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How to decide when it’s time to quit as a startup founder

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We’ve all seen it: the devastated face of a founder in the Shark Tank who is told their business model isn’t viable after spending hundreds of thousands of their own money on it.

It’s always a mixture of pain and horrible, horrible clarity. They knew they should have stopped, or turned, or repeated a long time ago. So why didn’t they? We tend to think of our startups as getting married or having kids: a lifelong commitment.

But really, they’re more like getting a hamster. Companies have a different life than people. Half perish within 5 years, and 96% is done in 10. The business world is a ‘when in Rome’ situation. You’ll have to adjust your timelines for the accelerated business longevity, rapid cycle through MVP, launch and failure, and start from scratch with a new idea (if you have the guts for it).

A terrible amount successful (and that’s a keyword) business leaders will give you the same old-fashioned advice: never give up. What you don’t hear – perhaps because it makes for slightly less exciting journalism – are the failed founders who tell you, “I gave up and it was probably the best decision. I lost money, but I could have lost a lot more”.

If your business is floundering, cash flow is flowing out instead of in, and you’re not getting a handle on it, it’s time to make a scary decision.

Forbidden is better than failure. But how do you know when to jump?

Don’t dive into the fallacy of sunk costs

One of our greatest shortcomings as humans is the perception that time = value is entered. That if you put a lot of energy and effort into something, it would be a waste to give it up. While you might view a failed venture as a “waste” of time and money, it doesn’t mean that continuing with the business is the right decision. The past can be written off. Write off the value of the not future time and energy that could be spent on something else.

(It’s also a bit cliche, but a failed business venture is rarely a total waste of time because of the mistakes you learn from and the people you connect with.)

Disappoint your investors faster

It’s the terrible curse of startup founders that they have to charge so much in the beginning. It’s the very definition of a stick for your own back – you need investment funds, you make huge promises to secure it, and when your startup fails, the thought of telling your investors you’ve lost their money is too much to bear. to bear.

It’s easy to see why so many founders go down the road of embezzlement, misrepresentation, and even blow through borrowed money to pretend to be in the black.

The reality is: investors are out to lose money. They don’t want to lose money, but they are well aware that they can. Losses will almost certainly feed into their broader strategy. If you don’t drag things out, they will soon be able to move on (and respect your honesty).

There are few one trick ponies

To start your first business, have the astronomical success and never have to start another business again is rare at the unicorn level. Most of the world’s fatcat founders had several failed startups under their belts before finding The One.

LinkedIn co-founder Reid Hoffman failed with SocialNet. Bezos failed with zShops, and many times with Amazon, costing the company more than once millions of dollars (Crucible, LivingSocial, Amazon Fire Phone).

The reason behind this culture of failure is that the holy grail of product-market fit (PMF, or the right product for the right people) is so hard to achieve. Most companies never do that. Many are too obsessed with the product to ask the hard questions about who actually wants it. Many neglect to get to market first (which doesn’t necessarily matter much).

If you can’t find PMF, it doesn’t matter how much money you put into the business. You could be a genius inventor of a mad hatter who conjures up never-before-seen technologies, but if the market can’t be identified and the general public doesn’t want it, you’ll fail.

If you can’t find PMF, run

The best thing you can do is market an MVP. From there, throw yourself on the altar of customer feedback and repeat, repeat, repeat.

You will probably develop something totally unrecognizable from your original product. The Buddhist principle of practicing detachment fits well here. Free yourself from the emotions and beliefs that blind you to the realistic potential of your product.

Or maybe there is someone who can do it better. Passing it on can increase the potential of the idea, get you out and give someone else a chance.

Or you want to launch a very specific product that comes from a personal passion, and launch it your way. Or you want to become successful in business. Only a handful of founders can do both.

Don’t take advice from the survivors

Bezos advises founders: “Whatever your goals are, don’t give up, no matter how difficult it gets”.

This really seems like terrible advice (and it smells like survival bias).

If you can bear multi-billion dollar losses and have an almost unassailable monopoly on online trading, that probably applies. But small businesses to cling on, no matter how hard it gets — crippling debt, unsolvable legal or IP issues, or if you’ve lost your passion — would be madness.

If you are able to start and run a business for a period of time, you are a profitable asset. Freeing yourself from a sinking ship means you can start working on something else to rebuild what you’ve lost.

This article can read as a manifesto for quitters. But sometimes the best thing a founder can hear is “you need to stop”. Sometimes it’s that oil on the fire that reminds us how much we want it and why we started in the first place.

until you proven if you tell yourself your model isn’t working, it may be worth it to keep going just to scratch those shivers of knowing you gave it your all. There are many breakthroughs that have happened at the last minute, against all odds. Sometimes hamsters live much longer than we expect them to.

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