So, after all the saving, making and sustaining your startup, we most of the times forget that sometimes it cannot be mended. The only thing worse than failing with your startup, is sticking with a doomed one long after its fate is sealed.
Let’s acknowledge the reality – you loved your startup idea, which is why you founded it. It’s hard for your self-esteem to say that your idea is bad or you don’t have the skills to execute it. So, you’re a terrible, biased judge of the validity of your own business. If you believe in your business, but every investor and potential employee thinks you’re wrong, then they’re probably right.
Steve Blank once said that, if three months have gone by and no new investor, employee, or client has joined you, then that’s probably a sign you should pivot (if you have cash left) or shut down (if you don’t).
Leaving a good impression before you shut down
As such, if the sun is setting on your startup, it’s important to craft a final impression that leaves everyone with positive thoughts about you and your company.
Unfortunately, startups usually shut down when their company is in full-on disaster mode – you’re stressed out, your relationships are conflicting and your resolve is destroyed. Nevertheless, you must take action in order to end the turbulence with as much poise as possible. You can’t change the past, but you can certainly determine how you are remembered.
Warnings that you can’t miss
Here I would list down a few warning signs that you may need to drastically change or close down your business.
- You are losing money and losses are increasing
Businesses do often lose money in the first few years of operation as they ramp up and try to take advantage of economies of scale. However, if the losses are increasing, not dwindling, there comes a point where you have to look at your business model and decide whether it’s realistic to assume you’re going to be able to ‘grow out’ of your losses.
- Inventory turnover slowing down
If your business is selling a product or products, then having those items on the shelves longer than usual is indicative of a business slowdown.
- Unable to raise more money
We have known so many stories about how a venture was doing all right until a loan application or line of credit renewal was turned down. You never know but a loan rejection can be a reality check for someone who thinks his/her current problems are only temporary. Maybe the bank’s analysis indicates the property is not profitable at the purchase price. Maybe the bank feels that the numbers don’t leave enough margin of error to protect it against a decline.
- Validity of fundamental assumptions underlying your business
For instance, an auto repair shop assumes that drivers will need to get their cars fixed and maintained. Now look at your own business and ask yourself – What are the fundamental assumptions underlying your business? What are you depending on your customers wanting or doing? In this economic climate, are those assumptions still valid? If the answer to the questions above is a ‘No’, then closing your startup might be the right option.
- Not enjoying your work
There is a saying, ‘Choose a job you love and you will never have to work a day in your life’. The same goes for your startup. If you get up in the morning and you can’t stand the thought of going in to run your business, if the great dream of self-employment has become your own personal little nightmare, it’s time to take a hard look at shutting down. Chances are you’ll benefit at least in terms of your mental health — and it’s hard to put a dime value on that.
Hibernating, an option
If you still believe in your business and think you can turn a profit once the economy rebounds, instead of shutting down your business for good, you could put it into hibernation. To go into hibernation, you would basically need to reduce your business to its core by cutting all excess costs and suspending part of your business operations. Hibernation would be an option only if you have other sources of income – either you have a family backup or you find a temporary job on the side.
In the end
In the life cycle of an entrepreneur, shutting the doors on a business isn’t necessarily a gloomy situation. The end of one venture often signals the start of something new and the beginning of the next exciting journey. This is particularly true in the fast-paced high-tech world, where only a small percentage of startups mature. Yet to embark on the next project, you’ll want to properly close the books on your previous company.
Stay tuned to read about how to close your startup, the right way!