When should I shut down my startup? - Technical.ly

Growth

Apr. 20, 2020 11:23 am

When should I shut down my startup?

It's the most challenging question in entrepreneurship. What is the adversity to overcome and what is a sign to move on? It's the focus of the second episode of Technical.ly's TWIJ Show.

(Technical.ly file image)

Every good story of a startup that grew to last is full of big challenges that had to be overcome.

We had no money left in the bank. Our first customer walked. Our product flopped. Our assumptions were wrong. An early teammate left. In stories of success, those challenges were mountains successfully climbed — remembered in the recline of nostalgia. But for every story of goals reached, there are far more that don’t.

How do you know when your startup’s big obstacle is a mountain, and when it is a cliff?

Put another way, when should you grit your teeth and bear it, and when should you shut down your startup, or close that business?

“It’s just so hard, it’s so personal. It’s different for every person,” said McKeever Conwell, a repeat entrepreneur who is now a portfolio manger for TEDCO, Maryland’s state-backed investment firm. “Every mountain is a cliff and every cliff is a mountain.”

Or as Philadelphia-based startup veteran Andrew Hoagland put it: “By the end of this journey, you get beat up so many times and in so many ways. If you don’t feel the passion, it’s kind of a no-brainer.”

The two were the guests of the second episode of The TWIJ Show, a new weekly interview series from Technical.ly about building better companies. The theme of this episode was “When should I shut down my company?” Conwell has twice closed startups, and Hoagland just recently shut down Vetd, the vendor assessment platform.

They both echoed that the very reason deciding to close your company is hard is because there is no universal right answer.

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After years plugging away (and making the familiar pivot from consumer to business-to-business) for more than four years, it was Conwell’s best friend, cofounder and CTO who first made the phone call to say he wanted to quit their social gifting startup Given.to. Conwell could have gone on without him, but he didn’t like his odds. Conwell jumped from that startup to a new one but he quickly felt burnt out.

He said to himself: “I don’t feel it. It’s not there. I don’t want to do this anymore.”

Startup founders and small business owners alike should get comfortable with knowing what the end of a business can look like.

Prioritize your health and safety first.

Conwell is an adviser to many entrepreneurs now. He once got a text message from a founder that read: “I’m looking at a window, tell me why I shouldn’t jump out.”

Entrepreneurship is famously lonely, and stressful and scary. It’s a role that requires some degree of positioning, especially when battling against bigger competitions. That can be taken too far. Companies exist to help people, and as the owner-operator, you have to consider your own well-being. No business is worth your own mental health. If that’s degrading, it may be time to leave.

Resources for helping entrepreneurs close companies often stress this.

Use the crossroads.

In 2012, social gifting was hot. Facebook acquired a competitor for Conwell’s company. Several others were competing in the increasingly crowded space. By 2013, Conwell was pivoting his company. His team then had an opportunity — is this a mountain or a cliff?

“You can’t see the future. So there are crossroads. You talk to advisers, and you decide. Just fuck it, go and don’t look back,” Conwell said. They put another year into it, before ultimately closing. Any big moment is a chance to reassess and regroup.

Did you lose a big client? Are you missing revenue goals? Is your cofounder leaving?

As one investor put it to me over drinks once when my own cofounder was leaving: “Are you ready to reenlist for another three to five, or more, years?” Is that terrifying or thrilling? That’s your answer.

Listen to those you trust.

Most every entrepreneur would go on fighting forever for the version of the world they predict, if they didn’t listen to any outside perspective.

Hoagland maintained close relationships with customers, investors, advisers and friends. He’d speak with them often about progress. Over time their doubts grew — “I saw it in their eyes.” Hoagland and his cofounder were not seeing what they wanted to see. He wasn’t paying himself much. After two years, he was losing stamina. The ultimate metric, Hoagland said: “Check your passion.”

Hoagland became experienced with getting support from others, of being open and vulnerable. It’s hard but it’s guided him well. He said: “Learning how to ask for help is a skill.”

Without a push, you can survive in some way or another forever. But you want to avoid becoming a “zombie” company, one that isn’t growing or improving, but simply existing.

Know your options.

Don’t think of this like losing and winning. Many a prideful entrepreneur will dig in their heels, fearful of the repetitional risk of calling it quits. Take a moment to pull yourself out and consider your options.

Is there sensible merger or acquisition option? Those take time; do you have time? Remember what you set out to do; could you get it done at some other place? Conwell used to encourage everyone he knew to be an entrepreneur. That changed.

Everybody needs employee No. 2 — and 10, 20, 50, 100 and 500. “It’s not fair to push everyone into entrepreneurship,” he said.

Before starting Vetd, Hoagland worked at two other Philadelphia startups, RJ Metrics and Sidecar, where he learned important lessons and contributed. Today, he’s the head of revenue at nextmv.

“There’s not a single [job] interview I’ve had since that I would have come out looking better if I hadn’t started Vetd,” Hoagland said.

And Conwell is now an investor: “I didn’t even know what a startup was when we started,” he said. “I would have never been exposed to venture capital or met the the people I have. I would have never even realized what a network is.”

Those were roles they couldn’t have had without their startup experience. But to get there, they had to let go.

Imagine what you’ve learned and could do next.

Remember the odds.

Entrepreneurship is famously volatile.

(Table via the U.S. Small Business Administration)

Only 80% of firms started in 2016 were still active a year after forming. Half of new incorporations last five years, and just a third last a decade, according to the U.S. Small Business Administration. Two-thirds of those exits are closures, as opposed to mergers and acquisitions.

It can be small consolation but business closure is no rare outcome. The only thing that is shameful if you have learned nothing, or if you hurt yourself or others by dragging your decision along too long.

“It’s so personal. Everybody’s risk tolerance is different,”said Conwell. “If you believe in the product so much, and you are still enjoying it and have success … then you believe in it, and you should continue,”

You’ll always have stress as an entrepreneur. There’s no alternative. But if the bad days outweigh the good days, consider shutting down. Speak openly and honestly with those you trust. Be generous and learn.

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