--- title: "What Breaks in a Startup's Second Year | Robert Nikic" description: "Robert Nikic on what breaks in a startup's second year: seven things he's watched break once the adrenaline wears off, and the fix for each." canonical: "https://robertnikic.com/blog/the-second-year" author: "Robert Nikic" type: "Article" published: "2026-10-25T11:00:00.000Z" updated: "2026-10-25T12:53:11.387000" --- # 7 Things That Break in a Company's Second Year Robert Nikic on what breaks in a startup's second year: seven things he's watched break once the adrenaline wears off, and the fix for each. **In short:** Robert Nikic on what breaks in a startup's second year: seven things he's watched break once the adrenaline wears off, and the fix for each. If things are going great, I'm terrified. Year two is the reason. Year one runs on adrenaline. The launch. The first sale. The first customer who isn't your cousin. Everything is new, everyone is working too hard to notice what's breaking, and the excitement covers a lot of mistakes. Year two is when the bill comes for everything year one got away with. I've watched this happen to companies in completely different industries: software, retail, services, manufacturing, food. The details change. The order things break in barely does. Here are the seven I see most, roughly in the order they show up, with what to do about each. ### 1. The easy customers run out. Your first buyers came from your network, your goodwill and your energy. Friends of friends. People who liked you. Early adopters who'll try anything new. Year two needs strangers. And strangers don't care about your energy. They want proof: results, reviews, references, case studies, a reason to believe you'll still be around in a year. **What it looks like:** sales slow down, but nobody can say why. The pipeline looks full of "interested" leads that never close. The founder starts doubting the product when the real problem is trust. **The fix:** collect proof now, before you need it. Ask every happy customer for a review or a short quote. Write up two or three results with real numbers. Get permission to use customer names. Proof takes months to build and five minutes to use, so start early. ### 2. The handshake terms come due. In year one, everything was flexible. "We'll figure out the details later." A discount here, a custom feature there, payment terms that depended on who asked. That was fine with three customers. With thirty, it's chaos. Every account has different terms, nobody remembers what was promised, and the first serious dispute exposes how little was ever written down. **What it looks like:** arguments over scope. Customers quoting promises nobody remembers making. Invoices that get disputed because the terms were never clear. **The fix:** move every customer onto the same written terms, starting at the next renewal. Standard pricing, standard scope, standard payment terms. Grandfather the early customers if you have to, but put it in writing. Clarity protects the relationship as much as it protects you. ### 3. The spreadsheet that runs the business stops scaling. Somewhere in year one, somebody built the spreadsheet. It tracks orders, or inventory, or customers, or cash. It works. It's brilliant, actually. And exactly one person understands it. That person goes on vacation. Or gets sick. Or leaves. And suddenly nothing ships, nobody knows what's owed, and the business is guessing. **What it looks like:** delays every time a specific person is out. Numbers that don't match between systems. Hours spent each week copying data from one place to another. **The fix:** replace one homemade system a month, starting with whichever one hurts most when it fails. Document the rest. Never let one person be the only one who understands something the business runs on. ### 4. The founder becomes the bottleneck. In year one, the founder decided everything, and that was a strength. Decisions were fast. The vision was clear. In year two, there are ten times as many decisions and the founder is still making all of them. Except now they're also managing people, and nobody ever taught them how. Work piles up waiting for approval. The team stops making calls on its own because the founder always overrules them anyway. **What it looks like:** a founder working 80-hour weeks while the team waits. Projects stuck "pending review." Good people getting frustrated and leaving. **The fix:** write down the ten decisions you make most often. Pick three you can hand off this month, and write down how you'd make them so someone else can. Then let them make those decisions, including the ones you'd have made differently. Your job is shifting from doing the work to building the people who do it. ### 5. The margin turns out thinner than you thought. At small volume, the numbers looked fine. Revenue was growing. The founder felt good. Then the costs nobody tracked carefully started growing faster than the price. Shipping. Support hours. Refunds. Discounts that became permanent. Software subscriptions that piled up. Payment fees. Every one of them small. Together, enough to turn a profitable product into one that loses money on every sale. **What it looks like:** revenue going up while the bank balance doesn't. A founder confused about where the money went. **The fix:** calculate real profit per customer and per product, after every cost, not just the obvious ones. Not revenue. Profit. Then decide: raise prices, cut the costs, or stop selling what doesn't pay. Most founders who do this for the first time find at least one product or customer type they should drop. ### 6. The first hires don't fit the new company. Your first employees were generalists. They did everything, they wore every hat, and they were exactly what year one needed. Year two needs specialists. Someone who only does sales, or only does operations, or only does finance. And a lot of first hires hate that. They liked the chaos. They don't want a narrower job, and they resent the new people brought in above them. **What it looks like:** tension between early employees and new hires. Early employees feeling pushed aside. Specialists frustrated that nobody follows process. **The fix:** talk about it early and honestly, before it becomes a conflict. Give your first hires a real choice: grow into a specialist role, help build a new area, or move on with real gratitude and a good reference. Some of them will become your best leaders. Some won't fit anymore, and that's no one's failure. ### 7. The founder judges the year by how it feels. Year one feels fast. Everything is a first. Every week has a win. Year two feels slow. The wins are less exciting. A lot of the work is invisible: systems, processes, hiring, fixing. Founders who judge by feel start to think something is wrong, and they make rash moves to bring the excitement back. A new product. A new market. A pivot nobody needed. **What it looks like:** a founder chasing new ideas while the core business needs attention. A team pulled in too many directions. **The fix:** measure what's getting stronger, not just what's getting bigger. Customer retention. Profit per customer. Time to deliver. How many decisions happen without you. If those are improving, year two is working, even if it doesn't feel like it. ### What the numbers say about year two The data matches what I've watched. Of the private-sector establishments that opened in March 2020, 80.9% were still open a year later, 72.3% after two years and 51.4% after five, according to the Bureau of Labor Statistics ([BLS, Business Employment Dynamics](https://www.bls.gov/bdm/us_age_naics_00_table7.txt)). Roughly one in ten of the businesses that made it through year one didn't make it through year two. ### The pattern behind the pattern All seven come from the same place. Year one was about proving something could work. Year two is about making it work without heroics: without the founder's energy, without one person's spreadsheet, without the goodwill of friends. That shift is uncomfortable. It's supposed to be. It's the year a project becomes a business. ### A year-two checklist - Proof: at least three customer results you can share - Terms: every customer on written, standard terms - Systems: no critical process that lives in one person's head - Decisions: at least three regular decisions fully handed off - Margin: real profit calculated per customer and per product - Team: an honest conversation with every first hire about the next role - Metrics: three numbers that show the business getting stronger Year two isn't a sign something's wrong. Expect it, plan for it, and it won't take you out. ### Related reading - [Building a company without outside investment](/blog/building-without-a-safety-net) - [Six cash mistakes that sink profitable companies](/blog/cash-mistakes-that-sink-profitable-companies) Robert Nikic is an entrepreneur, TEDx speaker and advisor on innovation and economic growth. He writes about what he has seen build and break companies, and about the rules that decide whether small businesses get a fair shot. Read his writing on [Medium](https://medium.com/@robertnikic), the Open Doors newsletter on [LinkedIn](https://www.linkedin.com/in/robertnikic) and daily posts on [X](https://x.com/robertnikic).