legal, founder, exitAt some point, most startups reach the point that it’s time to pull out, and cut your losses/earnings off; clearly applies to both investors & founders. How do you know when to walk away from a venture and how to you best position yourself to do so?
My first startup was a consulting firm that was doing well until the tech sector crashed. I'll skip the painful details. The main point here is that I hung on too long, making payroll with help from my three investors:Visa, Master Charge and American Express.
I ended up digging a very deep dark hole before packing it in. It took a long time to get out of that hole and I'll never take on personal debt again.
That's my answer: Pack it in before you take on (too much) personal debt.
See:
Mark Cuban: Only Morons Start a Business on a Loan
EDIT:
To generalize my answer a bit, figure out what your KPIs are and watch how they're trending. Set a threshold ahead of time for when a negative trend would be unlikely to turn around.
You might also be able to compare your KPIs to the industry norms.
You ask 2 questions: when, and how.
When: I sold my first business (a similar dilemma, but different) and I keep asking myself this question about the one I run today.
I think it’s not a ‘when you reach the point’ question but one that you need to answer daily - are you holding on because you believe you can win or because you fear the pain of admitting failure? Life in a startup are hard very often, but the question is your believe in the the light at the end of the tunnel - once you understand you’re just hoping things turn out OK, and don’t have real reasons to back it up or plan to get there, it’s time to pull out.
How: I think you’re managing the break off just as you manage the business. For me it means putting my feelings on the table with my partners, discussing, and seeking answers together. Maybe the’ll convince you there’s a chance, maybe the’ll buy you out, and probably the’ll agree and you’ll think together what to do (close, try to sell, pivot…).
Remember, failing doesn’t mean you’re a failure. if done right :) Good luck.
1. If you know it’s not working and nothing’s changing then it’s time to walk away
2. If you’ve hit the time and cash buffers you agreed (or if you never did agree either, but when you add it all up you know you never would have agreed it) then it’s time to walk away
3. If you’ve been stuck at 90% ready for six months and you have good evidence that you’re either trying to solve a problem that’s beyond you, or that the target is getting further away as the world is moving on, then it’s time to walk away
Of course, it could be that the event of you leaving could be just what’s needed for the venture to become successful. That’s happened to me, and it’s painful; just like sometimes I’ve been the missing factor and my arrival has helped push a venture on to success, and that’s been painful for others.
As you observe, the vast majority of startups won’t succeed. Your odds of personal success increase markedly if you know how to stick it out through the bumps in the road that will kill your competition, but also when to jump before the road ends at a cliff.
Always be prepared to walk away.
Acting like this could be your very last day with this startup has many benefits.
As a summary, preparing yourself for the instant exit gives you the ability to enjoy the life as a founder. Carry on working as long as it makes you happy, and if for some reason it doesn’t, do something else.
You may lose some potential money in the process, but you may just save that much in antidepressants!
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