How do you know if it is time to close your unsuccessful startup?
Robert Yang (email@example.com)
HR Manager-Staffing and Recruiting at Evonik Degussa GmbH
The easiest way is to have clear criteria at the beginning of your project/business/initiative. Think of it as a pre-nup for when your assumptions start cheating on you 🙂
It’s almost impossible to be objective once you’ve sunk any significant time or money into the business. It’s easy to get into the “Gambler’s Fallacy” of believing that just one more investment is all it will take to solve all of the problems of the business and make it big. It’s a very dangerous situation to be in and one to avoid at all costs.
As soon as possible, stop what you’re doing and sit down with your accountant and legal counsel and set some clear exit criteria for your business (both for a successful exit to take your profits and run, and an unsuccessful exit to cut your losses). Then STICK TO YOUR CRITERIA!!! No “Oh…just one more year” waffling or “I can be successful if I just mortgage my wife and kids” or even “I’m doing so well, I should squeeze another year of profits out of this”. Be objective and treat a business like a business. It’s not your child. It’s not your pet. It’s not a comment on your value as a person. It’s a financial transaction.
If your assumptions change or the market shifts, it’s OK to sit down and reset the criteria. But you need to do everything possible to stay objective. Mistakes, failures and bankruptcies are part of the death spiral that comes from losing that objectivity.
A few years ago, my wife and I bought an established business. We saw a lot of potential and opportunities to streamline it. We set some aggressive growth and profitability goals when we bought it and at the end of the first year, we were quite a bit below target. We were doing well, but the growth just wasn’t there. Since we missed our targets, we reluctantly sold the business for a modest profit. Over the next 3 years, the market that we had been in continued to erode. Had we stayed in the business, we would have lost our shirts. The lower growth and profit were just warning signs that the business wasn’t going to pan out the way that we expected. It was tempting to stay in and “play one more hand”, but we remained objective and managed to come out slightly ahead.