I attended the Austin Technology Incubator’s SEAL presentation night this past week. The teams on stage spent the summer thrashing out their business models, with a goal not to sell them at this event but to reveal whether their idea would be a go or no-go. Typically, about 30% arrive at the latter conclusion, which is a decision better made in this format than reaching it the hard way sometime after a startup is launched. On now to the topic at hand…
The Toughest Final Decision: I started, now should I quit?
Startup entrepreneurs are by definition great at perseverance and are always loathe to quit. They may have created a vision, assembled a team, found the right investors, built a good product, gotten glowing press, landed real customers, and even gotten profitable, but all that goodness may not have translated into a business worth preserving.
How could that be so?
1. You aren’t Having Fun. Startups are never easy, and all have plenty of moments of panic, but at some point you deserve to cross a chasm in terms of personal gratification. Are you enjoying good relationships with your customers and employees, or does conflict abound? Do you still believe you are creating something of real value, both in terms of valuation and in terms of your promise to customers, or are you just running another brick factory that could go on ad infinitum but might never be missed if you closed the doors? Can you take real time off or have the luxury of getting sick without being tethered to a long list of daily duties that you can’t entirely delegate? Are you keeping your family happy and giving them their due share of your time and emotions? As with all these points, be honest with yourself. Get some insight from friends and mentors. Pause to think about the long-term and not just what has to be done in the next 5 minutes.
2. You aren’t Earning Your Market Value. Startup profits really mean something when everyone on the management team is earning his or her street value. Your time is the one irreplaceable commodity in your career, and if you get yourself trapped in substandard compensation for a significant period of time, you have to question whether you are on the right path. Even if you picked your parents well and don’t need to earn at your potential while you are enjoying the startup life, sooner or later you have to confront your responsibility to use your gifts wisely. And, what if you want to take a break and recruit someone else to replace you? Is there enough compensation in the budget to attract such a person? What do your numbers look like if a potential buyer comes along and marks all your comp packages to market? Where does that leave your core valuation? You may argue that your equity appreciation more than offsets any short-term pain on paydays, and that could well be true. But, I’ve yet to meet an entrepreneur that didn’t see company valuation through rose-colored glasses. I’ve certainly been guilty of that.
3. You foresee Getting Stuck. One of the worst situations for an entrepreneur is getting caught up in business where you aren’t making the numbers of your dreams but you do have lots of customers who are depending on you. I mean you personally. No matter your business model, you get to know some portion of your customers on a first-name basis, and you can’t just turn out the lights and leave them hanging. For all the goodness of SaaS models, this is a particular problem in those cases where you have collected ahead of fulfilling. Your obligations may not only be emotional, they may be legal and may flow to all your officers and your board. If you have already gotten stuck, you know what I’m talking about. If you are fortunate enough to see that on your dashboard ahead of time and can act to keep yourself out of the quicksand, all the better.
4. You think you are in a hot space, but There’s Trouble. I have some experience with life sciences startups, and I’ve seen the data about the abundant venture dollars flowing into that sector. But, there are also more than enough takers for those dollars. The machinery of American healthcare moves ponderously and is highly resistant to innovation. It’s also very focused on pocketbook issues, not your pocketbook or mine, but those of the established players – healthcare institutions, insurers, physicians, regulatory agencies, and armies of lawyers. All these can lead to startup-killing resistance that overrules the logic of improving patient care. You may have made a wonderful advance for the benefit of any set of actors in this grand play, and even for the patients themselves, but trouble may find you anyway. One opposing executive or one rule change can instantly put you out of business. The the decision for you to quit may be made for you by someone else if you don’t have Plan B ready.
5. It’s Taking Too Long. My best outcomes have been the ventures that started, galloped ahead, and reached happy exits in relatively short time frames. Obviously the math for the investors is much prettier if they have short holding periods. But, there is also a limit to the wear and tear you can absorb as the principal entrepreneur. If you’ve been at it five years and can’t really see a path to glory, you may want to begin thinking about steps to gracefully exit or wind down. Those options will be difficult if you don’t have buyers knocking on your door, but you managed your way into this situation and can manage your way out if you are wiling to declare “peace with honor” and move on. An escape that is gracefully and fairly handled will not detract from your record. Your number may be three years or 7 years, but chances are that anyone who is along for your ride will recognize the obvious. You should not think of yourself as indentured to your tech startup until you can take it public. I have seen some overnight wonders that have taken 15-20 years with ultimately fine outcomes for all involved, and we all know what the giants like Jeff Bezos have accomplished over decades of fanatic devotion. But, if you are working in the “bulge bracket” of the tech startup world where you have an idea that you were sure you could get to IPO or a big exit and after several years are not seeing it advance from crawling to running at full stride, then it’s time to rethink.
6. Your Support Network is melting away. Startups are a team sport. If you lose one or two key employees and you sense that others are restless, you will have a hard time replacing them in a business that is falling short of expectations. The same is true with customers, and especially with investors. No investor wants to clean up another’s problem. After a while you can wear out your personal relationships if you struggle along with frequent crises and rare glory moments. All these groups may be pulling for you personally, but they have their own business and career objectives, and all have alternatives. It’s much more enjoyable to be part of a winning team than to live in the cellar. It’s also much more pleasant for others to hear about your victories than to be helping you analyze your defeats. We all know people who seem to fall into a perpetual funk and become unpleasant companions. We remember Rachel Dratch’s SNL character Debbie Downer from her debut in 2004, and now that term is part of our lexicon. Your business is what it is; you don’t want to gloss over the realities in your trusted circle, but be wary of becoming startup Debbie.
7. The Competition is Beating you. Your great idea of a year ago may already be surpassed by something else. The Internet economy is ruthless in enabling others to create similar companies with the latest and most agile tools and development methods. They come from all over the planet, and you’re fighting a war not on one front, not on two fronts (the classic mistake of Napoleon and Hitler), but possibly on 100 or more fronts. It’s a test of leadership, speed, and luck. You may be making all the right decisions for the moment while you allow someone else to blow your doors off. This sector is also ruthless in what the major companies can do to neuter your business; those on which you heavily depend can easily change their rules, buy one of your direct competitors and provide them the resources to mop up your intended market, or just appropriate your ideas into their own product lines. Sure you’ve paid attention to IP protection, but that only gives you a right to participate in litigation to protect yourself. In the courtroom the party with the biggest legal budget usually prevails, no matter the validity of the claims.
But you are convinced that you Can’t Quit. Well, perhaps you can, and we’ll explore that in another chapter.