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5 Critical Questions to Ask to Evaluate the Health of Your Startup

Opinions expressed by Entrepreneur contributors are their own.

If you ask me, entrepreneurship is one of the most challenging roles you could ever undertake. The stress and burden of starting and building a successful business — not to mention the pressure of keeping people gainfully employed — falls squarely on your shoulders.

It can be far too easy to become distracted by growing your revenue and sales to appease your investors that you forget to look at your company’s health. The bigger your company gets, the heavier that load becomes. Yet, for those who have the fortitude to take it on, it’s an exciting and rewarding experience, full of daily joys and challenges.

Regardless of your business type, every entrepreneur must take a step back from the daily grind and evaluate where their company is and if it is healthy. As an entrepreneur and venture capitalist, I always try to judge the overall well-being of a startup and focus on these five areas to make it a healthier company.

Related: I Wish I Received This Advice as a Young Entrepreneur

1. How are my employees doing and how can I improve their well-being?

No healthy startup stays that way if the people who keep it moving aren’t healthy. If the pandemic showed us anything, it’s that providing support and resources for health and wellness can positively impact employee morale.

A startup’s commitment to creating a supportive and healthy work environment can help reduce stress and improve employee motivation, increasing engagement and productivity. I’m not talking about a general, one-size-fits-all approach that will simply be seen as a half-measure. Every person on your team is different, and each person’s wellness needs differ.

Improving employee wellness

If your startup is still small, don’t be afraid to talk to your employees directly to ask them how they’re doing and to understand their wellness routines. These conversations will help you develop an informed strategy for the company to support their needs better.

For larger companies, reach out to an employee wellness consulting firm. Ask them to collect employee feedback, find out what your competitors are doing and use these data points to build a customized plan for your workforce. Don’t exclude your own health in this area, either. As a leader, you must be on top of your game, setting an example for others to do the same.

2. How are we handling failure?

Depending on your personality type, risking failure may be the best or worst part of your startup life.

Most entrepreneurs realize that failure can be a good thing, but only if it’s handled in the right way. While this can be hard to measure, here are a few probing questions to help get a clearer picture:

  • Do I or my team dwell on failures longer than we should?
  • Are we consistently repeating the same mistakes?
  • Does fear of failure impact our motivation or creativity?

Strong leadership is critical

Ultimately, it falls on the leadership team to encourage a culture of learning from failure and implementing structures to leverage these lessons while preventing reoccurrences.

Encouraging leaders and employees to think critically and evaluate where things went wrong is vital. Meet with your teams and discuss these questions:

  • What was in their control vs. out of their control?
  • Looking back, were there any early signs that now seem apparent this would be a failure?
  • What can we change in our process to better detect issues earlier?

Related: The Difference Between Startup Success and Failure Comes Down to This One Thing

3. Are we attracting the correct type of people to hire?

There are generally two types of employees: those working for a bigger paycheck and those working because they believe in the direction and culture. Is your business built for one type over the other?

It is vital to focus on building a business where people want to work rather than those who will just work there because they get paid above market rates. With younger employees, compensation is essential, but role and company fit are equally if not more important. This is another challenging area to check the status of, but a good sign is that you regularly receive inbounds on LinkedIn and directly from job seekers.

Hiring the best fits for your startup

So, where can you find suitable candidates?

Your employees are your greatest advocates, and while you need to be careful, you often find high-quality candidates from within their networks. Encourage your employees to take some ownership and let them be more involved in the hiring process, especially if your team is smaller.

4. How well do you understand where you’re spending money?

You would be shocked at how often companies do not know how much money they spend per month, quarter or year. If you find yourself in this category — and it’s okay to admit it — or you want to understand your financial picture more clearly, here are a few questions to ask yourself and your team:

  • Do you have a budget, and is it realistic? Have other people in the organization sanity-checked it?
  • How are you currently tracking compared to your budget?
  • How well is spending aligned with your core strategy compared to new opportunities or potential distractions?

These are simple questions, but they can help you uncover significant flaws in your financial process.

An early focus on finances

Building a robust financial function early in the company’s life cycle may cost more upfront. Still, it saves you and your startup headaches and costs in the future, especially when you start dealing with investors and auditors.

If your company is more mature and making significant financial progress, it may be time to invest in a strong CFO if you haven’t done so already. You’ll want to bring someone in who can tie company strategy back to your budget and spending and support the finance team.

5. Are your employees taking initiative?

Earlier, I mentioned the importance of hiring the right people for your organization. This aspect becomes solidified when you examine how often employees step up and take ownership — and whether you, as a leader, are encouraging it. As they experience the ins and outs of company life daily, your employees likely know the inner workings of your business better than you do. This is a good thing. It means they’re deeply involved and invested.

However, it’s essential to recognize whether your employees are bringing you new ideas of their own volition or simply obeying orders. Are they expressing their thoughts and opinions in meetings or sitting silently and listening only?

Promoting a culture of initiative

One of the best things you can do as a leader is to take the initiative yourself and speak with your employees, encouraging them to be critical of operations and providing them with a safe environment in which to do so. On certain occasions, this is better done through an external firm or using an anonymous method. As an investor, I’ve found more success speaking with employees directly and communicating feedback to management.

Related: 7 Easy Steps for Encouraging Employees to Take Initiative

A healthy perspective

Evaluating the overall health of your startup means paying attention to details beyond financial metrics. An entrepreneur must consistently assess the company’s well-being and adjust as necessary to ensure long-term success. These five questions aren’t comprehensive, but they are essential to building a healthy and sustainable business.

All of these require a keen sense of self-awareness as a leader. Leaders often operate isolated with “blinders on” in pursuit of their goals or revenue objectives, sacrificing the broader foundation of the business and how it will affect future scalability. As a long-term investor, I firmly believe in building a solid foundation, even if it means taking things a bit slower.

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