When to Say When It's your business. Your dream. Your <i>baby</i>. And it's failing miserably. Is it time to call it quits?
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Perseverance, tenacity, a never-say-die attitude-these areall traits that drive entrepreneurs, against all odds, to buildmultimillion-dollar companies. But successful entrepreneurs alsoknow when it'stime to get out of a venture-whether to cuttheir losses or make way for better management.
You see, there's a fine line between perseverance andprideful obstinacy. When you fall on the wrong side of that line,you risk paying a huge price in terms of your personal andprofessional relationships, bank account, credit rating andemotional stability.
"There is a definitive point at which you and your companymay be better off parting ways," advises Gene McCubbin, 30,president and CEO of RealUse.com, a small-business Web hosting,applications and wireless broadband company based in Houston,Texas. "In some cases, that may mean dissolution of thecompany; in others, that simply means the company continues withoutyou."
McCubbin understands from experience. The first company hefounded was a small Web hosting and design firm with over 30,000customers nationwide and close to 130 employees. "How did Iknow it was time to go?" McCubbin reflects. "As mycompany was imploding around me, I arranged a merger deal with agrowing company in another state. My board voted down the mergerand approved a different deal that was much riskier. When the boardturned down the deal-based on their emotions instead oflogic-I knew we were moving along different paths and it wastime to resign."
McCubbin, however, didn't bail on his entrepreneurial dream.Six months later, he got back up and founded his second venture,RealUse, which today serves about 15,000 customers and generates $3million in annual revenue.
How can you tell whether you should keep going or pull out ASAP?That's a tough question-one that only you cananswer for yourself. However, there are warning signs or red flagsthat tell you something is seriously wrong and you should at leastconsider getting out before you accrue too much debt, damage familyrelationships or (believe it or not) impede your company'sgrowth. Watch for these four indicators:
1. Lack of market acceptance. "This is easiest tojudge when you're trying to raise money," says McCubbin."If no one wants to invest, you may have a problem."
Customer response is also a key indicator. If you haven'tdeveloped your product yet, are prospective customers willing togive you their time to offer guidance on the development? If not,re-evaluate whether there's a real need for your product. Then,once your product is developed, determine whether customers arebuying it. If customers don't want what you sell and youdon't adjust accordingly, persistence will only drive you intodeeper debt and frustration.
2. When your company outgrows you. Says McCubbin:"It is a rare entrepreneur who can transition his or her rolefrom a seat-of-the-pants startup to a mature, money-makingcorporation. Most people have skill sets to lead a company atcertain stages. For some entrepreneurs, the time to leave (or atleast step aside as head of the company) is when the company hasgrown beyond your abilities."
3. Partner conflicts. If you and your partner aren'tgetting along-whether because you're fighting over thecompany's direction or use of finances, or simply because yourpersonalities clash-don't try to ignore it. The situationwill not get better on its own. Bring in an investor and/orboard member whom you both respect and trust, and try to talkthings out. If this doesn't work, then for the sake of yourcompany, somebody should leave-whether it's you or yourpartner. The decision would depend on how much power you retain inyour company and what price you're willing to pay, in terms ofattorney's fees, potential bad publicity and emotionalstress.
4. Disagreements with investors and your board.McCubbin's situation with his first venture is a case in point.If you and your investors and/or board members disagree strongly onthe direction of the company, you may get squeezed out, unless youcan persuade enough voters to side with you. If you don't havethe votes to exert influence, it may be time to walk.
Remember, know when to say when. "Anyone can see it'stime to bail when the lights are being shut off and employees areall walking out with staplers, laptops and fax machines,"quips McCubbin. "One of the worst things to watch is anentrepreneur who continues with a business regardless of outsideindicators that say, 'Hey! The party's over!'"
