flow matters—it’s the line between life and death. Two core financial realities affect it most: employee salaries must always be paid on time, and rent must always be paid on time. Your cash reserves should comfortably cover these obligations until your revenue grows large enough to absorb them entirely.
So never take on unlimited liability debt. Ideally, don’t borrow at all unless you can secure low-cost leverage and your business genuinely generates profit. Otherwise, spending investors’ money is the smarter move.
Letting shareholders trap you in compounding, unlimited-liability debt is basically them charging you usurious interest…
The second way people die: hitting the road with zero preparation. Pay attention—in China, the very first thing you need to figure out is whether your chosen project can actually get off the ground. The key question is whether you have the required准入资格 (entry qualifications), and if so, whether you can resolve them. Only then can you truly begin. Why are there so many people serving as legal representatives? (Makes employment figures look better, increases the number of registered enterprises.) Then there’s the maze of certifications: can you obtain them? Can you work around them? Can you afford the fines if you can’t? If none of these are solvable, and you’ve already procured raw materials, bought trademarks, manufactured products, and think you’re ready to sell—don’t just register a business license and pretend. Unlicensed operation isn’t impossible, but only if the risks are acceptable. The problem is, you can’t even run, you dare not run, and you certainly can’t absorb the penalties.
If you can’t sort this out, pack up and bail early.
The third way people die: overestimating how willing partners are to stick around. You must repeatedly clarify whether the capital they’re injecting is truly patient money—meaning, it can sit untouched for years. When can they exit? That’s the first principle of investment, and it must be spelled out clearly. Anything less guarantees friction and disputes. The conclusion is brutally simple: building a side hustle to earn a bit more money will keep you alive far longer than blindly launching a startup. Also, calculate your cash flow carefully—it has to be enough to sustain operations. Uncertain cash flow gets you killed. How do you know your “partner” isn’t deliberately pulling out to sabotage your cash flow, forcing you to sell cheap so they can quietly complete the acquisition themselves?
Business has never been about everybody getting along nicely…