How to know when its time to quit your startups?
The article was originally published for iamwire.com which is a leading startup information portal in India - Here is the link to it.
The entrepreneurial ecosystem within India and around the world is growing leaps and bounds. Not only do we see start-ups mushrooming everywhere trying to solve a business problem, but also the entire support system of Accelerators, Incubators, Angel Networks, Venture Capitalists etc. stepping up to offer their advice and funds to make these start-ups successful. With a lean, mean organization, new approach to business, operations, marketing etc, we have seen some phenomenally successful start-ups that can be called as “Unicorns” of India, such as Flipkart, SnapDeal, Zomato that built their brands and businesses and also grew in-organically thru acquisitions. It is indeed heartening to note some of these young entrepreneurs, making it as global leaders in their respective ideas and giving their bigger competitors a run for their monies. However, behind the so many successes, there are many more that haven’t quite made it.
Y Combinator, an American seed accelerator and one of the best in world states that, out of 511 companies selected to receive seed funding and mentorship, only 40 startups were able to succeed in next 3 years. This shows that even with proper funding and mentoring startup success rate is less than 10%.
Some successful startup founders and industry legends often say that if you are 100 % determined to your startup then it will be successful someday. But many times, it’s not about determination and perseverance but it is about being practical and realistic, learn from this experience and move on to another one. There can be multiple reasons like negative or stagnant customer growth, inability to raise capital, difficulty in retaining team / top talent etc. for startup failure. People whose startups have failed to launch would comprehend my statement that quitting is not easy. It requires startups to accept that they will never be at apex at least with this startup idea/team.
But then as someone said “If you accept failure as an opportunity to learn, it will change your whole perspective.” So, I am going to focus my thoughts on “recognizing signs which tells that it is time to quit your start-up”.
My personal start-up journey helped me gain a lot of valuable experience, but I took the hard decision of shutting down within 8 months of operation. My startup Deliver5 was into FoodTech space on sharing economy model. I implemented all the best practices and built an independent process driven model. Eventually, after 5 months of operation, I realized that we never focused on profitability and we were scaling up without thinking about any real business. Once reality stuck and we came out of fantasy world of scale at any expense, we realized that with our model, it will be impossible to achieve profitability ever. We tried changing the model and faced stiff resistance from market. Finally, after failing to raise another round of funding, we closed the operation in May 2015. It wasn’t an easy move but Hitting Rock Bottom isn’t so bad. When we lose everything, then only we can start afresh in our journey.
From my experience with Deliver5, I realized that the first rule of entrepreneurship is to be practical in approach and focused towards the problem at hand. Keeping a practical view is important for continuous process of evolution and success. It’s very important to know the appropriate time to quit and move forward because Winners sometimes quit but only at certain things which were holding them to get successful. (Though this topic is still debatable as one of my friend - Sourabh Narsaria who also happens to be an entrepreneur: Co-founder of Outontrip.com)
Here are some basic principles for entrepreneurs and its employees to contemplate when they are planning to exit:
- Balance between family and work – If startup is growing at a rapid pace and showing great future growth prospects, then involved parties never think too much of what they are sacrificing. But, if there are no indications of growth and you are struggling to balance your personal and professional life then it is time to move on. By not investing time in your personal life you are sacrificing what I refer to as “human emotional capital.“ Human emotional capital encompasses the emotional support that one receives from their family and friends.
So, put on your financial planner hat and do a cost-benefit analysis. Is your startup worth disrupting the equilibrium that you have established with your family and friends? If the answer is No- then it is time to shut the shop and move on to a newer idea or job, a live a healthy and balanced life. If the answer is Yes, then by all means, continue on your journey!
- Cash, Cash and Cash – If you see your cash stocks / savings dwindling and dipping every single day and can’t find way to turn around the cash-flow or raise/loan money, then it’s time to move on. You must’ve heard stories of successful startups where their founders and employees tried hard to keep it afloat for long and then they tasted success. Please be aware that only success stories are printed, not failure stories. Here are facts to help you understand better – out of every 1000 startups, 930 shut their shop in very first year, 28 survived till third year and 11 get funding via angels or VC. Think wise and think through for financials.
- Self-Realization – Trust your instinct- If you have stopped recommending your product to your friends or you don’t feel comfortable recruiting the best people or you can’t inspire people around you anymore and eventually yourself then it’s time to take the plunge.
- Milestones – Give yourself and your startup team a clear set of milestones and then accordingly set some dates to achieve them. If you are not able to meet the milestones like revenue, users, MoM growth, key team recruitments, angel or VC funding or similar things which are extremely important for you, then you should be on the exit path
- Negative or Stagnant Growth – There have been multiple startups who gain traction and then find it really difficult to grow at a steady pace or their growth rate starts declining. If your startup has reached this point then analyze whether you can turn the tide, pivot and grow at a rapid pace again. If not, let go. After all “Giving up doesn’t always mean you’re weak, sometimes it just means you are strong enough to let go.”
To conclude I would like to use sport analogy that coaches always use before a game – “Go Big or Go Home.” Your startup could be the Next Big thing just makes sure that you have a contingency plan with principles outlined.