Investment Red Flag Alert – Failure to Launch


by Dara Albright, CrowdFunding Beat Guest Editor, Co-founder of the FinFair Conference,Recognized speaker, writer & influencer on topics relating to market structure, New Issues, FinTech, P2P & crowdfinance

You see it all of the time. A starry-eyed CEO is out on the capital raising trail luring investors with hopeful promises. Prospective investors are assured that their money will fund the next world changing innovation. They receive well thought out financial forecasts and pitch decks dressed up with hockey stick charts. Of course, every assertion, every number and every eye candy chart hinges on one key element – the product launch.

Anyone who has ever brought a new product to market knows that there are many obstacles to overcome. This is why a great deal of products are delivered late and over-budget. And those are the lucky ones. Some products never get released at all. There are technology glitches. There are sick days. There are staff changes. There are weather interruptions. There are empty promises received from manufacturers. Sometimes there are just too many cooks in the kitchen overseeing or contributing to the product. Occasionally, it comes down to unsuitable contractors awarded the jobs for all of the wrong reasons. At other times, it is simply that the company just cannot get its product to function.

Because veteran CEOs anticipate many of these barriers, they are much more proficient at launching on time and within budget.  By contrast the novice CEO is less prepared to handle unforeseen complications. As a result, his projections are much more “pie in the sky”.

The Obamacare website is a shining example of how inexperience, bureaucracy and cronyism mutilated a product launch and needlessly cost taxpayers hundreds of millions of dollars. By serving as a prototype of missteps, Obamacare can be invaluable in helping investors identify red flags.

Keep in mind that government bureaucracy and cronyism almost always ensures that products will be delivered late and over-budget. But because startup CEOs typically micromanage project development, they really can’t hide behind the “bureaucracy excuse”. Nor are they in a position to compromise their products by hiring unqualified personnel. If a startup’s product launch is overdue, it is usually because of a miscalculation due to management naïveté or an inherent product defect.

As an investor, you are entitled to know about the development status of a product that is being financed with YOUR money. Ask questions. Find out if there have been any staff changes that may have caused production delays. Inquire about technology glitches during beta. Volunteer to test market the product. Perhaps you can provide the expertise, additional capital or relationships necessary to perfect the product and expedite its launch. In some instances it could be worthwhile to allocate more resources towards improving a product that you already have a vested interest in. At other times your best bet is to simply cut your losses and move on. The earlier you know whether or not an investment is worth salvaging, the better.

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