In business school we have the chance to learn not only from frameworks and theories but also from looking at what other people have done. In our Founders’ Dilemmas class at HBS we spent time learning about the experiences of several entrepreneurs and discussing how each of them acted when faced with the tough decision to exit their business. Having the benefit of hindsight and sitting in a safe classroom with no exposure to the risks and stress these founders faced in difficult times, it is very easy to make quick judgements and call out the mistakes they made. It is easy to have a debate, exchange opinions and judge whether or not their final decisions made them worthy of being put in the bucket of entrepreneurs who “failed gracefully” or in the bucket of those who did not.
However, the truth is that there is no right or wrong answer. We could spend hours giving reasons to defend why an entrepreneur should be put in one bucket or the other. Having said that, I am a firm believer in always trying to come up with takeaways from each experience. I believe that these will be somewhat different for everyone. But even keeping in mind that each person is different and has a different set of priorities in life, there are a few things that could help us when having to decide if closing our business is the best answer.
- Keep your priorities straight. Ask yourself before you even found your business: “What does failure mean to me?”. Is success defined as being able to provide for your family? Is it building a billion dollar company? Is it making profits of $X million by year 2? Is it taking care of your employees? There could be tens of things you are trying to achieve but it is very important to know which ones have a higher priority to you. This will make it easier for you to decide, if the time comes, if it is worth continuing your business or if it is better to close down ASAP.
- Timeline and milestones. Make sure you set up a timeline with clear milestones for the company from the beginning and share these with your employees. This will serve to motivate your team to work towards certain goals but also to keep them and yourself accountable. If your team is consistently missing deadlines, you should ask yourself if the goals are unattainable or if the company simply does not have the capability of reaching them. In either case, closing down or selling the company to a player who can grow the business and achieve those milestones might be the better option.
- Give yourself some wiggle room. There is always the chance that pushing a little harder or trying a little longer could make the difference and turn your startup into a fast growing success. You should give yourself some wiggle room (both time wise and financial wise) to be able to go with your instinct in these situations. Set up the conditions in which you would be able to move forward even if your team has not been able to achieve a certain milestone.
- How do investors feel? Keep investors in the loop and check how they feel and what they are thinking. Be honest with them at all times (this will build a relationship of trust) and share your concerns with them. Ask them honestly if they would move forward if they were in your shoes. If not, why not? Ultimately, you should make the final decision, but it is important to remember that entrepreneurs get blinded. They are too committed and sometimes they live in a distorted reality. Since not everyone has co-founders with whom to discuss these issues, it is helpful to remember to do so with investors who also have a stake in the business.
- Always have a successful exit strategy in the back of your mind. Drive the business by asking yourself: “What increases the probabilities of succeeding?” and try to have each milestone develop an attractive enough feature (broad customer reach, database information, etc) that would make your company a desirable acquisition.