When you ask yourself the question posed here, “How do you know when to close your startup?” When you are asking when, all the issues raised above are already in play, and it’s a matter of time of your startup shutting down.
In fact when you use the word quit, you’re really negotiating with yourself, and any time you are doing that, you are wasting your time and others.
To get a deeper understanding of the issue, we threw the question at the following people. Here are their insights into this thorny issue:
Julie D, Startup Founder – My advice to you is – Do Not Quit As Soon As you Feel you don’t get your desired outcomes.”
Maybe you have set too ideal of your goals and having missed them, you are just frustrated.
Until you are satisfied of having done every possible thing to protect your startup , do not stop.
If it is still not working, it is time that you re-evaluate what went wrong with your startup.
But don’t quit yet because the spirit of this dissatisfaction will kill you in your next business venture.
Learning when to close your startup is as important as learning how to open a new business – the emotions are the same.
Maybe I am sounding too idealist, but I believe there’s nothing that hard work, a pinch of creativity, and confidence cannot make work.
It is not like you woke up one day and launched your startup all of a sudden, right?
You imagined the startup idea, you felt good about it back then, and possibly you might have overlooked some (or let me be harsh) very important aspects that should have been there in your business model.
So, do not quit halfway, learn the lesson and then step aside.
Quit, when you are ready to risk for another business, else all your life you will keep believing that you were stupid to launch ‘that’ startup.
Robert C, Entrepreneur – Everyone has their own story!
In my first venture, we decided to close shop when we realized we were without any clear path to self-sustainability.
We were relying on fundraising, which is basically a death march for startups.
We were making a little money, but the idea was early to the market and would take many more years to prove out.
Everyone has their own story!
One right answer is when you can no longer pay the bills to operate. This is the most common way startups end.
That’s how you should know knew when to close your startup – when it’s no longer financially sustainable.
Where this gets tricky is if you are using your own money, there is a tendency to invest more than you should (sunk cost fallacy) this is where having good advisors and mentors helps a lot.
If you can’t raise outside funding and are not growing fast enough to telf fund that’s generally a good hint.
Two important reasons why your startup failed:
1. Your product is not up to customer’s expectation:
Customize the product per customer’s expectation and release it again. This cycle has to happen until meets the expectation.
2. Product is not right fit to the market
This is not a good sign. In this case, you may have to rework or change the idea. Don’t hesitate to make a right decision.
I am sure the next idea would be more sharp with less investment and less time as you are more experienced now.
Most startup founders tend to focus on raising money even before finding the right product-fit for their startup.
When bootstrapping goes beyond capability:
Bootstrapping (funds from your own pocket) funds are so precious when it comes from your earnings. Your venture can survive for small amount of time unless you were born rich.
For numerous reasons your money get dried up before getting funds from venture capitalist. Burn rate will be pretty high in startups as it is being built from the scratch, Expected and Actuals would vary a lot.
Get prepared for two years to burn money. It could be from your pocket or from an investor. If you don’t get money from investor on time and the investment is beyond your capability.
I would suggest take a look how long you can survive without earning in personal life. If you are careless about this very soon you will get disturbed and lose the focus on everything.
It will have a great impact on your startup either.
When ROI don’t start even after a year (small returns):
Business is to earn money, no one can do business for lose for a long time, it is a fundamental rule.
At least after a year returns should start to meet expenses otherwise you are in risk, it could lead you to wrong direction. Income should be in ascending order compare to spending.
ROI can be calculated with simple formula.
ROI = (Profit – Investment Amount)/ Investment Amount x 100.
If you’ve investors who have poured money into your startup, you’ll have to calculate the pre-money valuation for your startup.
Dear Entrepreneur, passion is yours, idea is yours, execution is yours, struggle is yours, of course fruits are yours. Consequently, you are the right person to make a decision when to stop.
However when it is required, make a timely decision to stop rather than extend, so you can keep yourself safe and move onto the next venture.
Learning when to close your startup is not an easy decision – but do not let your ego stand in the way of making a decision, especially when red flags are aplenty.
If you are not in a safe zone your passion would buried either.
Charles, Startup CEO – There are too many reasons to pinpoint one!
There are many decisions that are often time personal.
Maybe you’re an early employee and can’t afford to live on $2K a month or even less because your now so behind on your bills that it became unsustainable based on your specific risk profile.
How about if you’ve got guys or gals on your team that aren’t team players and you loath meeting them and working until XYZ hour every day.
Maybe you’re just tired of the personal toll of working too many late nights and weekends.
There are so many reasons it’s hard to define but I’m sure that since you are asking this question, it’s probably already top of mind for you.
For me, we started a company where I was a co-founder.
It had, in hindsight, an unpredictable revenue stream, complex customer verticals, and excess spending on stuff that really shouldn’t matter (t-shirts anyone? – Got extras!).
About 4 months ago, we decided that we needed to essentially pivot. And when I say pivot, I’m really talking about killing the old company and starting a new one with the same team.
You know when you’ve got a dead horse and that it was time to bury it and for us, that decision came quickly.
That being said, there are all kinds of stories, check out Blogger, of companies that stayed the course and won.
Being entrepreneurs, I think it’s okay to quit on a startup, just don’t quit on yourself. Just gotta get back up, get back on deck and keep swinging.
We try to make decisions to the best of our abilities with the information we have, the rest is more luck than talent.