Identifying failing and bad start-up companies (for sofware developers)

I recently caught up with a former colleague, a mid-level software developer. For the last year, he has been at a failing (badly), self-funded, single-owner software startup.

According to him, the president has no software development experience, used his own personal savings and cash-out from an ineffectual software partnership to start the company, and pitched his "revolutionary business changing" idea to unsuspecting people last year (including the former colleague). They have not worked on the idea since opening, instead they've been working on scores of ad-supported mobile and web crapware and according the colleague's inside sources, have plans to outsource almost all of the development of the "revolutionary idea". Also according to the same inside sources, the company is losing $20k a month, already being down $100k from license and equipment purchases.

To make things worse, he signed a broadly defined 24-month NDA and non-compete agreement under suspect circumstances, and is working for well-below market wages, even for a state well-known for relatively low IT wages (he was also sold the profit-sharing and bonus idea).

What are the ways that developers can identify these bad, fly-by-nigh, start-up companies and steer clear of them? What are ways can developers identify these companies on recruiting websites and in personal interviews? And if a developer suddenly realizes they are working for one of these companies, what are the steps he or she can take to remove themselves from them with minimal repercussions?

Your own question lists very important clues:

• Single owner/funder. Most of the times a bad sign. You need to keep some perspective and a high level of discussion in a startup. The owner (especially if he's alone) needs to have a good network to complement his own skill set and culture.
• No technical experience in the management team. See previous point. This is the kind of things easy to check during early interviews. If the company has no technical-savvy people in its management, it should offer a management position to a technician before recruiting any other one.
• No focus on execution. If a startup's product and services change, they become the new focus. If other developments are needed to generate some cash flow to fund the initial project, a sensible thing would be to create another company for that.
• No balance between risks taken by employees, constraints imposed by contract or working conditions on one hand, and potential remunerations, transparency of decisions, direct influence on product definition and evolution on the other hand. Why work in a startup if you have the disadvantages of big companies without the pay and the relative job security ?

A few of my own criteria:

• Many other people have said it: if you have not already failed one or more time, you probably are not ready to succeed. That's how you know what you are ready to do, how much you want to sacrifice to keep a project alive. Do not go in a startup where all funder(s) and founders are at their first attempt.
• Do not go in a startup where the founder(s) do not give you their own resumés.
• Do not go in a startup where the founder believe that their ideas are sufficient to succeed.
• Do not go in a startup which has not at least one identified competitor (even partial).

But I am not qualified to give advice to your friend about leaving his current company. I wish him good luck and the opportunity to start something new very quickly.

If you're being hired as an employee, you have to follow the money.

Determine if they have enough funds to get through a reasonable amount of time to at least pay salaries.

Ask for the sales and marketing strategy. Define what it takes to make sales. Do they know? If they do know, do they have everything and everyone in place?

Some people know how to get external funding. They should have a strategy other than, "We'll call a few VC's."

Wasting time on the apps didn't sound like it was presented as the stragegy. Seems like someone wanted some quick cash. I would want to know why this wasn't mentioned during the hiring. An employer doesn't have to feel obligated to disclose everything, but if you want people to stick with you, open honesty should be considered.

In this situation the programmer has every right to leave. I don't believe this company has kept up their end of the hiring agreement.

For the identification portion I usually follow a few basic rules. Does the found have just an idea or does he/she have a plan of execution? Would I use the app myself if it was executed the way the founder plans? Does the founder speak mostly of stuff three years in the future or things that need to be done next week? Does the idea matter to me? Do I know people who would use this application/service?

These questions dig down to the core of the new business. What does it do, how does it do it, who would use it, and why. They also attempt to see how invested the founder is in the execution of his/hers "killer idea." How protective a founder is of the idea vs its execution is another good indicator. If the founder is doing everything possible to not let the idea out, something may be wrong. This is mainly because as soon as the product is launched the cat is out of the bag and if the execution is poor but the idea has merit, someone will run with it.

On the getting out portion I would consult with a lawyer, if possible for free at a bar over beer. This suggestion is that the developer needs to talk to a friend with some legal experience. In my limited experience the various NDAs and non-competes do not stand up in court as they are constitutionally illegal. That being said if you leave the company mid developer and start a competitor, the original founder is bound to be pissed and go after you. If you simply leave to do something completely different they will be upset, but not enough to spend money on lawyers.

Hope this helps.