If you’ve ever attempted to read up on or start your own business, you’ll likely have come across this encouraging nugget of information – the one that says upwards of 90% of new businesses fail within the first five years.

That’s pretty alarming, but even more alarming is when you’re the designer chosen to create content for one of these entrepreneurial turkeys. It can be really tough when a client suddenly runs out of money and has to default on your payment for a project. Yes, you can sue them, but unless business suddenly picks up (or they have incredibly wealthy parents), you’d probably be wasting your time.

Knowing how to spot a business idea that is not going to work, or how to tell when a particular business relationship looks rickety and on the brink of collapse is an important skill for any designer to learn, particularly if you work with new startups.

The Good, the Bad, and the Crazy

There are a lot of upsides to working with new businesses – the energy and enthusiasm among the members of the team is contagious, and if you’re a designer getting in on the ground floor of a successful venture, you can find yourself in a very enviable position within the company in just a few years. However, if things go south, it can turn into a nightmare if you didn’t see it coming.

It’s helpful to know something about business yourself if you plan on working with startups. There are plenty of books to read, but in my opinion, the best way to learn about business is to start one yourself. Not only does it make sense financially for designers to have a side business, but the knowledge you gain from doing so will also be extremely valuable in your future dealings with entrepreneurial clients.

Technically, if you’re a freelancer, you’re already running your own small business, but even if you’re working in-house, it can be extremely valuable to learn the ins and outs of business. Even if you fail – especially if you fail – you’ll learn what works and what doesn’t, and why.

Be wary of business ideas that sound too strange or that don’t seem to make any sense. Does the idea sound just a bit too perfect, unique, and lucrative? Watch out. Anything that sounds too good to be true probably is.

Also to be avoided: businesses that don’t have any real competition or market equity. If the waters are too quiet, that’s a bad sign. It usually means that there’s no market for what the business is selling.

Perhaps counterintuitively, business ideas that seem to be unoriginal or that are jumping on a current trend actually have a better chance of doing well than unique businesses with little or no competition. Why? Because popular industries are more profitable, for obvious reasons. More people interested means there’s more money to be made.

This is why nobody is attempting to come up with a completely new, original alternative to the automobile – they work with what’s already popular and what already makes money. Reinventing the wheel is usually more trouble than it’s worth (except when it’s not, but chances are you won’t encounter anyone who manages to pull it off successfully).

Stop, Look, and Listen

Something every designer needs to know to avoid getting tangled up in business disasters is how to properly observe a potential client. It can be difficult to tell in the first meeting with a potential client whether their business will be a flop, particularly if you haven’t been freelancing for long.

But if you allow someone to do the majority of the talking for at least 5-10 minutes, you will learn more than perhaps you ever wanted to about that person’s behavior, management style, personality, and feelings about their mother-in-law.

People love to talk about themselves, and as a designer on the lookout for danger, this can be your best advantage. Listen far more than you talk – ask questions that encourage the client to reveal more information. Interview your potential client as much as they’re interviewing you.

False Friends

Sometimes, a business seems perfect. The idea is solid, the market is strong, and competition is at a healthy level. These kinds of businesses can catch you off guard the most when they go south, because everything seemed okay on the surface.

But chances are, even these surprising failures have warning signs that show themselves well before you ever sign on to do any work. This is where it’s helpful to know the signs of detrimental management – why certain business owners and managers are successful and why others seem to cause chaos and turmoil wherever they go.

When meeting with a prospective entrepreneur client, take careful note of their demeanor and speaking style, specifically how they talk about their current or past employees or freelancers. If someone is trash-talking their people or uses too much personal praise (as opposed to team-oriented praise, which includes the entire group), that’s something to be wary of. It doesn’t always mean the company will go belly up, but it certainly won’t help matters.

Another type of red flag is clients who seem to have no regard for any type of budget. One of the top reasons many businesses fail is because of a lack of strict budgeting and an excess of profligate spending. If your small business client asks for work that you both know will cost an exorbitant amount of money, they’re probably not going to be a long-term client.

Moderation is what you want to look for when shopping for steady, repeat clients. You want someone who is financially responsible (but not cheap) and understands the budgeting required for a small business to be successful past the five-year mark.

Conclusion

Even if you don’t personally get caught up in the financial fallout of a bad business sinking to the bottom of the ocean, you want to avoid attaching your name as a designer to too many failed commercial ventures. It doesn’t look good on your resume, and once you encounter a genuinely successful startup, they will take one look at your track record and immediately draw conclusions about your involvement in each fiasco.

You may have had nothing to do with the company taking a nosedive, but your name was thrown into the mix, and that makes you a suspect. They may even see you as a “bad luck charm” – people are more superstitious than you would believe.

Successful businesses don’t want to invite freelancers or employees who may bring about failure. So it’s important to cultivate your intuition when it comes to bad businesses.

Learn how to spot bad ideas when you see them and avoid becoming the opposite of a designer rabbit’s foot!