Do You Work for a Zombie Startup?

Published on November 19, 2020

Most startups flame out early, never able to produce a product that resonates with the market. A select few see rapid growth and a successful exit. And then there are the zombies.

Zombie startups aren't properly dead. The trouble is, they aren't properly alive either. They have no realistic path to an exit that would justify the money they raised from investors, but they still have enough funding to continue operating. Maybe the founders are in denial. Maybe they feel a sense of obligation to see things through to the very end. Or maybe they're just stubborn. Whatever the reason, the startup continues shambling along in this sad state of undeath.

Employees typically don't have the same insight as the founders into a company's true financial situation or strategic position in the market. Even so, there are some tell-tale signs of a zombie startup that anyone in the org can recognize without knowing anything about the company's financial situation.

1. The rats jump off the ship

It's normal to see some churn at the highest levels of a company. A fast-growing startup will often outgrow the skills, experience, or even desired work environment of its top executives. It's also normal to replace executives who are under-performing.

At a zombie startup, everyone in the leadership team is under-performing. Executives are typically canny enough to recognize when it's impossible to perform well and will cut their losses. When you start seeing significant churn at the highest levels of the company because everyone is "moving on to new opportunities" you are no longer witnessing the normal growing pains of a successful startup: you're watching rats fleeing a sinking ship.

This goes doubly so for any people who were brought on the team as "thought leaders" in your startup's subfield or industry. These people are domain experts, well-connected, and very in tune with the competition. When they start leaving to avoid the stain of your startup on their professional reputation, it's a very telling sign.

You should also pay careful attention to whether and when these leadership positions are filled after someone has left. If they stay vacant, it could be a sign that your startup cannot afford to hire executive-level talent anymore. It might also indicate that your cap table is so busted it's hard to attract executive talent (since executives are largely compensated in the form of options grants).

Working in a rudderless department or company is stressful and frustrating. If the leadership vacuum is allowed to persist, you'll start to see even more talent dilution as high-performers at every level of the company start to bail as well.

The people who can leave will leave. And that leaves you with a cadre of true believers and a smaller group of people who couldn't do any better.

2. Good vibes only

Just about every company claims that it has "transparency" or "honesty" as part of its culture. It's easy to be open and honest when things are going well. It's much more difficult when all your truths are hard truths.

It's not so much that a zombie startup will lie you to as it is that it will avoid talking about the things that are going poorly. For example...

  • Your all hands meetings used to include a slide that showed progress toward sales and growth targets. When those targets continue to be missed, the slide is quietly removed.
  • Your department heads give OKR presentations that only talk about what went well that quarter. The OKR scores aren't shared, and there's no discussion of what (if anything) could have been improved on.
  • Plans -- even major strategic initiatives -- are abandoned without explanation or comment. When product features are killed off or new marketing initiatives fall flat, they simply get tossed down the memory hole never to be spoken of again.
  • Leadership stops talking about the competition except to say that your startup is "the best" at whatever it does.

People aren't receptive to constructive criticism or self-reflection when they feel like they're in a hopeless situation. The leadership at a zombie startup is emotionally invested in hiding from its problems because to confront them would be to admit that the startup has no future.

This can lead to even more brain drain as the critical voices in your startup -- the people who challenge everyone to do better -- get fed up and leave, or worse, are forced out. The problems get worse but, perversely, your leadership talks and acts like things have never been better.

3. Mo' problems, mo' process

Zombie startups have just enough money to (barely) avoid Final Death, which means that they have no money to invest in themselves in any meaningful way. One way you can see this manifest is in how the startup approaches problem solving.

When a startup is growing very quickly there's a high opportunity cost to everything it does. There's so much to do and build and iterate on that employee time is your most valuable resource. When growing startups are confronted with problems, they will often just throw money at them: hire more talent, pay for an off-the-shelf solution or a consultant, or buy new tools.

At a zombie startup, cash is tight and your time is worthless. When a zombie startup tries to solve problems, it throws process at it: meetings, procedures, documentation, and team workshops.

For example:

  • Offers you make to prospective new engineers are getting rejected with the feedback that they're lowball offers. You can't afford to pay a competitive salary or even to pay for a professional recruiter, so you have your existing engineers devote most of their time to getting more and more people in the recruiting pipelines in the hopes that you'll luck into someone cheap.
  • You notice that morale is low so you schedule hours and hours of one on ones, group discussions, and team building exercises to talk about why people think morale is low.
  • Employee turnover is getting high, so you start using unpaid promotions as a retention tactic. These employees then try to justify their new titles by proposing lots of process changes which means, you guessed it, more meetings.
  • Sales are poor, so you make the entire company -- from the infrastructure guy keeping your service running to the receptionist at your front desk -- listen in on sales calls to try to brainstorm suggestions for your sales team.

Zombie startups are like bad relationships: you're always "working on things" and "talking them out" but nothing every really changes. It's nothing but endless meta-discussions about your problems and things you could do about them. The truth is there isn't anything worthwhile to do. The relationship is already over.

Don't let a zombie startup eat your brain

Startups that exhibit this behavior are almost certainly zombies, whether or not you're able to confirm it by looking at their cap tables. At a minimum, they're pretty terrible places to work. Don't waste your mind, talent, energy, and effort propping up a corpse.