Sales Career Advice: Can You Spot the Zombie?

If you found yourself walking down the street smack in the middle of a mythical zombie apocalypse, my guess is you would have very little trouble identifying an undead, half-human creature slowly staggering around posing a major threat to life and limb. The pale skin, shredded clothing, and outstretched arms might all be a pretty good indication that it’s time to run for your life.

With all due respect to Hollywood’s classic version of this fictional villain, zombies in the world of venture capital funded businesses are not always quite as easy to identify. But understanding what they are, why they exist and how to potentially spot them is something every current and future high-tech sales professional needs to know.

Zombie companies make for less-than-ideal sales career stops because they are often dead-end jobs. A combination of bad factors exists in these companies and those factors will be extremely adverse for the sales team toiling within. Whether it’s bad technology (unsellable), a limited leadership team (strategic issues), or a disinterested marketplace, there’s no great future for a high-octane seller in these firms.

So grab your loved ones, pick up some food supplies, and dive in here to arm yourself with a little basic insight that can help steer your professional sales career away from these not-quite-dead-but-not-really-alive disasters.

All My Bets are Winners…

Before understanding how to spot a zombie, let’s take a moment and get to know what a zombie is and how it arises. Venture capitalists (VCs) raise fund money from investors and, in turn, put that money into a variety of high-risk, early-stage small and medium-sized businesses they speculate will succeed in the marketplace.

This breakdown from Investopedia explains VC funds well:

Venture capital funds differ from mutual funds and hedge funds in that they focus on a very specific type of early-stage investment. All firms that receive venture capital investments have high-growth potential, are risky and have a long investment horizon. Further, venture capital funds take a more active role in their investments by providing guidance and often holding a board seat.

In return for those investments, the VC acquires a percentage stake in the business. If the business is successful, its value grows.

Once the business owners decide the value has grown high enough, they may choose to sell the business. When that happens, the VC (and their investors) will potentially earn a handsome payback from their original investment. This share of future profits from the sale of a business is called “earning carry” on the investment. Pretty straightforward.

…Don’t Pay Attention to My Losses

Here’s where it gets interesting.

Because investing in brand new, high-risk/high-reward businesses is by definition a risky proposition, VCs will inevitably fund a lot of businesses that fail. However, shutting those businesses down is damaging to the perception of limited partner investors and discouraging towards the VC attracting new investments.

Rather than shuttering the business, the VC may instead provide additional (albeit limited) funds to the struggling firm. The money is just enough to “keep the lights on” at the company and keep up the appearance (to fund investors) that success is still possible.

The zombie is born!

These companies have a grim future (or no future at all). Yet the VC that funds them decides it’s more beneficial to keep them on life support as opposed to simply calling it a day (accept the loss). This is partially why there is debate about the actual failure rate of VC-funded businesses.

A few years ago, Harvard Business School senior lecturer Shikhar Ghosh asserted that the failure rate was about 75%, which ran directly in contrast with The National Venture Capital Association, which claimed that only 25% to 30% of venture-backed start-ups fail completely.

It’s difficult to know the real answer with a fair number of propped up zombies scuffling around. The only thing you can be sure of is that working at a firm like that will be bad for your career health.

Spot the Zombie

These declining businesses that seemed so poised for success not long ago can be difficult to identify (remember – the VCs don’t want to make bad health obvious). But there are some telltale signs that indicate trouble is brewing. And while each of these factors won’t always be present, it’s a good bet that most start-ups languishing in a zombie state include a few of the following conditions:

• Recent Layoffs – never a good sign for any company, these are especially troubling inside a business that appeared to be in growth mode not long ago.
• Executive Turnover – if the founder(s) or original CEO has stepped down recently (or has been removed), it can be a sign that extreme change was needed.
• Down Round of Funding – If the business recently received another injection of funding, but they did so at a lower valuation than prior rounds, it’s called a “down round” in the VC world. This means the most recent round of investors insisted the business has declined in the interim time between funding rounds.

Any of these factors alone might serve as fair warning that the start-up business in question is a zombie. But if a company has all three factors present and more, it’s a good bet they’re being propped up by a VC for ulterior motives.

If you’re a hard-charging, highly successful sales professional actively looking for your next great gig, pay close attention what’s going on “under the hood” of your potential suitors. If you ignore the warning signs and fall for a mirage opportunity, that next sales career stop might turn out to be a real horror show.

Alternatively, come work with us at memoryBlue and experience a wide range of high-tech partners before picking the best “next step” in your sales career.