How to talk about when it’s time to pull the plug on a startup

How to talk about when it’s time to pull the plug on a startup

Western culture, as a whole, is not great at talking about death. Sure, people happily watch armies of the undead munching on the few remaining humans in The Walking Dead every week, but when it comes to a serious, sober conversation about The End, we avoid it like it’s a zombie horde.

And with good reason. It’s not a particularly pleasant topic to consider when applied to ourselves or the ones we love. As a father of three, I see a visceral reaction when I try to talk about it with my kids. It’s as if deep in our lizard brains we fear that just by talking about it, we might make it happen.

Oddly enough, I see the same behaviour mirrored in startups. It seem like if you talk about the failure and death of a company, you risk creating a self-fulfilling prophecy. Even though I believe I approach the topic rationally enough, I find myself feeling weirdly nervous as an investor talking to CEOs in our studio about company death. When I examine these feelings, I think it comes down to worrying that my CEOs will feel like I don’t trust them to do their jobs, and that this will demotivate them at a critical moment. 

My concerns are not unfounded. CEOs do get nervous when I talk about company death, as if the conversation signals a lack of commitment to the companies we are fostering. So we don’t talk about it as often as we probably should. When we originally put together our startup studio model, we would meet with our companies at least once each month to talk about the three Ps:

  • Pivot
  • Persevere
  • Perish

I was reminded of this just last week when one of our CEOs brought up the subject of company death during a discussion about a decision-making matrix of possible outcomes. It was a relief to both of us that this topic was on the list, as it helped us sort through outcomes. This is exactly why entrepreneurs need to talk about when it’s time to pull the plug on a business, even if failure seems a distant possibility.

Knowing when it’s time to gas a startup can save you a lot of heartache, work, and money. By establishing parameters for what constitutes failure, you’ll be better able to recognize the signs of when a business has reached the point of no return. You’ll know when it makes sense to quit or persevere.

 

So what are some of the things you should talk about?

 

Exhaustion

Whether it’s financial exhaustion or personal exhaustion, either can kill a startup and shred your personal life. In either case it’s better to see the end coming and act preemptively so as to avoid the damage of a crash and burn. It’s common practice to establish growth targets, but you should also establish indicators that will let you know when your finances will go critical and you’re reaching the end of your rope personally. This could mean anything from losing your passion for your idea to losing your passion for everything else.

 

What if nobody bites?

Keeping in mind that 90% of startups fail, it’s entirely possible yours will be one of them. And since the most common reason for failure is because nobody is interested in the product, this might very well end up being the reason. Or maybe no matter what you do, you can’t get investors to bite, meaning you simply don’t have the funds you need to continue.

You pivot and pivot, but find no joy. What will you do?

Not meeting your growth targets is one thing, but what does the other side of the equation look like? What if uptake has been dismal? How much anemic growth is too much? Considering this as a serious possibility isn’t easy for serial optimists like entrepreneurs. But consider it you must.

 

The shifting market

Even if you’ve gone through a thorough process of market validation, there’s a lot that can happen between that time and when you are ready to start shipping product. Things move fast. Maybe somebody beat you to market with a superior product. Or — and god help us all — maybe there really was a bubble and it’s burst.  

Will you continue to pivot? Does it make sense to seek an acquisition opportunity? Having a plan, or even a plan to make a plan, can make possibilities such as these much less daunting should they come your way.

 

Talent flight

When attracting and/or retaining employees becomes a grueling task, and you know it’s not an external force, you might be in trouble. Employees are often like canaries in a coal mine. With their own self-interest at stake, they might see your company in a way you cannot.

Planning ahead can help you avoid being taken by surprise by a mass migration. Be prepared to conduct exit interviews. They could yield valuable insight into whether or not there are problems you can still fix, or just how much life your company has left.

Takeaway: Develop a balanced mindset

I really do think you can dwell too much on the topic of company death, and that talking about it too much is demotivating and potentially destructive. So it’s all about finding a balance that allows you to examine the possibility and how you might handle it, while not letting yourself drift into the kind of pessimism that could torpedo your company.

Joshua Bixby

Like most tech troublemakers, I’m a problem-solver who likes to explore new ideas and play devil’s advocate (not necessarily in that order).

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