Up to 90 percent of start-ups don’t survive. Some of these may even last longer than they should, which means a loss of time, money and talent that could have been applied toward the next big thing.
Just like playing cards, you’ve got to know when to fold ‘em when it comes to your startup. It’s not easy to give up on “your baby” and move on, especially when you have put blood, sweat and tears into it, but there are times when it is financially and strategically the right thing to do. I've had to deal with failure personally several times.
Even when deciding to let it go, you might still wonder, “What if I just had that one more round of funding?” or "If the economy had not tanked, this might have worked.”
Then again, if you got that extra funding and the economy was right-sided, it still might be a good time to move on.
Here are five factors I consider to determine if I’m all in or I’m ready for a new game.
1. Missing or diminishing value.
If you realize there is no value there for your target audience or strategic partners, that business will never deliver the revenue and profitability that makes it worth continuing. While the value might seem like it’s in the idea and start providing some benefit at the start, this will disappear over time if the business is not truly viable. The value must be in the form of something that is innovative and that helps improve the lives of others, or allows them to solve a problem.
Take the time to do the market research necessary to understand what is important to your target audience and identify any value you offer. If your product or service does not do that, then it is time to find one that does, because accomplishing those things is what influences a purchase decision.
2. Risk that trumps return.
Risk is always going to be part of the startup game and many of us thrive off the feeling. However, there are times when that risk overshadows the return possible from a certain startup idea. When money is flowing out and there is no way to put a tourniquet on those expenses, then the risk is too great to continue. If the business starts to feel more scary than fun – and by scary I mean that you are not sure how you will ever pay yourself or the market has turned a cold shoulder to your product – it's time to throw in the towel on this particular idea. You don’t want that already growing cost to turn into something greater, like deep debt or some type of lawsuit.
3. It's going nowhere fast.
Typically, you have a long-term outlook for the startup, such as selling it to another company, that makes all the hard work worth it. However, when the roadmap you are working from is all dead ends, U-turns and roads to nowhere, those are signs your startup is inoperable. When you have no signposts showing you can turn a profit in a reasonable number of years, it’s time to close up shop.
4. Holes in the business model fabric.
Your enthusiasm and passion do not guarantee success. There has to be a solid, well-conceived business model in place. When there are holes in the plot of a movie or book, the audience immediately becomes skeptical about the entire film or story.
This can also happen in a startup when the business model and the strategy attached to it have some gaps, leading investors and other stakeholders to ponder its viability. Those holes are areas of vulnerability the competition can exploit. If your business model is unproven and your strategy has not addressed all potential barriers, there is a greater chance that the startup will not become a viable business.
Your business model may also only be responding to a current trend that delivers a revenue trickle instead of a long-term revenue stream. That’s when you know it’s time to move on.
5. The competition beat you to market.
When going to market, timing is everything. Some research about why certain tech startups have not made it found it simply took the companies too long to get to market. They were beat by others who launched faster.
While you want to make sure everything is right prior to a product launch or service announcement, taking too long leaves the door open for others to steal that thunder. Once that has happened, you either have to change-up what you are offering to compete on differentiation or you are stuck with the old price-cutting approach, which really doesn’t work. If there is no way to repurpose what you had after the competition got there first, it’s time to regroup.
By closing the door on that startup, you are opening up new opportunities to develop other ideas that are waiting to be tested as viable businesses. I personally had to give up on my last venture to be able to start on my new company Due. Had I not decided to drop my last passion, I would have never had the success that I'm having today.
Don’t think of it as a failure, instead you are making smart and strategic decisions that will pay off sooner than later.